Urban Outfitters Inc

NASDAQ:URBN

Q3-2026 Earnings Call

[Operator]

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Third Quarter Fiscal '26 Earnings Call. [Operator Instructions]

I'd now like to turn the conference over to Oona McCullough, Executive Director, Investor Relations. Ma'am, you may begin.

[Oona McCullough, executive]

Good afternoon, and welcome to the URBN third quarter fiscal 2026 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3- and 9-month period ending October 31, 2025. 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. For more detailed commentary on our quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com.

I will now turn the call over to Dick.

[Richard Hayne, executive]

Thanks, Oona, and good afternoon, everyone. URBN team delivered another outstanding quarter. Total revenues grew by 12% and net income increased by 13%, both new third quarter records. We are especially pleased to report that all brands produced positive comps across all geographies this quarter. This includes the powerful double-digit comps the Urban brand generated in both North America and Europe and the exceptional growth in subscribers and revenue from the newly brand. The agenda for today's call includes comments from Frank Conforti, our Co-President and COO, who will elaborate on Q3 performance by brand and business segment. After Frank, Tricia Smith, CEO of the Anthropologie Group; will speak to the performance of that brand and their newly launched Maeve concept. Melanie Maran-Efron, our CFO, will then walk you through our outlook for the fourth quarter, and I'll wrap things up with a few closing thoughts before we open the call for your questions.

Frank, the floor is all yours.

[Francis Conforti, executive]

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's third quarter record results compared to last year, and then I will dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter. exceeding our plans and setting new sales and profit records. Total URBN sales grew by over 12%, reaching a Q3 record of $1.5 billion. All our retail segment brands delivered positive Retail segment comps, while 4 of our 5 brands posted record third quarter sales and newly continued its impressive double-digit revenue growth. Our total URBN sales growth was partly driven by an 8% increase in the Retail segment comp with digital comps slightly exceeding store comps. Newly delivered strong 49% revenue growth, driven primarily by an increase of 118,000 average active subscribers compared to the prior year. Additionally, the Wholesale segment delivered an 8% increase in revenue, driven by growth in the specialty store accounts, which was largely fueled by healthy increases in FP movement.

Next, I will turn your attention to gross profit. URBN saw a 13% increase in gross profit dollars, reaching a record $563 million. The gross profit rate improved nicely by 31 basis points, rising to 36.8%. Please note that this includes a $2 million impairment charge in the current quarter, which is worth 13 basis points. The improvement in gross margin was primarily driven by lower markdowns at the Urban Outfitters and Free People brands as well as occupancy leverage driven by strong sales growth across all our brands. These gains more than offset lower initial product margins at all our brands due to increased tariffs versus the prior year.

In the quarter, SG&A increased by 14%, deleveraging by 32 basis points. The growth in SG&A dollars was primarily driven by increased marketing spend, which fueled sales and customer growth for all brands. The marketing efforts drove increases in traffic and transactions both in stores and online for total URBN Retail segment, while new lease campaigns resulted in healthy double-digit growth in average active subscribers. Overall, total URBN operating income rose by over 12% compared to last year, reaching $144 million, while the operating profit rate was consistent with the prior year. Net income saw a 13% increase to a new Q3 record of $116 million or $1.28 per diluted share.

Now moving to brand performance, starting with the Free People brand. The team delivered a 9% increase in total revenue. Their sales growth was driven by a 9% increase in Retail segment sales including a 4% retail set comp, significant non-comp sales growth and an 8% increase in Wholesale segment revenues. The Retail segment comp was driven by positive comps in both the store and digital channels across all geographies with outperformance in accessory product sales. Non-comp sales grew by over 200%, driven by new Free People and the People Movement store openings over the past 12 months. The brand is planning to open 43 new stores for the year, including 18 Free People and 25 FP Movement stores. The brand is also encouraged by the strong results in Europe. While European operations are small relative to the total brand, new store openings continue to perform well, and the region drove a double-digit retail segment comp in the quarter. building on double-digit Retail segment comps last year. I know Sheila and team are excited to capture more of European market potential in the future. Within the Free People brand, the FP Movement business delivered strong total growth of 18%, driven by a 4% Retail segment comp, strong Wholesale segment sales growth of 29% and robust non-comp growth driven by new store openings. Continued strength in performance-related products is driving healthy new customer acquisition growth. The FP Movement brand saw increases in new reactivated and retained customers during the quarter. Based on our current plans, we believe the Free People Retail segment could deliver a low- to mid-single-digit positive comp in Q4.

Free People Wholesale revenues increased by 8% during the quarter, driven by sales gains in all geographies, while specialty store accounts led the way versus other accounts. As noted on our last call, as we move through the back half of the year, the Wholesale segment faces more difficult year-on-year comparisons versus the prior year. Based on our current plans, we believe the wholesale segment could deliver mid-single-digit comps in the fourth quarter.

