Urban Outfitters Inc

NASDAQ:URBN

Earnings Call Transcript 2025-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. First Quarter Fiscal '25 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Onna McCullough, Executive Director of Investor Relations. You may begin

[Oona McCullough, executive]

Good afternoon, and welcome to the URBN First Quarter Fiscal 2025 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3-month period ending April 30, 2024.

The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission.

On today's call, you will hear from Richard Hayne, Chief Executive Officer of URBN, Frank Conforti, Co-President and COO URBN; and Melanie Marein-Efron, CFO URBN. Following that, we will be pleased to address your questions.

Please note, today, we will be speaking to our financial results on an adjusted basis, which does not include nonrecurring adjustments for onetime store closure and impairment charges. The effect of these items is detailed in our press release as well as the investor presentation that is posted to our URBN Investor Relations website at www.urbn.com.

I will now turn the call over to Dick.

[Richard Hayne, executive]

Thank you, Onna. Good afternoon, everyone, and thank you all for joining our call today. In my introduction, I'll make some quick remarks regarding our results, give some updates on the Urban brand and then discuss the mood of our customers. After that, I'll turn the call over to Frank and Mel for a more in-depth review of our results and our thoughts on the remainder of the year.

Put simply, URBN's first quarter results were outstanding and topped our expectations. 4 of our 5 brands posted record first quarter revenues and 3 posted record operating income. The Anthropologie, Free People, FP Movement and Nuuly brands all produced double-digit revenue growth.

These brands are delighting their customers, capturing additional market share and executing in a best-in-class level. Combined, the 4 brands more than offset continued softness at the Urban Outfitters brand. At the Urban brand in North America, the new senior team has begun to make changes in how the brand operates. This includes initiating a more robust breed and react process to take advantage of our speed-to-market capabilities lowering some prices in several product categories, including women's accessories and home goods and changing the marketing strategy by investing more and differently in social media.

At the same time, the team began to fashion a strategy based on information gleaned from surveys, focus groups and brand history. Toward the end of the quarter and into May, customer reaction to these changes has been encouraging. Both the women's accessory and home categories have delivered positive comps and we've registered more new digital customers in the last few weeks. Small wins for sure, but trending in the right direction.

Frank will speak more about the Urban brand in his commentary, and Sheila and Shea will share more about the strategic review on our call in August. Rest assured they're returning the Urban brand to profitability and growing their customer base remains our #1 priority.

Turning now to the health of the customers at all brands. As a group, we believe they are currently in good shape, enjoying both solid job security and incomes that are rising slightly faster than inflation. They are still excited by our new fashion offerings and traffic in stores and online remains strongly positive, but their purchases are slightly more considered than last year.

Overall, I would classify the customer mood this versus last year as enthusiastic rather than exuberant. We believe this new mood is healthier because it's more sustainable.

Now with that, I'll turn the call over to Frank.

[Francis Conforti, executive]

Thank you, Dick, and good afternoon, everyone. Today, I will discuss our total company first quarter results versus the prior year, followed by some more detailed notes by brand.

As Dick noted, the first quarter performed ahead of our expectations as discussed on the fourth quarter call. Total URBN sales grew by 8% to a Q1 record of $1.2 billion and 4 of our 5 brands continue to perform exceptionally well, posting record first quarter sales.

Our sales growth was driven in part by a Retail segment comp of 5%. The Anthropologie, Free People and FP Movement brands all produced double-digit retail segment comp growth, more than offsetting the negative double-digit comp at the Urban Outfitters brand. Nuuly also delivered robust double-digit revenue growth due to a 56% increase in subscribers versus the prior year.

Additionally, the wholesale segment increased revenue by 3% and driven by an increase in the regular price sales at Free People. So far in May, trends have remained solidly positive for total company and 4 of our 5 brands. Although the second quarter comparison from the prior year is difficult, we believe Retail segment comps could grow in the low single-digit range.

Positive retail segment comps, combined with robust revenue growth from Nuuly and single-digit revenue growth in the wholesale segment could result in a mid-single-digit increase in total Q2 URBN sales.

Moving on to URBN gross profit. Adjusted gross profit dollars, excluding the onetime store closure and impairment charges totaling $4.6 million, increased 11% to $413 million, while our adjusted gross profit rate increased by 106 basis points to 34.4%.

