Q1 2025 Urban Outfitters Inc Earnings Call

Participants

Oona McCullough; Executive Director of Investor Relations; Urban Outfitters Inc

Francis Conforti; Co-President, Chief Operating Officer; Urban Outfitters Inc

Melanie Marein-Efron; Chief Financial Officer; Urban Outfitters Inc

Tricia Smith; Global Chief Executive Officer, Anthropologie Group; Urban Outfitters Inc

Sheila Harrington; Global Chief Executive Officer, Urban Outfitters Group and Free People Group; Urban Outfitters Inc

Adrienne Yih; Analyst; Barclays Investment Bank

Matthew Boss; Analyst; JPMorgan Chase & Co.

Paul Lejuez; Analyst; Citibank, N.A.

Mark Altschwager; Analyst; Robert W. Baird & Co.

Katherine Delahunt; Analyst; Morgan Stanley & Co. LLC

Marni Shapiro; Analyst; The Retail Tracker

Dana Telsey; Analyst; Telsey Advisory Group

Ike Boruchow; Analyst; Wells Fargo Securities LLC

Janet Kloppenburg; Analyst; JJK Research Associates, Inc.

Jay Sole; Analyst; UBS Group AG

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. first-quarter fiscal 2025 earnings call. (Operator Instructions)
I would now like to turn the call over to Oona McCullough, Executive Director of Investor Relations. You may begin.

Oona McCullough

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 three-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 one-time 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.

Thank you, Oona. 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. Four of our five brands posted record first quarter revenues and three posted record operating income. The Anthropologie, Free People, FP Movement and Nuuly brands all produce double digit revenue growth. These brands are delighting their customers, capturing additional market share and executing a best in class level. Combined before 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 read 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 strain 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 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 their return in the Urban brand to profitability and growing their customer base remains our number one priority.
Starting 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 considerate than last year. Overall, I would classify the customer mood this versus last year as enthusiastic rather than exuberant. We believe this new mood, it's healthier because it's more sustainable.
Now with that, I'll turn the call over Frank.

Francis Conforti

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 four of our five brands continued to perform exceptionally well, posting record first quarter sales.
Our sales growth was driven in part by 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%, 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 four of our five 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 one-time 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 at 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 one-time expenses related to the opening and transition of subscribers and inventory into our second, Nuuly Fulfilmen 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 declines.
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 as 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's 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 one-time 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%, 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 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's 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's 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 improvement. 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-priced 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 the quarter of $1 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 enable us to deliver our Nuulies 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

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 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 from low single digit growth in Retail segment comp and wholesale sales. In addition, we believe that Nuuly lease segment sales growth could be mid-double digits.
Now onto 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 brands.
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 basis points 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 the Urban Outfitters brand where we have reduced expenses, but not at the rate of sales declines.
While we believe SG&A growth could outpace sales growth in Q2. 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 FY25 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 2025. Our net new store growth is being driven by growth in FP Movement, Free People and Anthropologie stores. During fiscal year 2025, 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.

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 our 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.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Adrienne Yih, Barclays.

Adrienne Yih

Good afternoon and congratulations. So, 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 it just 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 in June, July?
Thank you.

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, what in 2018 or 2019 that there was a switch in the silhouettes to a little over big, I would say we're about mid-point in that adoption of that right now. And I would say it's from 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 a little hints of a reversal. But let me -- see if Free People oriented or entered people want to talk about what they're seeing in silhouette in their brands.

Hi Adrienne. It's Shea. I can start. I think as I would describe it. One 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 whether we're 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 guest as we're able to actually chase into stuff. And we're really focused on the proportionality, whether that big on big or little on little or the mix of both.

Tricia Smith

Yes, I think, Adrienne, it's Tricia. The full adoption of a wide range of bottoms is really driving some pretty significant results for Anthropologie. The range of silhouettes and bottoms, but also that 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.

Thank you. You want to say anything about Free People?

Tricia Smith

Yeah, I don't want Free People to be left out.

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

Tricia Smith

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 to what's next. So to stay ahead of the game.