Now let's move on to the Urban Outfitters brand. Urban Outfitters recorded a strong 13% global Retail segment comp for the third quarter. Congratulations to the team on delivering the first double-digit comp in some time. UO North America recorded a 10% Retail segment comp in UO Europe, an exceptional 17% Retail segment comp. The total global comp was driven by strong store and digital comps with positive traffic in both channels and positive conversion in stores. In North America, the UO team continued their focus on their customer and delivered a solid comp in both channels for the quarter, building on a strong start to the back-to-school season in Q2. In the third quarter, the business grew nicely across all major categories, anchored in strong regular price sales, new customer growth and continued success in focused growth categories.

Within Women's, the denim business continued to be strong, complemented by pants, lounge, sweaters and accessories. The brand is also encouraged by the progress in the Men's apparel category, which delivered double-digit regular price comps in the month of October. In North America, from a marketing perspective, the team is focused on meeting customers in the moments and places that matter most, whether that is across social channels, digitally, in our stores or by hosting culturally relevant events. In the third quarter, the brand celebrated back to campus by hosting gameday events at allege campuses across the country, introducing and welcoming more customers into the brand. The brand also celebrated partnerships with some of Gen Z's most loved brands through on rotation, a 360-degree brand spotlight, showcasing discovery, product engagement and curated assortment. These engaging brand marketing events have been successful, driving an increase in unaided awareness and new customer growth.

In Europe, the Urban Outfitters brand delivered an outstanding 17% retail segment comp driven by double-digit comp increases in both the store and digital channels. During the quarter, the business achieved positive double-digit comps across all major product categories. With these exceptional results, it is clear the European team is winning market share through amazing product execution and compelling marketing events and strategies.

Moving back to the Urban Outfitters brand globally. We are proud to note that the brand delivered low single-digit operating profit margin in the third quarter. This significant improvement was driven by a remarkable year-on-year profit increase in Europe, followed by a meaningful reduction in operating loss in North America. Based on our current plans, we believe the global Urban Outfitters brand could deliver a high single-digit positive Retail segment comp for the fourth quarter.

Now turning to the newly brand, which delivered another exceptional quarter. Total Q3 revenue grew by 49%. The impressive growth was primarily driven by an increase of over 40% in average active subscribers reaching just shy of 400,000 average active cells versus the prior comparable quarter. Nuuly's growth added 3.5 percentage points of revenue growth to total URBN sales.

Our primary focus remains on scaling the newly business and building brand awareness, which we are doing through investments in logistics and strategic marketing. We are pleased to report that our planned logistics expansion in Kansas City, Missouri, including increased storage capacity and the implementation of new sortation automation remains on track. Our latest marketing campaign was successful in driving new customers and continues the positive momentum of the brand. Overall, Nuuly's continued strong performance highlights the large growing opportunity for apparel rental in the U.S., and we believe we are making the appropriate investments to enable Nuuly to continue winning market share. Based on our current plans, we believe Nuuly could deliver healthy double-digit revenue growth in the fourth quarter.

Now moving on to tariffs. The macro landscape remains consistent with what we discussed on our last call. We estimate that tariffs negatively impacted our third quarter gross margin rate by approximately 60 basis points, and we currently believe they will have an impact of approximately 75 basis points in the fourth quarter. Despite these headwinds, we still believe we can achieve approximately 100 basis points of gross margin improvement for the full fiscal year 2026. Our teams continue to work diligently on tariff mitigation efforts, including negotiating vendor terms, modifying our countries of origin, adjusting transportation modes and strategically managing pricing. I want to emphasize that this plan reflects our current knowledge, and there is still a lot of uncertainty into this environment. This uncertainty in addition to our ongoing mitigation efforts, makes it challenging to predict the impact of tariffs beyond the fourth quarter.

In summary, it was an exceptional quarter. All brands delivered positive Retail segment sales comps, Wholesale produced healthy revenue gains and the subscription segment drove double-digit revenue growth. We believe we are on track to deliver record sales and operating profit for the year, including approximately 100 basis points of gross and operating profit margin improvement despite tariff headwinds. We could not be prouder of the teams and their amazing execution.

On that note, I will now turn the call over to Tricia Smith, Global CEO of the Anthropologie Group.

[Tricia Smith, executive]

Thank you, Frank, and good afternoon, everyone. In the third quarter, the Anthropologie Group delivered an 8% Retail segment comparable sales increase, driving 8% growth in total brand revenue. This achievement marks the 19th consecutive quarter of positive comparable sales for the Anthropologie Group. Importantly, we were able to maintain strong double-digit profit rates through improved gross profit margins despite ongoing tariff headwinds. The Retail segment's comparable sales growth was robust, driven by strong comps in both digital and stores across all regions. Category strength remained consistent across apparel, accessories and weddings complemented by an acceleration in sales trends within the home category.

Turning specifically to apparel. Our strength continues to be driven by the brand's multiyear focus on modernizing the assortment and elevating our own brands. These offerings remain our customers' most coveted selections and continue to drive substantial growth. This success is tangible. Own brand penetration achieved a historical high, increasing by over 100 basis points versus last year. We're strategically investing in these unique brands, including Maeve, Celandine, LyreBird and Tocro, which are supported by a strong design team and a distinctive creative point of view. We believe this customer affinity for our own brands positions them for continued outsized growth opportunities.