The improvement in adjusted gross profit rate was primarily due to increased initial margins at all brands. These improvements were partially offset by a higher markdown rate at Urban Outfitters as the brand continues to need incremental discounts to move through inventory.

We also experienced deleverage in logistics due in part to onetime expenses related to the opening and transition of subscribers and inventory into our second Nuuly fulfillment center.

Now moving on to SG&A expenses. For the quarter, SG&A increased 11% versus the prior comparable quarter and deleveraged by 87 basis points. The deleverage was primarily due to the Urban Outfitters brand not being able to reduce SG&A at the same rate as sales decline.

As we noted on our previous call, while we did reduce our SG&A spending at the Urban Outfitters brand in Q1, we did not believe it was prudent to reduce expenses at the same rate of sales. The increase in total company SG&A expense was largely due to increased marketing spend, supporting the double-digit sales growth at Anthropologie, Free People, FP Movement and Nuuly brands.

It is important to note, not only did these brands deliver double-digit sales growth, each of these brands also delivered double-digit customer growth.

Total adjusted URBN operating income, excluding the onetime store closure and impairment charges, increased 11% versus last year to $79 million and adjusted earnings jumped 23% to $66 million or $0.69 per diluted share.

I will now provide more details by brand, starting with Anthropologie. The Anthropologie team delivered a strong 10% Retail segment comp in Q1 and total revenue growth of 11%, and -- recording the fifth consecutive quarter of double-digit comp growth. Positive comps were driven by double-digit growth in both the store and digital channels.

By category, apparel, shoes,and accessories delivered nicely positive double-digit Retail segment comps in the quarter. Within apparel, there is broad-based strength across categories with outsized growth in some of the more casual categories. Strength in these categories was partially offset by a decline in Home where furniture remains negative.

Within Home, the gift and entertaining category is nicely positive driven by consumers investing in decorative categories to refresh their homes. The Anthropologie team continues to execute exceptionally well on their strategic initiative of acquiring new customers and further engaging existing customers.

During the quarter, both new and active customers increased by over 18% versus the prior year. The brand continues to make strategic marketing investments, supported by outstanding creative content which drove double-digit traffic increases in North American stores and double-digit digital traffic increase during the quarter.

Impressive sales growth and healthy margin expansion coupled with well-managed expenses, drove record brand operating profit dollars for the first quarter. As we enter the second quarter, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of categories. We continue to believe the brand can deliver mid-single-digit comp growth for fiscal year 2025.

Next, I will call your attention to Free People. Once again, the Free People team produced an outstanding quarter, with Retail segment comps achieving an impressive 17% gain. The Retail segment comp was driven by double-digit comp growth in both the digital and store channels.

During the quarter, the brand achieved strong double-digit growth across apparel and movement.

The FP Movement brand delivered another strong quarter, achieving 25% retail segment comp growth. Record sales and improved margins helped Free People delivered record first quarter operating profit dollars. Customer response to the brand summer trends has been strong, and the brand continues to gain market share. We believe the brand could deliver a high single-digit comp on top of the unbelievably strong 27% Q2 comp from last year.

The Free People Wholesale segment sales increased 6% during the quarter, driven by full price sales gains in department and specialty stores, partially offset by an intentional decline in sales to the closeout channel. The FP Movement brand led the way with strong sales growth in the quarter.

Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels. We believe the Wholesale segment could continue to deliver improved profitability versus last year, while Q2 sales could be slightly positive.

Now moving on to the Urban Outfitters brand. Urban Outfitters recorded a 14% Retail segment comp decline in the quarter. This was largely in line with our expectations when we spoke with you in February. UO's negative comp was a result of disappointing performance in both North America and Europe.

Global Retail segment comp declines were driven by double-digit declines in both the digital and store channels and all product categories were negative.

As you know, new leadership joined the brand in North America in February. This team spent much of the first quarter assessing the health of the business and aligning on their strategic priorities going forward. You will hear more from this team on the August call.

Month to date, the brand sales trends in North America have shown early signs of improvement, more so in the digital channel than the store channel. This improvement has been fueled in part by women's accessories and home categories, which both delivered positive sales on a regular price and total comp basis in North America in the month of April and have continued that trend in May.