Operator

Matthew Boss, JPMorgan.

Matthew Boss

Great. 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 and what are you seeing? What are the actions that you've put into place and just your confidence in back half merchandise margin expansion?

Okay, Matt. The Retail segment comp performance for Q2 so far in May, it's just slightly softer than our Q1 print with the biggest difference in the Free People brand. Free People is currently posting mid-single digit positive comps. And this is because we are anniversarying what I would call an ultra-positive 27% comp from Q2 last year.
But if you look at it on a two year stack, Free People comps remain very consistent across the two 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 time and at a teen-related negatively. Overall, we think that the overall Urban Retail segment comp for Q2 should be about 3%. That's our best guess.

Melanie Marein-Efron

And then, hi Matt, this is Melanie Marein. Just to cover your inventory question. So at a URBN basis, we're really in a much improved position with total inventory down 2% 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 inventories 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 sure ensure that the inventory is clean as we exit spring and summer, and we entered the all-important back-to-school fall selling season. We believe that at this point that cleaner inventory will allow us to produce improved margins in the back half of the year.

Francis Conforti

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 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 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 basis points to 100 basis points.

Operator

Paul Lejuez, Citi.

Paul Lejuez

Hi, this is Kelly on for Paul. Thanks for taking our question.
And I guess if we could just elaborate on some of your thoughts on how you present the UO brands to the Gen Z customer, how that's different than your prior playbook. Any initial thoughts there? And you mentioned some changing of pricing architecture. If you could just elaborate on that a bit.
And then just on the gross margin guidance, well, first in 1Q, what drove the upside versus plan in on how much of an impact should we expect the markdowns and evoke to be offsetting some of the other drivers of gross margin in 2Q? Thanks.

Francis Conforti

KelIy, 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 your IMU is 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 then holiday season for the back half of the year.
Shea, you want to take the urban question.

Sure. Hi, Kelly. If I understand your question correctly, you're asking about the 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 our customers are. 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 one 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 mentioned earlier, there's two 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 two 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 [Nully], 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 customers.

Operator

Mark Altschwager, Baird.

Mark Altschwager

Thank you. Good afternoon. A follow-up on gross margin. You're reiterating the 50 basis points-plus to 100 basis points for the year. Q1 seemed to come in a bit better than plan. 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 and the high end versus the low end of that 50 basis points to 100 basis points.
And then separately, I think overall margins were negative mid-single digit last year. Can you speak, the path back to breakeven? Cycling some of those heavier markdowns get you there? Or do you need to return to some level of revenue growth to get back to breakeven? Thank you.

Francis Conforti

Sure, I can take that. So Mark, I think we feel, right now, obviously, the second half is far way. It feels like we feel very comfortable with the 50 basis points 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

Alex Preston, Morgan Stanley.

Katherine Delahunt

I think you 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. Would you attribute that improvement to? 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 a further infection at Urban. Thank you.

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

Melanie Marein-Efron

We said we were having a positive additional 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 is what it's all about. So that's that early what we're experiencing currently in the OU 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 US.
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 their reaction to spring and summer being quite strong. So we have some strong momentum in the EU business as we stand today.

Operator

Marni Shapiro, The Retail Tracker.

Marni Shapiro

Congrats on the consistency as well. I'm Tricia, I would like to talk to you a little bit just digging in at, Anthro, you've had some 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 two 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 pickup on the other trends a little more quickly in the market.
And then just one 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

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. The first quarter new customers grew by 19% and that really has come from a really concerted effort and acquiring new younger customers in the average age, where customers come down pretty significantly and are definitely engaging on our social platforms, as you referenced, particularly TikTok.
And 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 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 the design, the way we think about, the way we display the brand in stores and PILCRO and Maeve and our Anthropologie brands are our top search brands and month after month. So the customer knows them and they seek them out.
Daily practice is active lifestyle brand that we've introduced. And really, I think is, as Dick had mentioned in the stores in particular, we're thinking about how do we 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 at those brands by almost 50% in six 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 at our total mix has never been higher. And the profit that those brands are producing is incredible, but mostly proud of the fashion that the teams are serving up in our own brand offer and just glad that you're recognize that. Thank you.

