Comps are coming in better than expected QTD up +LSD according to URBN’s latest 10-K update. With substantially cleaner inventories coming out of Q4 we see upside to current earnings expectations for one of our Top 3 longs. While we are still in the early stages of the turnaround underway, this is certainly a favorable sign that progress is indeed headed in the right direction.
Below is a list of recent management changes and some highlights from the Q4 call (March 12th):
Management changes (Nov 2011 – Present):
- Dick Hayne returning as CEO, Jan 10, 2012
- Frank Conforti as CFO, Mar 21, 2012
- Ted Marlow: Urban Outfitters CEO, Feb 6, 2012
- Charles Kessler: Urban Outfitters CMO, Oct 31, 2011
- David McCreight: Anthropologie Group CEO, Nov 7, 2011 (Also overseeing BHLDN)
- Wendy McDevitt President of Terrain, Nov 7, 2011
“The penetration of full-price selling has improved over the fourth quarter. So, we're selling more full-price items as a percent than we did in the fourth quarter, and that is one of our goals for this year is to improve the penetration of full-price selling. So, we're happy about that.” – Richard Hayne, CEO
“There remains a great deal of expansion ahead within our existing customer segment, existing distribution channels, and existing geographies. Our recent issues have been largely self-inflicted. Amidst a great deal of organizational change, we drifted away from our aesthetic positioning and the merchandising disciplines that built our strong and unique relationship with our customer. We will recapture those essential qualities.” – David McCreight, CEO Anthropologie
“Our retail team is working diligently to distort our store assortments by addressing different climates, as well as regional fashion trends. As of this quarter, we are fully staffed in operations, styling and visual roles, while training new management in the field. Our momentum has continued into the spring season. Direct and Wholesale channels are off to a strong start.” – Margaret Hayne, President Free People
“Our sights are set on course correcting our shortfalls with improved content, inventory quantification and creative execution. Thus, our mission at the moment is to improve the performance of our core Women's business. In general, our Men's and Home businesses have performed well in North America and Europe, while our Women's businesses have underperformed. I view our shortfall in Women's as quite fixable.” –Ted Marlow, CEO Urban Outfitters
Below is an excerpt from our 3/22/12 note, URBN: A Winner in 2012 outlining our thesis:
This is one of the few companies that can put up double digit square footage growth over the course of our 5-year model – and likely beyond. It’s not married to one concept that will simply max out growth when it runs out of malls – like what we saw at brands like Gap, American Eagle and Ann Taylor. We don’t think that its two major brands – Urban Outfitters and Anthropologie – are broken. They had fashion problems over the past year, which we think stem from poor execution by management. Fashion is a tough business, but when the right buying infrastructure is in place, there shouldn’t be a whole lot of risk for a company that sells third party brands. Rather, URBN got sloppy in both product selection, quality and even PR. It lost sight of who its customer is, and merchandised accordingly. Yes, there is a customer ‘piss off’ factor that hurts for a time. But ultimately if URBN has the right organization in place, it will have the right product, which it will then sell to the right customer.
The good news from our perspective is that a merchandising issue like this for a vertically integrated company often takes 1.5-2-years to fix. But for URBN, we can see results much sooner. We saw CEO Glen Senk ‘step down’ in early January, and we saw founder Richard Hayne – who is extremely well liked and respected by the organization - stepping back in totake control. Ted Marlow is also back heading the Urban Outfitters brand, after leaving when Senk was chosen for the CEO role.