Women's and Men's apparel have not shown the same improvements. Therefore, during the second quarter, the brand plans on cleaning out slower moving inventory in these categories. clearing the way for fresh looks and updated pricing architecture for the important back-to-school season.

These adjustments will likely result in elevated markdown levels in the second quarter, but we believe will give the brand an opportunity to show improved regular price sales and product margins in the back half of the current year.

Marketing strategies have also been a huge focus for the brand. The brand is encouraged that some of their recent adjustments to distribution channels, content and community conversations have resulted in growth in new and total customers on the digital channel for the first time in quite some time.

These results are very early, representing improvements only seen over the past few weeks, but are encouraging that the brand and teams are heading in the right direction. We believe the brand could deliver gradual comp sales improvements as the year progresses, with improvements in comp sales for the second quarter, followed by further improvement in sales and product margin in the back half of the year.

Finally, I will touch on the Nuuly business, which delivered another exceptional quarter. Nuuly added over 50,000 active subscribers versus the fourth quarter, ending the quarter with over 244,000 active subscribers and over 224,000 average active subscribers for the quarter.

As we have noted, Historically, Nuuly experiences the most significant growth in subscribers during the seasonally strong first and third quarters. Strong growth in subscriber counts continued in early May and the active subscriber count today is now over 0.25 million milestone.

During the first quarter, the team began transitioning to our second facility in Raymore, Missouri. This facility will support future subscriber growth by tripling the brand's total capacity. As of today, over 60,000 subscribers are being served from the facility, which we plan to ramp to 50% of total subscribers in the back half of the year.

The new facility supports the outsized growth of the brand and enables us to deliver our new lease faster with a lower delivery cost to certain customers based on geographical proximity.

As discussed on the fourth quarter call, this transition led to incremental and some nonrecurring costs in logistics, which will continue but abate in the second quarter. Excluding these expenses, the Nuuly brand would have been profitable in the first quarter.

We believe the brand could deliver a small profit for the second quarter and will be profitable on a full year basis for fiscal year 2025.

Thank you for your time. I will now turn the call over to Melanie Marein-Efron, our Chief Financial Officer.

[Melanie Marein-Efron, executive]

Thank you, Frank, and good afternoon, everyone. Now I will discuss our thoughts on the second quarter financial performance. .

We are pleased that overall consumer demand has remained strong to start the quarter, and we're planning for this strength to continue throughout the second quarter. Right now, we believe that second quarter total company sales growth could be mid-single digits.

Sales growth in Q2 could [ go up ] from low single-digit growth in Retail segment comp and Wholesale sales. In addition, we believe the New Lease segment sales growth could be mid-double digits.

Now on to gross profit margin. We believe URBN's gross margin rate for the second quarter could decline by approximately 75 basis points compared to the prior year second quarter. While we believe we can continue to see improved initial product margins at Anthropologie and Free People, those improvements are unable to offset the continued weakness at the Urban Outfitters brand.

The reduction in gross profit margin at the Urban Outfitters brand could be primarily due to depressed product margins and occupancy deleverage because of negative sales performance. We do believe URBN can return to delivering gross profit margin growth in the back half of the year, as well as our full year plan of approximately 50 to 100 basis points of gross margin improvement compared to the prior year.

Now moving on to SG&A expenses. Based on our current sales performance and plan, we believe SG&A growth for the second quarter will increase in the high single digits. Our planned growth in SG&A could be primarily driven by higher marketing expenses to support growth in customers and sales at Anthropologie, Free People, FP Movement and Nuuly.

The deleverage in SG&A primarily relates to the Urban Outfitters brand, where we have reduced expenses, but not at the rate of sales decline. While we believe SG&A growth could outpace sales growth in Q2, and -- we also believe that SG&A expense growth in the second half of the year will be more closely aligned with sales growth.

As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing. We are currently planning our effective tax rate to be approximately 24% for the second quarter and 24.5% for the full year.

Now moving on to inventory. We believe that inventory levels in the second quarter could grow at a rate below sales growth. The teams continue to be focused on speeding up inventory turns and managing to fewer weeks of supply. Capital expenditures for the fiscal year are planned at approximately $210 million.