Highlighting the power of our own brands, this quarter saw the launch of Maeve as a stand-alone brand, transitioning it from a beloved in-house label to a dedicated boutique concept. Our first Maeve boutique opened in Raleigh, North Carolina, and the results have exceeded our expectations with a high double-digit beat of our forecast. This launch has proven accretive to our business in the Raleigh-Durham area, driving increases in total store sales across the region, inclusive of existing Anthropologie stores. Furthermore, digital demand for both Maeve and Anthropologie in the trade area has outpaced brand-wide demand growth since the store opening. Building on this success, our next made boutique is scheduled to open at the end of fiscal Q4 in Atlanta's Buckhead Village district with an additional location to be announced in the first quarter of fiscal 2027.

Moving now to the Home business, where we saw an acceleration in sales trends during the quarter. Anthropologie Home achieved high single-digit comparable sales, which was in line with total brand comparable sales, driven largely by the strength of our full-price business. Growth was concentrated in home accessories and textiles and notably, regular price furniture sales turned positive during the quarter. Home accessories, a key point of entry for new customers delivered double-digit comps and double-digit new customer growth. We're excited about the current trajectory and growth potential of our home business. Our brand-wide growth continues to be fueled by strong positive comparable sales across both digital and retail channels. In our digital channel, we drove double-digit session growth while holding conversion flat. We are continuously investing in our customer digital experience to reduce friction in the online purchase process and drive conversion. In our stores, the focus on service and experience is yielding results. Our in-store styling services grew double digits this quarter and the high-touch appointment-driven Anthro weddings business significantly outpaced total brand comp. These strong channel performances validate our strategic investments in both our physical store footprint and our digital capabilities.

Building on the success in stores, we're executing a robust plan for new Anthropologie stores in addition to the Maeve boutique launches. Year-to-date, in FY '26, we have opened 8 new stores in North America and plan to open an additional 3 before the end of the fiscal year.

Internationally, we also have 3 new stores opening in the U.K. with Liverpool and Glasgow opening earlier this month and Manchester opening later this week. Importantly, our new Anthropologie stores are not only exceeding our expectations, but are also driving outsized digital demand in their local markets. By the end of fiscal '26, we will have 250 Anthropologie Group stores globally, underpinning our growth strategy is exceptional marketing that drives customer acquisition and retention. Our messaging this quarter was anchored by 2 high-impact campaigns. Our Maeve launch campaign, More You More Maeve, which generated over 1 billion impressions and our Anthro always fall campaign, a cinematic cross-category story. This approach successfully balances data-led discipline with emotionally resonant storytelling that speaks to new and existing customers. As a result, our total customer count grew high single digits this quarter, and over 30% of new customers have returned to make a purchase with our own brands driving the majority of this new customer growth.

Looking ahead, we're expecting mid-single-digit comps for Q4. We are committed to our strategy and focused on our North Star of product modernization customer growth and leveraging creative as we enhance our selling environments with exceptional experiences for our customers.

I would like to take this moment to thank our incredible teams and global partners. The thoughtful customer assessed way in which he work continues to delight our customers and supports the growth of our business.

With that, I will now hand the call over to Mel.

[Melanie Marein-Efron, executive]

Thanks, Tricia, and good afternoon, everyone. Let me walk you through how we're thinking about our fourth quarter financial performance. Based in part on our start of the quarter, we are planning for total company sales to grow in the high single digits for the quarter. In our Retail segment, comp sales could grow mid-single-digit positive with high single-digit positive retail segment costs at the Urban Outfitter brand. Mid-single-digit positive Retail segment confidence Anthropologie and low to mid-single-digit positive Retail segment comp at Free People. And Nuuly, the brand could deliver mid-double-digit revenue growth driven by continued subscriber momentum. Finally, our Wholesale segment could produce mid-single-digit growth.

Based on our current sales performance and plan, we believe URBN's full year gross profit margins could increase by approximately 100 basis points with the second half growing by approximately 50 basis points versus last year. Within the remaining second half, fourth quarter gross profit margins could increase by approximately 25 to 50 basis points as lower product markdowns particularly the Urban Outfitters brand are partly offset by lower initial merchandise margins due to increased tariffs. Our current assumptions on tariffs are based on the announced tariff rates as of November 24, which includes 50% tariff rate on goods from India.

Turning to SG&A. We expect expenses to grow roughly in line with sales for the full year and fourth quarter based on current sales performance and plans. The planned growth in fourth quarter SG&A is mainly driven by higher marketing spend to support customer and sales growth, along with increased store labor costs related to new store locations. 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 for an effective tax rate of about 23.5% for the fourth quarter and 22.5% for the full year.

