Operator: Our next question comes from the line of Dana Telsey with Telsey Advisory Group.
Dana Telsey: As you think about the strength of some of the smaller businesses like Free People Movement and now Nuuly with reaching profitability earlier, what do you think the opportunity for them is, and just early thinking about framing 2024 and the incremental improvement potentially to gross or operating margins from those businesses? And lastly, just on the gross margin discussion of the higher IMU and lower markdowns, is there opportunity to continue this going forward in this environment, or is there any changes that you see in the structure of IMU or markdown cadence? Thank you.
Richard Hayne: Okay. Dana, I’ll take the first part of that question and then pass it along both to Sheila, who will talk about Free People Movement and to Dave, who will talk about Nuuly. I’m glad you asked the question because we collectively here at URBN are extremely excited about what you’ve called the smaller businesses because we think they won’t be smaller for that long. We think both Nuuly and Free People Movement have an opportunity to be $1 billion plus brands. And I can’t tell you that’s going to happen in FY25 because I know it won’t. But I think it is going to happen much quicker than any of our other brands reached $1 billion. And so, Sheila, would you like to talk about Movement?
Sheila Harrington: Sure. I’ll start. Yes, we’re excited about FP Movement. The metrics that we’re reading just indicate that we should invest with as much speed as we possibly can, which Dick has been encouraging us to do all along. And with this speed comes scale, in that scale, it comes IMU. So I do think as we continue to grow the FP Movement brand with nearly doubling our store count with at least 25 new stores next year and a robust digital and marketing strategy attached to attracting new customers. So, there is only upside in terms of IMU from the depth of our buys frankly. And there’s a lot of strategies that have been in long work to be able to take advantage of that scale, Dana.
Richard Hayne: Okay. Dave, do you want to take Nuuly?
Dave Hayne: Yes, sure. Dana, thanks for the question. We’ve been having a lot of fun building the Nuuly business. We see a lot of opportunity with the Nuuly business to continue to grow. It’s been really interesting to learn a new business, and there’s been a lot of interesting learnings from it. I think one of the most interesting learnings that we’ve seen is that we’re really growing a new market. We don’t see ourselves necessarily always stealing share in the Nuuly business. We feel like we’re growing a new market and rental is a new concept that people have to learn. The indicator that kind of gives us that impression is that when we see — we survey all of our new subscribers and when we see new subscribers join Nuuly, roughly 60% of them have never rented from anybody before.
So, it really feels like we’re bringing new customers into a new consumption model, which just gives us a lot of excitement for the future and where this can go as more and more people come upon the idea of renting. So, I think that’s a really exciting thing. And then I think also as we continue to scale on the infrastructure that’s going to be supporting Nuuly, opening our next warehouse in Raymore, Missouri should allow us to really drive down a fair amount of our variable costs across our delivery and shipping costs. So, those types of things are just going to allow us to continue to leverage as we continue to grow. So, fun times at Nuuly.
Frank Conforti: I think, Dana — this is Frank. What’s really exciting is when you think about our goal of getting to the 10% operating profit. And obviously, we, knock on wood, have made some really nice progress in the first three quarters this year, and I think we’re going to continue to make progress towards that goal in the fourth quarter and rounding out fiscal ‘24. Then you start to think about the levers that can get us there that we can pull on. We do talk about improved IMU across all three brands. There is nothing structurally that we believe that we’re done yet in driving IMU improvement. We talk about Nuuly, reaching their milestone of hitting operating profit and being able to build upon that into fiscal ‘25 and going forward.
We talk about FP Movement, which is producing 55% growth just now in the third quarter and a double-digit operating profit rate, right? So they’re going to continue to have outpaced growth versus some of our other businesses and meaningfully contribute to our operating profit growth. As we talked about, Urban Outfitters, currently not running where they historically have. But, as that business begins to turn around contributing into our operating profit growth next year as well, there’s really just a lot of opportunity across the table for us to build upon the progress that we’ve made this year and hit that 10% operating profit goal and continue to run there on a longer term basis.
Operator: Our next question comes from the line of Janet Kloppenburg with JJK Research Associates.
Janet Kloppenburg: Dick, when you think about Free People Movement and its success, Dick and Sheila. Do you think that we should anticipate an acceleration of store openings for that brand, while the Free People store openings continue? And should we think that that’s an opportunity for unit expansion to accelerate as we look forward? And then just on the recent sales slowdown, could you — and I know it’s slight, Dick, I’m not hysterical. So I just wanted to understand if it was attributable to sort of warmer weather in many markets or any sort of geographical or category dispersions that you’re seeing?