The FY '25 capital project spend is broken down as follows: approximately 50% is related to retail store expansion and support, approximately 25% is related to logistics capacity investments, including the Nuuly Rental Fulfillment Center in Raymore, Missouri, which opened in the first quarter, and the remaining 25% would be our normal capital investments supporting IT, home office and logistics operations.

Lastly, we'll be opening approximately 57 new stores and closing approximately 21 stores during fiscal year '25. Our net new store growth is being driven by growth in FP Movement, Free People and Anthropologie stores.

During fiscal year '25, we plan on opening 25 FP Movement stores, 13 Free People stores and 13 Anthropologie stores. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward-looking statements.

Now I'm pleased to turn the call back over to Dick.

[Richard Hayne, executive]

Thank you, Mel. Before turning the call over for your questions, I wish to thank our co-presidents, the brand design and shared service leaders and their teams and all associates worldwide. Our outstanding Q1 results are a direct product of your creativity, determination and hard work. So thank you. .

Thanks also to our many partners around the world. We appreciate your significant contributions to our success. And finally, thanks to our shareholders for your continued support. That concludes our prepared remarks.

Now for your questions.

[Operator]

Thank you. [Operator Instructions]. Our first question comes from the line of Adrienne Yih with Barclays.

[Adrienne Yih-Tennant, analyst]

Congratulations. Dick, this question is directed for you. I think you're uniquely qualified to speak about kind of the what I call the silhouette shift, sort of going from the big over little to the little over big trend.

I want to know where are you seeing sort of the biggest confidence in uptake at the different brands? And I guess, this seems such a trend for Urban Outfitters. So what categories are you exiting? And have you clearly identified some of the key trends that you're going to chase into in July?

[Richard Hayne, executive]

Well, let the Urban group talk about that. But I would tell you, overall, I would say from a silhouette point of view, I think we started talking about this in 2018 or '19 that there was a switch in the silhouette to a little over big.

I would say we're about midpoint in adoption of that right now. And I would say it's firmly established in not only our customer group, but in the mass. And I think that you might start in the next few years seeing little hints of a reversal. But let me talk -- let me see a Free People or Anthro people who want to talk about what they're seeing in silhouette in their brands.

[Shea Jensen, executive]

Adrienne, it's Shea. I can start. I think, as I would describe it, 1 of the biggest things happening is proportionality in silhouette, and I think we're definitely seeing that. And being new to the brand, your question was what are we chasing into?

I would just say it's been really exciting to see the opportunity that we have here to leverage speed to market, which is a real gift as we're able to actually chase into stuff. And we're really focused on the proportionality, whether that's big on big or little long little or the mix of both.

[Tricia Smith, executive]

Yes. I think, Adrienne. it's Tricia. The full kind of adoption of a wide range of bottoms is really like driving some pretty significant results for Anthropologie.

The range of silhouettes and bottoms, but also the proportion, I think, within Anthropologie has changed pretty significantly in a really exciting way, and we're continuing to chase down those trends as we go forward.

[Richard Hayne, executive]

You want to say anything about Free People.

[Sheila Harrington, executive]

Yes. [indiscernible] Free People left out.

[Richard Hayne, executive]

No, no. We're not going to leave Free People out, believe me.

[Sheila Harrington, executive]

Yes. I think the Free People brand has been embracing this trend. They quite like it. and it's been fun to sort of see them maximize this over the past several months. We are excited to start testing it what's next. So to stay ahead of the game.

[Richard Hayne, executive]

Okay. Thanks. Thank you, Adrienne.

[Operator]

Thank you. Our next question comes from the line of Matthew Boss with JPMorgan.

[Matthew Boss, analyst]

So Dick, you cited robust demand for spring/summer fashion supporting the second quarter. Could you just elaborate on more recent trends you've seen in May across banners maybe relative to the first quarter?

And then Melanie, just on inventory at the Urban Outfitters brand, as you look across categories, what are you seeing? What are the actions that you've put into place? And just your confidence in back half merchandise margin expansion.

[Richard Hayne, executive]

Okay. Matt, the Retail segment comp performance for Q2 so far in May. It's just slightly softer than our Q1 period. were the biggest difference in the Free People brand.