Now on to inventory. In Q4, we expect inventory could grow at a rate similar to fourth quarter sales as our teams continue to focus on increasing our product turns. For FY '26, capital expenditures are planned at approximately $300 million. The FY '26 capital project spend is broken down the fall. Approximately 45% is related to retail store expansion and support approximately 35% is related to supporting technology and logistics investments, and the remaining 20% is for home office expansion to support our growing business. Lastly, we're planning to open approximately [ 60 ] new stores and close approximately 17 this year. Most of our net new store growth will come from the FP Movement, Free People and Anthropologie. Specifically, we're planning 25 new FP Movement stores, 18 new Free People stores and 60 new 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.

With that, I'll hand it back over to Dick.

[Richard Hayne, executive]

Thanks, Melanie. As you've heard, our teams produced another great performance with every brand contributing meaningfully to our outstanding results. robust comparable sales across our brand portfolio demonstrated their power and the rigor of our execution. The Anthropologie, Free People and FP Movement brands achieved record sales while successfully maintaining double-digit operating profitability. The Urban Outfitters brand posted strong double-digit comparable sales in both geographies, driven by better product improved marketing and more full-price customers. As a result, the Urban brand delivered significant profit improvement versus last year. Complementing the Retail results, Nuuly, our subscription rental concept continued its impressive trajectory of strong subscriber and revenue growth while delivering healthy operating profits. During the quarter, customer engagement was lively with both store traffic and online session growth up sharply. Our customers responded enthusiastically to our compelling product offerings and distinct brand experiences and drove record third quarter results. This sustained performance is a direct testament to the strength and resilience of our diversified business model. We have built a strategic model that is sturdy across multiple dimensions. Our diversification by channel, spanning stores, digital, wholesale and subscription services and by brand, with a portfolio catering to different customer segments provides inherent stability. Furthermore, our broad category offering, including apparel, accessories, shoes, home and beauty, ensures that its customer preferences shift, we will remain relevant. This powerful multifaceted approach to diversification gives us high confidence that with smart execution, we can concise you to grow our market share regardless of the operating environment.

Looking ahead, November traffic and sales remain robust. Our Retail segment comp sales are currently running slightly ahead of our stated Q4 plan to deliver mid-single-digit comp growth. We anticipate the holiday season will, as always, be highly competitive and promotional. We have observed a slight shift in consumers' behavior. We believe customers were waiting a bit longer this year to make their purchases until seasonal promotions began, and we successfully met this shift with strong results in our early holiday events. As Frank noted earlier, despite the expected promotional landscape, we believe the power of our model allows us to achieve improved operating margins in Q4 versus the prior year. For now, we are focused on closing the year successfully by delivering another quarter and year of record-setting results and continuing to deliver shareholder value.

Finally, my thanks to our entire URBN family, brands and shared services. for producing another superior quarter. I want to acknowledge the phenomenal job each of our brand leaders, their teams and our co-presidents, Meghan Frank, have done. I understand the hard work and long hours you all devote to making our brands amongst the best in retail today, and I'm deeply appreciative. Our results are a testament to your effort and your talent. I also thank our partners around the globe for your cooperation as we work together to solve the problems imposed by tariffs. And finally, I thank our shareholders for your ongoing support.

That concludes our prepared remarks. I now invite your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Lorraine Hutchinson with Bank of America.

[Lorraine Maikis, analyst]

I wanted to follow up on the commentary around pricing. I think the words you used last quarter were gently and sparingly. And I wanted to see, a, how much of a customer reaction you've been able to realized from these price increases; and b, if the expectation was that you would continue to protect opening price points, especially at the Urban brand.

[Richard Hayne, executive]

Hi, Lorraine, I'm going to ask Tricia to take that call -- that question.

[Tricia Smith, executive]

Hi, Lorraine, we're being highly strategic and thoughtful about taking price because they're definitely not across-the-board price increases. We've taken small price increases where we felt the price value equation was appropriate and have seen really little to no price resistance where we did so. We also want to stress that we remain committed to maintaining our opening price points and our pricing architecture and protecting those items that our customers count on to have great price value. Next, we're really planning very little incremental price increases over and above what we've already implemented this fall and holiday. We really don't anticipate price resistance. Our focus remains on protecting the integrity and the value of our product while we managed our cost structure appropriately.

[Richard Hayne, executive]

Yes. And Lorraine, I want to emphasize that all the brands are protecting their opening price points, and furthermore, as we think ahead, we think that most of the price increases are behind us and that we'll have little need to raise prices next year.

[Operator]

Our next question comes from the line of Adrienne Yih with Barclays.

[Adrienne Yih-Tennant, analyst]

And I have to say, I mean, congratulations, every aspect, every geo, every brand, it's pretty amazing. So congrats to everybody.

[Richard Hayne, executive]

Thanks, Adrienne.

[Adrienne Yih-Tennant, analyst]

You're very welcome. So Trish, just on kind of -- you talked about the own brand penetration. Can you talk about kind of where you are in the journey of own brand, where it could go and what the global footprint for Anthropologie may look like Europe versus North America? And then for Frank and or Melanie, just on UO, so we have a, I think you said, a positive low single-digit segment margin in the quarter. Where does that bring us year-to-date -- and I think earlier, you had said that you didn't think that this year you could break that profit barrier, right, to become positive. So I mean there's so much opportunity after this. So just a little color on kind of how you think about that for the year.