Operator

Dana Telsey, Telsey Advisory Group.

Dana Telsey

Good afternoon, everyone. 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? And how does it differ?
And then just on Europe, what did you see there? How is that performing relative to expectations? And lastly, the wholesale operating income was up significantly. What are you noting there in term of order trends and self-through promotionally versus full-price? Thank you.

Thanks Dana. Let me talk about Europe first and then maybe Frank or Mel will talk about the marketing spend. As I think we've mentioned the Urban brand in Europe both posted negative high single digit in Q1 is showing signs of revival. Up until very recently they were flat and now they're down a couple of percentage points and versus last year. When we look at the other brands that Anthropologie and Free People sales in Europe are quite strong. They were strong in Q1 and they contribute to comp gains in Q2. We're very excited because actually, we're not as optimistic going into this year about Urban given all the problems that had, but we've been very pleasantly surprised. Mel, would you like to?

Melanie Marein-Efron

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 where the toward the growing brands. As we go through the year, though, I do think that 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

Ike Boruchow, Wells Fargo.

Ike Boruchow

Hey, everyone. Just to go back to OU, so the Mark's point earlier margins negative -- negative mid-single digits last year. It's still having no issues on the promo and the comp side.
I guess my question is just at a higher level. How long of a leash 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, the geography just suggest something to kind of rightsize the margin structure of the business. Just going to understand, like what are the goalposts you guys are kind of looking at?

I think, we've said over the last quarter or two that we were engaged with in a strategic review that is fairly broad and making some decisions about that as we speak. But I think when we're not ready to talk about it in depth. We are, as been mentioned on the call now a couple of times, we've seen positive signs. And our thoughts are that we will be able to turn that ship around.
There are definitely some issues. Some of the stores are too large. We know that. As we said earlier, we have to change 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 more about it other than we're going to give a more thorough review of this in August, on the call.

I think I would acknowledge though, that we do anticipate a more appropriate sale 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 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 them.

Operator

Janet Kloppenburg, JJK Research.

Janet Kloppenburg

Hi, everybody, and congrats. -- I wanted to just touch base. It sounds like trends in Europe for OU have turned. And I'm wondering, Shea, if the plan is to, -- is it feasible that the apparel trends in Europe come can transition to the US? And is that what's giving you the confidence in the brand's comps churning? 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 info on current comps at Anthropologie, are you suggesting that they were up mid-single digits right now and that adds to the outlook for the second quarter? I may have misinterpreted that. And if I did, I apologize. Thank you.

Tricia Smith

Hi, Janet. This is Tricia. I'll start with Anthropologie. We're cautiously optimistic as we enter Q2. At Anthropologie, I think, as Dick mentioned the first two weeks of May are very important weeks for Anthropologie as a the brand as we prepare for Mother's Day and our comps are fairly aligned with where our Q1 performance was. With, I think some fun headlines we that week leading into Mother's Day, we delivered our brands record high dress sales as -- (multiple speakers)
We did more dress volume and the week leading up to Mother's Day than we ever had in a week as a brand. So really optimistic about as weather informed as we are leaning into events like Mother's Day and we're cautiously optimistic that we've got some nice trends going in the business.

Sheila Harrington

So this is Sheila. I'm going to take that Urban question. And 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 US because we think our customers are positioned slightly differently than our US 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.

Francis Conforti

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 experience is they've gone more into what I would call the feminine look 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. Then there is the North American business.

Operator

Jay Sole, UBS.

Jay Sole

Great. Thank you so much. I'm just wondering if you could elaborate a little bit on Nuuly. Just maybe talk to us about the sales trend, what 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. Thank you.

Francis Conforti

Dave, you want to take that?

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 a tremendous amount of growth, a lot of subscribers that joined the platform for the 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 in the second quarter. So it's just very, very exciting time for Nuuly.

Francis Conforti

Okay. I think that that wraps up all 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.