Free People is currently posting mid-single-digit positive comps. And this is because they're anniversary-ing what I would call an ultra positive 27% comp from Q2 last year. But if you look at it on a 2-year stack, Free People comps remain very consistent across the 2 quarters.

Now at the Urban brand, we're experiencing somewhat better Retail segment comps, as both I and Frank alluded to, with brand comps improving to high single-digit negative from where they were in Q1 at a team related [indiscernible]. Overall, we think that the Urban Retail segment comp for Q2 should be about 3%. That's our best guess.

[Melanie Marein-Efron, executive]

And then Matt, this is Melanie. I just wanted to cover your inventory question. So at a URBN basis, we're really in a much improved position with total inventory down 2% and -- versus last year. And in total and by business segment, our inventories in line or below our sales growth with Retail segment inventory down 5% and -- Retail segment growth of 5% sales and wholesale inventory levels are up just 2% on sales growth of 3%.

Your question about Urban Outfitters, the inventory is down 10% on a negative 14% Retail segment comp. And as Frank mentioned, we are planning to take additional markdowns in the quarter at Urban in order to ensure that the inventory is clean as we exit spring and summer and we enter the all-important back-to-school for all selling seasons. And we believe that, at this point, the cleaner inventory will allow us to produce improved margins in the back half of the year.

[Francis Conforti, executive]

And just to add to that, Matt, I think all brands still have continued IMU opportunity as it relates to the back half of the year. And then as we get into that back-to-school and holiday selling season for the Urban Outfitters brand, they have significant opportunity as it relates to being able to lower their markdown rate due to a better inventory to sales ratio.

And I think some of the work that we're going to do in the second quarter is only going to enhance that, so -- which is why we still feel very confident today. Obviously, it's May 21, but very confident today on what we're guiding to or what we're thinking about for the full year gross profit margin expansion of 50 to 100 basis points.

[Operator]

Thank you. Our next question comes from the line of Paul Lejuez with Citi.

[Kelly Crago, analyst]

This is Kelly on for Paul. I guess if we could just elaborate on some of your thoughts on how you present the UO brand to the Gen Z customer? How that's different than your prior playbook, any initial thoughts there? And you mentioned some changing of pricing texture, if you could just elaborate on that a bit.

And then just on the gross margin guidance. So first, in 1Q, what drove the upside versus plan? And how much of an impact should we expect the markdowns at UO to be offsetting some of the other drivers of gross margin in 2Q?

[Francis Conforti, executive]

Kelly, I can take the gross profit margin and then let the Urban brand respond to the Gen Z customer.

So, in the first quarter, obviously, we exceeded top line a little bit more than what we thought we were going to deliver. So that helped gross profit margin. I would also say some of the transitory logistics expenses at Nuuly came in a little bit lower than what we were anticipating. So all of that contributing to better gross profit margin in the first quarter.

As it relates to the second quarter, we still think IMU was going to be a positive, but please keep in mind that we're now really starting to anniversary multiple years of really strong IMU growth. So the IMU improvement will start to abate as the year progresses each quarter from now on.

And then the overall gross profit margin decline that we're currently believing that we're going to deliver in the second quarter is really just being driven by the Urban Outfitters brand having those elevated markdowns in order to clear through some of that aging out women's and men's inventory and just leaving them much cleaner heading into the important back-to-school and the holiday season for the back half of the year.

[Richard Hayne, executive]

Shea, do you want to take the urban question?

[Shea Jensen, executive]

Sure. Kelly, if I understand your question correctly, you're asking about some brand positioning and some of the efforts that have been underway as we've been reviewing that position.

First and foremost, everything that we do needs to start with a firm understanding of who are customers. So we have been conducting pretty extensive research, both with our current customers, but also with those customers who aren't shopping with us, and we've learned a lot. We've looked at things like purchase drivers and detractors, lifestyle attributes and occasions.

And I think 1 thing stands out particularly clear, and that is the pace of change for these customers is pretty rapid, and we have to keep pace and evolve fairly quickly. And so as you heard Dick mention earlier, there's 2 primary goals for us right now.

First, we need to rebuild that customer base, we need to rebuild our customer base; and second, restoring profitability. And so it's really in that spirit that we have identified 2 areas that we've already started to attack and see some early indicators.