[Tricia Smith, executive]

Hi, Adrienne, our own brand growth, as I mentioned in our opening remarks, has really been a source of strength for us as the brand, and we're really leveraging the talent and strength of our design teams, our buying teams. As I've mentioned, the penetration grew by almost 100 basis points versus last year, and we continue to plan and execute against our own brand growth outpacing that of just our total. We have successfully launched Celandine, LyreBird, leveraging daily practice and then really proud of the results the team has delivered with our Maze expansion as a stand-alone brand and in our concept store. So continued growth, we believe it will continue to outpace the total of our brand and expecting that to continue. I would say from a global footprint for our brand, really proud of the team successfully opening 2 stores in the U.K. in the past several weeks and excited about the Manchester opening that will be opening at the end of this week. So we're in a place where I think we'll continue, as we mentioned, to open stores in North America. We'll continue to gauge the results of the stores that we're opening abroad in the U.K. and see an opportunity for us to continue to do so.

[Adrienne Yih-Tennant, analyst]

As I think that Frank mentioning Tocro.

[Tricia Smith, executive]

And Tocro, yes, definitely.

[Adrienne Yih-Tennant, analyst]

You have really good season at Tocro.

[Tricia Smith, executive]

Yes. Tocro has been a brand that has expanded significantly, and I would say several several years ago from a penetration standpoint in denim, and that's grown significantly. Now is our #1 performing Denim lifestyle brand for Anthropologie has been significant.

[Francis Conforti, executive]

And this is Frank, Adrienne, thanks for your question. I just want to give an update on Urban. So first and foremost, I just want to say it again. honestly, a huge congratulations to the entire team on the turn and the overall results. It's just -- it's really great to see the progress the teams are making delivering such strong sales growth and great profit improvement. As you noted, the brand was profitable on a global basis in the third quarter. This was driven by exceptional profit growth in Europe and a healthy reduction in the Lawson, North America. We're not ready to give a forecast for exactly what next year could look like. Our business in Europe is already profitable and certainly was boosted by the extraordinary comp results so far this year. And while North America has delivered a meaningful reduction to their losses, they still have a healthy opportunity to continue progress into next year. And I would say, given the size of the opportunity in North America, it is possible that the brand turns globally to be profitable next year on an annual basis. But we'd like to see exactly where this year lands before we commit to exactly what next year will look like.

[Operator]

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

[Matthew Boss, analyst]

Congrats on another nice quarter.

[Richard Hayne, executive]

Thanks, Matthew.

[Matthew Boss, analyst]

So Dick, could you speak to drivers of the further acceleration in business that you saw during the third quarter, notably at the Urban brand. Maybe elaborate on early holiday selling trends that you mentioned. Just how you see the setup for your brands through holiday. And Frank, I think so with 100 basis points of operating margin expansion anticipated this year for the company, how best to think about margin drivers or levers beyond this year if we think multiyear?

[Richard Hayne, executive]

Okay. Matthew, the drivers of the business across all the brands was the traffic. And traffic in stores and traffic online. And sales was almost exactly congruent with the increase in traffic. So I think that, that's what did it. As we look into holiday, we think that the same thing is occurring and we believe that the holiday season is likely to be very nice from a sales perspective, but we do expect it to be a slightly more promotional than we saw last year. So let's say our customers aren't responding well to the new fashion. They are and they are particularly responding to their gift-giving favorites, but we're waiting -- they're waiting more patiently for anticipated promotions. And the events we've run so far have been very successful. So judging by the strength of those promotional events and the strong back-to-school season and the surge in customer spending on holiday decorations, I anticipate a very good holiday season.

[Francis Conforti, executive]

And Matt, I can touch on operating profit. So obviously, we're extremely proud of what we produced last year, delivering 100 basis points of improvement, getting to 8.6%. And based on our current plans, believe we can deliver approximately 100 basis points of improvement in fiscal '26, which would certainly put us very close to our 10% goal. As it relates to next year, I would just say it's a little early for us to commit to a rate. Obviously, as Melanie said, or as we target as a company, we're certainly going to target to keep SG&A at to below sales. But -- so then that leaves gross profit margins. And I just think there's a ton of uncertainty as to where tariffs are going to shake out given potential deals, supreme court rulings our tariff mitigation efforts are ongoing. And we'll have a better picture of this at the close of the year. But the one thing I do want to say is with all that said around tariff impacts, if you were to ignore that for a minute, where our opportunities could land in gross profit would be driven by continued markdown improvement largely from the Urban Outfitters brand. We still think there's opportunity to leverage store occupancy. It's not on will the brands continue to drive healthy comp sales. And when you're excluding tariffs, we actually still think there's IMU opportunity, which is great to see at all brands.

[Operator]

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

[Paul Lejuez, analyst]

You mentioned pressure on IMU a couple times, but also lower markdowns. So just curious, maybe you could talk a little bit about how the door merch margins, and what you saw by brand. And then second, on newly, I'm curious if you've seen any change in the demographics in terms of age, income, regional of the new customers that you're attracting into that business versus what you've seen maybe several quarters ago.

