Nuuly, the rental service branch of Urban Outfitters, reports a profitable Q3, marking a significant milestone in its growth.
Rewritten Article:
Checking In: Nuuly's Impressive Q3 Sales Boost for Urban Outfitters
Take a peek at Urban Outfitters' rental and resale business Nuuly, the star performer pushing the company's Q3 sales up a whopping 9% year over year to $1.28 billion. Nuuly's own sales skyrocketed by 86% or $30 million, thanks to an impressive 68% increase in subscribers compared to last year, as per the company's earnings presentation.
The rental unit's gross profit more than doubled year over year, landing at a cool $17 million, and its gross margin expanded a significant 322 basis points to a commendable 25.5%. Operating income reached a respectable $300,000 from a loss of $3 million just a year ago.
However, these impressive gains were partially tempered by higher logistics expenses, including expenses for a second Nuuly fulfillment center scheduled to open early next year.
Insightful Nuggets:
Nuuly made its grand entrance in 2019 as a subscription rental business, branching out with a resale option in 2021. Despite the odds being stacked against apparel rental and online resale, Nuuly has bucked the trend, turning a profit.
Profits have remained elusive for most online-only apparel resale operations, though exceptions exist. Rent the Runway, a specialty apparel rental company, is yet to turn a profit, with layoffs of nearly a quarter of its staff last year to cut expenses.
Yet, Nuuly doesn't seem to be jostling with Rent the Runway. Nuuly's vice president and chief technology officer, Dave Hayne, mentioned during a recent briefing that about 60% of the new subscribers haven't previously rented from any company before.
"We don't see ourselves necessarily always stealing share in the Nuuly business. We feel like we're growing a new market, and rental is a new concept that people have to learn," Hayne explained.
Hayne credits Nuuly's close ties to the other brands in Urban Outfitters' portfolio as key advantages. In November, the unit reached its goal of having 200,000 subscribers, he said.
"With the solid partnership of our sister brands Anthropologie, Free People, FP Movement, and Urban Outfitters, as well as over 400 other partner brands, we have curated what we believe is the most compelling rental clothing assortment on the market," Hayne stated.
Jeffries analysts commend Nuuly's strength as a highlight of the quarter. For the period, total company net sales grew 9% to $1.28 billion, with retail segment net sales up 7.3%, and retail comps up 5.6%. E-commerce grew in the high single digits, and store sales grew in the mid single digits, according to a company press release. Wholesale fell 3.6%.
By brand, retail comps surged 22.5% at Free People and 13.2% at Anthropologie, while they dipped 14.2% at Urban Outfitters.
Overall, Nuuly's success hinges on Urban Outfitters' ability to capitalize on existing assets while innovating in circular fashion models, achieving growth rates that outpace traditional retail segments. Its profitability profile improves as scale increases, with Urban Outfitters continuing to prioritize expansion through 2023-2024.
- Urban Outfitters' rental and resale business Nuuly, initially a subscription rental platform launched in 2019, has defied odds and turned a profit, even in the challenging apparel rental and online resale market.
- In contrast to other online-only apparel resale businesses that struggle to make a profit, Nuuly's impressive Q3 sales skyrocketed by 86%, reaching $30 million, and its gross profit more than doubled year over year, amounting to $17 million.
- The growth in subscribers played a significant role in Nuuly's success, with an impressive 68% increase in subscribers compared to last year, as per the company's earnings presentation.
- However, higher logistics expenses, including costs for a second Nuuly fulfillment center, somewhat tempered these impressive gains in profit.
- Despite potential competition with specialty apparel rental company Rent the Runway, Nuuly seems to be carving out its own niche, with about 60% of the new subscribers having never rented from any company before.
- The key to Nuuly's success lies in its strong partnerships with other brands within Urban Outfitters' portfolio, such as Anthropologie, Free People, FP Movement, and Urban Outfitters, as well as over 400 other partner brands, offering a diverse and compelling rental clothing assortment.