First, as you mentioned, is the pricing architecture and really, that's about leveraging great price elasticity, but being very mindful of the price value that we want to offer our customers, particularly in certain categories where price accessibility and opening price matters. And we've seen some early wins in the accessory area and even in some of our apparel areas like [ Sniff ] , for example.

And then secondly is really how we reach and serve these customers. And to that, we've really just been amplifying our efforts across social platforms where we know these customers are really living their lives. And it's been exciting to see again some very early indicators there that have led to some good wins on customer.

[Operator]

Thank you. Our next question comes from the line of Mark Altschwager with Baird.

[Mark Altschwager, analyst]

Follow-up on gross margin. You're reiterating the plus 50 to 100 basis points for the year. Q1 seemed to come in a bit better than planned. It sounds like Q2 perhaps a bit lower than you initially thought, given the more aggressive markdowns. So I guess, putting that together, maybe speak to your level of confidence in the high end versus the low end of that $50 million to $100 million.

And then separately, just UO, I think overall margins were negative mid-single digit last year. Could you just speak to the path back to breakeven? Can you cycling some of those heavier markdown get you there? Or do you need to return to some level of revenue growth to get back to breakeven?

[Francis Conforti, executive]

Sure. I can take that. So Mark, I think we feel right now, obviously, the second half is far away, it feels like. We feel very comfortable with the 50 to 100 basis points. I think with the continued IMU improvement, which we have a pretty healthy amount of visibility to followed by really significant markdown rate opportunity for the Urban Outfitters brand. I think we feel very comfortable with that plan today, and I think we feel comfortable on the high end of that.

Obviously, a lot can change between now and holiday, but that's where we sit today. I think we feel pretty comfortable with where those numbers are. The biggest opportunity for Urban Outfitters certainly is to improve that markdown rate, focus on reg price and then get the top line going.

But they're really up against significantly elevated markdown rates in Q3 and Q4 of last year that we think just solely based on having the inventory to sales ratio improved should provide for a nice healthy improvement there.

[Operator]

Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley.

[Katherine Delahunt, analyst]

This is Katie Delahunt on for Alex. I just wanted to circle back on the comment you made about the Urban brands to-date comps trending, I think it was negative high single digits. What do you like to attribute that improvement to?

What -- is it because of the promotions that you're taking in select categories? And then should we expect further improvement throughout the year? I think you had previously said back-to-school could be a time when we could see further inflection at Urban.

[Richard Hayne, executive]

Yes, I'm not sure we understood it. very well, Katie. Urban Outfitters, did you say they were positive double digit?

[Sheila Harrington, executive]

We said we were having a positive digital growth on consumers, new consumers to the brand, which felt like a momentum forward from our Q1 execution. So that -- us getting back our customer Katie, what it's all about. So that's the early what we're experiencing currently within the UO digital business.

And I think it's a combination of strategic promotions along with some of the social efforts that Shea's team is making in the U.S.

We also are seeing some nice momentum within our European business, and we feel like they might accelerate their growth recovery throughout the quarter based on the reactions to spring and summer being quite strong. So we have some strong positive momentum in the EU business as we stand today.

[Operator]

Thank you. Our next question comes from the line of Marni Shapiro with The Retail Tracker.

[Marni Shapiro, analyst]

Congrats on the consistency as well. Trish, I'd like to talk to you a little bit, just digging in at Anthro, you've had quite a while of success. And specifically, with your own brands, which have had some really nice growth. And I think in all the years I've been following Anthropologie could be 2 of the most successful owned brands I've seen there. And I like what I see coming out of daily practice.

If you could talk a little bit about how you're using own brands? Are they allowing you to have sort of a base in the stores that you could kind of pick up on the other trends a little more quickly in the market?

And then just 1 quick question about some of the customers you're bringing in there, your TikTok situation is unhinged. It's so good. And there's so many younger influencers and affiliate people that are on there that are killing it. And I'm curious if this is helping to bring in a younger customer base and if it's having an impact on your business?