[Francis Conforti, executive]

Paul, this is Frank. I can take the sort of out the door and you -- which was favorable given the markdown reduction for URBN. As we noted, sort of all brands were impacted by the tariffs. And the lion's share of the markdown improvement was driven by Urban Outfitters, but 3 people also had a favorable markdown rate in the quarter. And Anthropologie was just slightly up. but also did a really good job at offsetting their -- excuse me, their IMU and had gross profit gains overall as a brand for the quarter. So all three brands contributed to within the Retail segment to the gross profit gains for the quarter. And then Dave, I don't know if you want to touch on Nuuly.

[David Hayne, executive]

Yes. Paul, thanks for the question on newly. I would say that largely, we are seeing our customer base remain relatively stable in terms of the curve across age subscribers, demographic, geography. If anything, I would say, we have seen a slight shift, ever so slight towards a slightly younger subscriber in terms of our new customer acquisition. And we've seen penetration from a subscriber standpoint a slightly heavier penetration into the southern region of the country, more so than other geographies, mainly from a new customer standpoint. But those are just slight changes. There has not been a big transition or a big change in our -- the composition of our subscribers.

[Operator]

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

[Mark Altschwager, analyst]

Congrats on the strong results. I wanted to follow up on gross margins. First, I guess, where was the upside versus your plan for the third quarter? Any surprises there by brand or on the markdown front. And then just for Q4, you're commenting on expectations for higher promotions over holiday, given the shift in behavior. But you are maintaining your guidance for the full year. So just curious what the offsets are there that are allowing you to hold that plan?

[Francis Conforti, executive]

Sure, Mark, this is Frank. I can take that. I think the outperformance in the third quarter was largely just -- top line came in really healthy. So you got some better leverage as it related to store occupancy, which was great to see with all brands contributing to that. As it relates to the fourth quarter, you hit the nail on the head. We are maintaining our annual plan and expectation to a hope of delivering 100 -- approximately 100 points of gross profit margin improvement. I would like to say I hope we're being conservative, but we do expect as Dick noted, the holiday to be promotional. And if those promotional events are bigger than last year, that could have an impact on margins, and we're hoping that we're being conservative there. This does not mean, and I just want to be clear about this, that we're planning on more or deeper promotions because we're not. It just means over the past several years, we've seen this concept of hires being high and the is being higher and the lows being lower is it raises the sales impact -- sales events, I should say. So again, I hope we're being conservative with the level of improvement we're planning, and we're really excited and pleased to hopefully be able to deliver that 100 basis points on an annual basis.

[Operator]

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

[Alexandra Straton, analyst]

Congrats on a great quarter. Maybe Frank or Melanie to start, I think you've put a 10% long-term EBIT margin target out there, but you'll be very close, if not there this year. So just curious how you think about that longer term and maybe what pushes you beyond it. And then while we have Tricia on the call, I just wanted to take a step back on Anthro, feels like there's just been a structural change in the growth that, that business delivers versus where it was at pre-pandemic. So I'm just curious, like what's changed? And how do you think about the durable growth rate for that business over time?

[Francis Conforti, executive]

And thank you for the congratulations, this is Frank. So as I said, we are still targeting 10% and knock on wood, we're hopeful we get very, very close to that this year. Honestly, before we set a new goal, I'd like to hit the first call. And as you know, and I think everyone knows, there's still plenty of opportunity for us to drive improvement you've got things like the UO turnaround, which is certainly in play right now that brand, as we said, will still have healthy opportunity to drive operating dollars and profit rate gains into next year. You've got newly growing at a really healthy rate and that gives us opportunity from a profit rate perspective as well. As I mentioned, I think with all the brands delivering positive comp [indiscernible] occupancy leverage and excluding what's going on with tariffs, which hopefully, some of that changes in the future. I think all brands have IMU opportunity as well. So there's several levers out there that I think we can pull and hopefully deliver to exceed. But for right now, we're not setting a new target. I'd like to hit the first target first and hit that 10% and operate at it and then we'll reset the goal.

[Tricia Smith, executive]

Hi, Alex, I'll speak to Anthropolgie, thank you for the question. Our team set out a little over 4.5 years ago with really three strategic priorities. But really, I would say, first and foremost, it was getting or delivering on our ability to drive full price sales, which was really focused on newness A lot of that came from really focusing and investing in our own brands, as I had mentioned. But I would say, as we've worked on modernizing our product assortment, diversifying the categories that we're able to deliver and ensuring that we have a broad-based appeal for the multigenerational customer base that we serve has really been the bigger driver of that. Our customer base as we focused on growth and acquisition, but also retaining our existing customers has delivered over 50% increase in the last 4 years in our total customer count. And I think as we leverage that and think about how we execute and we deliver experiences both in stores and our teams have been very, very focused on ensuring that those experiences in the service delivers and exceed our customer expectations, but also investing, I would say, in our digital capabilities, multiple factors contributing to our ability to be able to deliver improved conversion. And then I would say just lastly, making sure that we really deliver on those exceptional experiences and leverage our team's capabilities of design and creative and buying we believe that we've really built a sustainable model for growth coming out of, I'd say, pre-pandemic that we've been able to deliver on and are proud of our team's ability to execute on those.

