Article Excerpt:
TWST: What is Urban Outfitters?Mr. Kyees: Urban Outfitters consists of three major brands, all multi- channel. Urban Outfitters, the namesake brand, was the first of our brands. The company was founded in 1970. The first store was named Free People and was subsequently changed to Urban Outfitters, and Urban Outfitters was the basic brand for the first 20 years of existence. In the early 1990s, Anthropologie was created as a subsequent brand to Urban Outfitters. Urban is targeted at 18 to 30-year-old young men and young women. We refer to them as in the dating and mating phase of their lives, and they are very interested in clothing and spend a pretty significant chunk of their disposable income on apparel. We sell apparel, accessories and apartmentware to that customer. We have described the customer as the upscale homeless. They have either left their parents' home and are living in a college dorm or an apartment, or they graduated from college and they're still living in an apartment. Anthropologie was born out of the process of recognizing the customer's life cycle change. Once a person turns 30, their lifestyle can change. They are moving into a more settled time of their lives with families, homes and other commitments. Typically, those people may have children and probably live in the suburbs. Therefore Anthropologie sells women's apparel and home products. There are men who do go to Anthropologie to buy the home products, but the vast majority of the customers are female. Free People was the original name of the wholesale brand. Free People wholesale was started 22 years ago as our Chairman was trying to get certain manufacturers and factories to produce for Urban and we didn't have enough volume. Therefore he created a wholesale brand to help build the volume so that he could get manufacturers to produce for the company. Wholesale sales, for three of the last five years, were relatively flat in terms of volume growth. Two years ago, wholesale grew 50% from $18 to $27 million, and this last year it grew almost 100% from $27 to $53 million. Anthropologie has a 30 to 45-year-old target customer, and Free People is a wholesale brand targeted at a young contemporary woman, maybe a little bit bohemian in her outlook. She is older than the Urban customer, typically 25 to 30. She is in a very different phase of her life. While the Urban customer is still mating and dating, the Free People customer has narrowed the field, and she is probably down to a couple of guys. She is probably not hitting the clubs as frequently while trying to find her partner, and she is a little further advanced in her career. She is probably making a little more money than the Urban customer. She is not as settled as the Anthropologie customer. She doesn't have a home and she doesn't have a home or family responsibilities yet. The Free People brand is sold at Bloomingdale's, Nordstrom, Marshall Field's, Macys West and Parisian, as well as about 1,300 specialty stores around the country, many of them boutiques. So each of the brands is sold in multiple channels. We have retail stores, a Website, and each brand publishes a catalog. The business has a tremendous amount of growth in front of it. Our fiscal year ended January 31, 2006, with 90 Urban stores. We believe that Urban can have 250 stores in total, 200 of them in North America and probably another 50 internationally. Currently, we have three stores in Canada and seven stores in Europe, England, Ireland and Scotland. We'll probably open a store on the Continent this year. Anthropologie is even a bigger growth opportunity. They currently have 79 stores and we believe they also can grow to 250 just within the US. To date, we've never done a Canadian or an international store with Anthropologie, not that it couldn't happen, but it just hasn't yet. On the Free People side, if it stays as a wholesale/retail combination, Free People could probably have 100 stores and still retain its wholesale customer base. Once the retail side gets bigger than that, it might create some anxiety with the wholesale customer, and at that point in time, we'll just have to make a decision. We think the potential for Free People stores is several hundred, if we decide to do it strictly as a retail concept. Over the last several years, earnings growth has been exceptional; the operating margins are among the top in retail, and the business is positioned with a strong cash balance of around $250 million and no debt. We are definitely positioned to grow, and our model is to grow the business 20% a year in terms of square footage, and 3% to 4% in comp store sales, which should generate somewhere around 23% or 24% annual sales growth Because our operating margins should continue to improve, we believe that the bottom line will grow 25% or better, for the next several years. So we are very excited about the future.
Tickers included in this excerpt: URBN
TWST Newsletter
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.