[Tricia Smith, executive]

Yes Marni, thank you for the question. I'll start with the customer piece. As Frank mentioned, our teams are doing a really great job at acquiring new customers, but also younger customers that first quarter new customers grew by 19%, and that really has come from a really concerted effort and acquiring new -- and acquiring new younger customers in the average age of our customers come down pretty significantly and are definitely engaging on our social platforms, as you referenced, particularly in TikTok.

I think most exciting to me and that is our active customers are growing as Frank mentioned, by 18% as our team really are focused on improving retention rates and repeat purchases, and that's working very well.

From a product perspective, thank you for your comments about our own brands. Our team has been working really, really hard on modernizing and expanding our product assortment and really apparel has been the driver within that.

Most particularly, I would say, in the denim category, the Pilcro brand has grown really significantly, and there's been a ton of effort put into just the design, the way we think about, the way we display the branded stores and Pilcro and Mave and our Anthropologie brands are our top search brands month after month.

So the customer owes them. They seek them out. Daily Practice is an active lifestyle brand that we've introduced. And really, I think, as Dick had mentioned, in the stores, in particular, we're thinking about how to expand the footprint of the Daily Practice brand as well as some other new emerging categories, and that's going incredibly well.

So we increased the footprint of those brands by almost 50% in 6 stores that we tested in the month of February, and it's proving remarkably well. So we have 50 stores lined up to be able to expand that footprint.

So overall, our own brand penetration and our total mix has never been higher. The profit that those brands are producing is incredible, but mostly proud of the fashion that the teams are serving up on our own brand offer and just [indiscernible].

[Operator]

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

[Dana Telsey, analyst]

As you think about the marketing spend, which obviously is helping to drive some of the top line. What's your expectation for marketing spend as we go through the remainder of the year? And how are you allocating versus brand? What does it differ?

And then just on Europe, what did you see there? How is that performing relative to your expectations? And lastly, the wholesale operating income was up significantly. What do you note in there in terms of order trends and sell-through promotion versus full price?

[Richard Hayne, executive]

Dana. Let me talk about Europe first. And then maybe, Frank or Mel will I'll talk about the marketing spend.

As I think was mentioned, the Urban brand in Europe posted negative high single digit in Q1 is showing some signs of revival up until very recently, they were flat, and now they're kicked out a couple of percentage points versus last year.

When we look at the other brands, Anthropologie and Free People sales in Europe are quite strong. They were strong in Q1, and they continue to book comp gains in Q2. So we're very excited. Actually, we're not as optimistic going into this year about Urban given all the problems they've had, but we think we are very pleasantly surprised. Mel, would you want to..

[Melanie Marein-Efron, executive]

So marketing spend is generally allocated based on where the growing brands are. So that's why we've talked about the fact that in the first quarter, the growth in marketing has really come from Nuuly Anthropologie, FP movement and the Free People brand.

So our allocation will continue to work toward the growing brands. As we go through the year, though, I do think the rate of growth may be closer to sales growth in the back half of the year versus the first half of the year. But our allocation is similar.

[Operator]

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo.

[Irwin Boruchow, analyst]

To go back to UO. So to Mark's point earlier, the margin is negative double digit -- sorry, negative mid-single digits last year. It still having issues on the promo and the comp side. .

I guess my question is just at a higher level, how long of a leach do you guys have on the brand in the sense that when would you look to maybe make more material changes to either the store base or geographies?

Just something to kind of rightsize the margin structure of the business. I just trying to understand how -- what are the goalposts you guys are kind of looking at there?

[Richard Hayne, executive]

Okay. I think we've said over the last quarter or 2 that we were engaged with a -- in a strategic review that is fairly broad. And making some decisions about that as we speak.

But I think we're not ready to talk about it in depth. We are, as has been mentioned on the call now a couple of times, seeing some positive signs and our thoughts are that we will be able to turn the ship around. There are definitely some issues, some of the stores are too large. We know that.

And as we said earlier, we have to change up some of the spend on our social media to reflect more accurately where the customer is showing up.

So those are the types of things that we're engaged in right now. Shea, would you like to say anything you were about it other than we're going to give a more thorough review of this in August on the call.

[Shea Jensen, executive]

Yes. I think I would acknowledge, though, that we do anticipate more appropriate sales to inventory perspective as we enter into the back half of the year. And the second quarter markdown adjustments will allow us to, first and foremost, clean our inventories, but that will just perpetuate hopefully more educated and better buying decisions as we bring those decisions closer to customer, but the first step is really cleaning up the inventory.