[Operator]

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

[Dana Telsey, analyst]

Congratulations on the product -- on the progress. As you know about the product -- that's all I'm thinking about. As you think about the consumer, and Dick you mentioned it, some of them waiting closer for deals. Any framework for that? Is that across all brands, all demos, all regions or anything you're seeing in terms of the promotions that you need to drive. And then it was interesting on Nuuly with the continuing average active subscriber growth over 42% or whatever, it sounded like on the gross margin commentary, some of them are buying more of the rental product now. Are you seeing that shift? Is it from all ages, all income levels? And how does that impact the margin?

[Richard Hayne, executive]

Thanks, Dana. The consumer pausing to wait for promotions. I guess I would chalk it up to intellect. I mean they know the promotions are coming, as I said to you, we saw a very rapid process in mid to late October in people putting items in their carts. And that signaled to us that this was the beginning of, okay, we know what we want. We know there are promotions coming. So why not wait? And if you think back maybe 2 or 3 years ago, when everybody was so worried about, oh, there's not -- I guess, it's because the transportation was difficult out of the Far East with COVID. And everybody thought, oh, there's not going to be enough to go around and people started buying earlier and earlier. I think what we're really seeing is just a reversion to what we saw before COVID when people did wait and they did protect more in promotions. So I don't think there's any particular magic to it. I don't think it says much about the consumer other than they're smart. Dave, do you want to take the newly.

[David Hayne, executive]

Frank? Yes, sure, I'm happy to touch on it. Dana, you're absolutely correct. We did see a higher rate sales to the customer in this quarter, and that has a lower gross profit and the subscription sales to the customer. There's been a lot of ways in that we can sell product to the customers sort of in the box through a marketplace through their threat website. We're not really seeing anything different from demographic from age or a geography perspective as to where those things are coming from. And I think it will just be variable from one quarter to the next.

[Operator]

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

[Marni Shapiro, analyst]

Congrats to everybody...

[Tricia Smith, executive]

Thank you.

[Marni Shapiro, analyst]

But she -- say, oh, my god. And that cardigan with the flowers that is like rich thrift store vibes, so good. So my questions are for you. I hate baseball metaphors. And I understand Europe is on solid ground. But I guess where do you feel like UO is in this recovery process. And could we also just touch on Men's. I feel like we guided by past, you had sounds like some stabilization and slight improvement in men's. I'm curious if the Men's business is a smaller part of Urban's business at this point, given it's been a little tougher even than women's. And is it still putting pressure on margins, or is it neutral at this point?

[Adrienne Yih-Tennant, analyst]

Hi, Marni, thank you for the nice comments. You're talking about the Rachel Cardigan, one of our biggest and most beloved items. So I'm glad that you love it and lots of customers do too. I'm really, really proud of that item. So I think your first question, where do we sit in the recovery? First, we recognize that this is a journey. We're incredibly proud of the team and I think the team is executing really well on our plan. They are saying acutely focused on the customer. In Q3, really, that was about occasions of getting back to campus. Same day was a big occasion and reentering campus life. From a product perspective, I think we continue to be excited about the categories that customers see us as a destination for that would be Denim and Lounge and really anchored in our own brands, PDG and out from under in marketing. The team continues to really delight customers, meeting them in places and moments that matter, some exciting partnerships and activations in the third quarter, whether that was celebrating on Rotation with -- which is our newest partnership and on rotation experience or the partnership with Canada, which was a really exciting proud moment, our team through insights with customers, heard that 54% of young customers make wish lists for their holiday -- when their holiday gets list. And so we partnered with Canva and had 3 unique formats that our creative team developed with 100 products and drop-down menus just from Urban Outfitters. That experience is live today with lots of customers participating in it and something that we're really excited about. And from a channel or touch point perspective, feeling excited about the progress that teams are making there, seeing our creative really showing up in our stores, on our digital channels, across social really evolved to be much more upbeat, really inclusive and I think representing our product in a really, really delighting way. And we're excited to have opened 2 new stores, representing our new store environment. I think we're hearing great things from our customers. Certainly, the environment is bright. I think more modern and flexible from our perspective, allowing us to add an flow with categorical performance. and we're really excited about the early reads we're seeing from a productivity perspective in those 2 stores as well. Your next question on Men's, we are real excited about what we're seeing in Men's. You heard us mention that perhaps from the last call. Real proud of the Men's team and the progress that they're making. This started with their focus on the customer as well. And they identified an opportunity to really broaden the assortment as they broaden the range of customers that they were serving to for them, that really meant being reversible and focusing on young college side. These are simple people. We have an opportunity to really be more virtual and focus on more outfitting and more driven for this customer. So the team had prioritized really redesigning and rebuilding our core items and anchoring in core categories. That bottom pants, jeans and sweat, go figure and some of their top of fleet programs and woven tops. And that is resonating really well. And so with some new customers in the business. Really proud to see that we are now a destination where they have more to buy from us than ever. Men's is an important part of our business, and I think that we really have an opportunity to differentiate in the marketplace and be a destination, not just for our own branded products, but be a place where we can have some of the best national and discoverable brands for men. And that's something the team is working on as well.