We think that that is a big unlock in terms of the profitability. And then as Dick said, as we're working through the research and insights, now we definitely will come back in August with more detail on those things.

But right now, we're entirely focused on, first and foremost, our customer and understanding them and secondly, getting our inventory in a position that we can react closer to the line.

[Operator]

Thank you. Our next question comes from the line of Janet Kloppenburg with JJK Research.

[Janet Kloppenburg, analyst]

Congrats on a great quarter. I wanted to.

[Richard Hayne, executive]

Thanks Jen.

[Janet Kloppenburg, analyst]

You're welcome sir. I wanted to just touch base. It sounds like transient Europe for UOl have turned. And I'm wondering, Shea, if the plan is to -- is it feasible that the apparel trends in Europe can transition to the U.S.? And is that what's giving you the confidence in the brand's comps turning. I think you said turning positive, but I could be wrong on that for the second half of the year.

And then just a point of clarification on the Anthro on current comps at Anthropologie. Are you suggesting that they're up mid-single digits right now and that has the outlook for the second quarter I may have misinterpreted that. If I did I apologize.

[Tricia Smith, executive]

Janet, this is Tricia. I'll start with Anthropologie. We're cautiously optimistic as we enter Q2 at Anthropologie. I think is Dick mentioned the first 2 weeks of May are very important weeks for Anthropologie as a brand as we prepare for Mother's Day. And our comps are fairly aligned with where our Q1 performance was. But I think some fun headlines that week leading into Mother's Day, we delivered our brand's record high dress sales.

[Richard Hayne, executive]

You want to say that one again.

[Tricia Smith, executive]

We did more dress volume in the week leading up to Mother's Day than we ever had in a week as a brand. So really optimistic about as weather has warmed, as we are leaning into events like Mother's Day, we're cautiously optimistic that we've got some nice trends growing in the business.

[Sheila Harrington, executive]

So this is Sheila. I'm going to take the Urban question. Just to reiterate, the brand believes it's going to be a gradual change in comp sales. So because we're really focused on the profitability of the sales. So we want to get our inventory clean and be able to continue to react to the consumer.

We are seeing probably more speed on that happening in Europe, more so than the U.S. because they think their customers are positioned slightly differently than our U.S. consumer, but we work very closely with them hand-in-hand and are constantly sharing information. So I just want to reiterate, it's a slow and gradual sales change, not aggressive.

[Richard Hayne, executive]

Yes. And I think, Janet, if I could, about Urban Outfitters in Europe. They have been probably borrowing more of the fashion from the North American group than they ever have in the past.

And particularly, I think the major difference or the major change that they've experienced is they've gone more into what I would call the feminine looks and that seems to be working very well for them right now.

We, in North America, have those same looks, and they are performing well, but I think that there's probably a higher penetration of those looks in the European business right now than there is in the North American business.

[Operator]

Thank you. next -- our last question comes from the line of Jay Sole with UBS.

[Jay Sole, analyst]

I'm just wondering if you can elaborate a little bit on Nuuly. Just maybe talk to us about the sales trend that you've learned in the last 90 days, profitability, how you see that trending versus where you were 90 days ago that would be super helpful.

[Richard Hayne, executive]

Dave, do you want to take that?

[David Hayne, executive]

Yes, sure. Thanks for the question, Jay. I guess I would just start by saying that the first quarter was just a fantastic quarter for us. We saw tremendous amount of growth, a lot of subscribers that joined the platform for first time more new subscribers than we've ever had in our history. .

From a profitability standpoint, we did call out already. Frank mentioned that we were not profitable in the first quarter. We probably would have been if not for the transition to our Kansas City facility.

I think longer term, we're expecting to be profitable through the rest of this year. And just very excited about the growth we saw in the first quarter and actually what we've seen continue in May and the second quarter. So just a very exciting time for Nuuly.

[Richard Hayne, executive]

Okay. I think that, that wraps up the questions. I thank you all very much for joining, and look forward to talking to you again in August.

[Operator]

Ladies and gentlemen, that concludes the conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.