[Richard Hayne, executive]

Marnie, if I may, I'd like to say a word about Urban as an ex simple college guy, who hasn't gotten much more complex as the year has gone by. I want to give Sheila a big shot out and also the boat team leader, Shae, in North America and Europe. They both delivered an outstanding quarter quarter. And Shae and her team produced the double-digit comp sales that you've heard about and strong -- very strong double-digit full-price sales. It shows that the turnaround strategy is working very well. In Europe, Emma and her team accomplished something I've really never seen in my many years in this business. They delivered a 17% comp sales gain with single-digit less comp inventory and very strong positive double-digit full price sales. So clearly, the momentum for both geographies is strong going into the holidays, and I just want to give my congratulations to all global Urban brand employees.

[Operator]

Our next question comes from the line of Janet Joseph Kloppenberg with JJK Research Associates.

[Janet Kloppenburg, analyst]

Can you hear me?

[Richard Hayne, executive]

Yes.

[Unknown Executive]

Yes, we can.

[Janet Kloppenburg, analyst]

I don't have to tell you how excited I am about such a strong quarter. But I wanted to talk to Shae about Urban. When I look at it, Shae, and I followed the company a long time, it looks like you are working to broaden the assortment and the customer that you're targeting. And I'm wondering if you could talk a little bit about that. And if your pricing strategy has changed and if what they're doing in Europe is similar to what you're doing here?

[Tricia Smith, executive]

Hi, I'll take that for Shae. Yes, one of the first things that we did was a lot of customer research. And I think that we had identified that we had become unintentionally niche or narrow as it related to our product assortment. We had been focused on a bit of range, a bit of a narrow assortment. And I think we recognized an opportunity to be a bit more broad in welcoming in terms of our assortment and listening to our customers. They told us very clearly. You love your Denim, and we love your Lounge, and we love those 2 brands, PDG and Out From Under. But we weren't giving our customers enough of those brands and enough of those categories. So that is what we've been focusing on and the customer has been responding in -- like a lot.

[Richard Hayne, executive]

In sales.

[Tricia Smith, executive]

Yes, in sales. And we're going to keep giving it to them as long as they keep responding.

[Richard Hayne, executive]

And Janet, I'm going to ask Sheila to talk about similarities with Europe.

[Sheila Harrington, executive]

So I think the similarities of the consumer focus is very strong between Shae and Emma. Obviously, the customer is slightly different on what they want at any given time, knowing the Emma and firm touching on Europe, Germany, Netherlands, Spain, et cetera, in the countries that she's touching and just like similarities in North America here in New York and the South refund differently to products, I think both leaderships are concentrating on their consumer, and that feels really, really good. It's a great collaboration, hearing a product between both countries to find the best results for the consumer. I'm proud of Emma growth because it's not only just coming from the U.K. now, there's double-digit growth coming from multiple countries that she's continuing to build on and will, in the foreseeable future as our continued store growth happens in Europe.

[Operator]

Our next question comes from the line of Jay Sole with UBS.

[Jay Sole, analyst]

I have two questions. First, just curious about your wholesale business. As you look into next year, I'm curious about the kind of orders that you're getting from your wholesale partners, given it's possible they might have a different view of what 2026 might look like. And then there's some speculation today that Red Sea shipping lines might open up. If that does happen, what might that -- how might that impact your margins next year if shipping rates go back down to where they were.

[Francis Conforti, executive]

Jay, I could take the Red Sea shipping range. I would just say, obviously, if that happens, the more lays and more opportunities, the better the opportunity is for us. But it's a little early for us to speculate exactly what rates are going to look like and what the impact could be. But yes, that would be a positive. Supply and demand are good things and a greater supply of transportation opportunities is a good thing for us.

[Richard Hayne, executive]

And Sheila to take the Wholesale question.

[Sheila Harrington, executive]

So I'm going to answer, Wholesale, it's exciting time for Wholesale because we're seeing the brand, both free people and FP [indiscernible] well we've seen our Wholesale account base. So we do believe that as we continue to react and learn from our customer, from our C2C perspective, we have the only opportunity to continue to fuel our wholesale channel with the partners that we've built I think FP Movement had a spectacular quarter at wholesale this year. And we don't necessarily see that slowing down. We see our specialty store business thriving as we specialize our product into the outdoor space, our studio space and the international opportunity we have with both brands. So we're really excited.

[Richard Hayne, executive]

I believe that finishes the call. I thank you all very much. I wish you a very, very happy Thanksgiving. I know we've got a lot of work to do. There was a backlog of companies reporting today. So I appreciate it, and we will talk to you soon.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.