Dive Brief:
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Sales at Urban Outfitters’ rental and resale business Nuuly helped push the apparel conglomerate’s Q3 sales up 9% year over year to $1.28 billion. Nuuly’s own sales soared 86% or $30 million, thanks to a 68% increase in subscribers compared to last year, according to the company’s earnings presentation.
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The rental unit’s gross profit more than doubled year over year to $17 million, and gross margin expanded 322 basis points to 25.5%, thanks mostly to an increase in the monthly subscription fee. Operating income reached $300,000 from a $3 million loss a year ago.
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The gains were partially offset by higher logistics expenses, including expenses for a second Nuuly fulfillment center anticipated to open early next year.
Dive Insight:
Nuuly launched in 2019 as a subscription rental business, adding a resale option in 2021. In posted soaring growth and turning a profit, Nuuly has defied the odds when it comes to apparel rental, online resale and subscription sales.
Profits have eluded most, though not all, online-only apparel resale operations. So far, apparel rental company Rent the Runway, which specializes in dressier garments, has yet to turn a profit. Last year the company resorted to layoffs of nearly a quarter of its staff in an effort to trim expenses.
But Nuuly doesn’t seem to be competing with Rent the Runway. Last week, Dave Hayne, who is chief technology officer as well as president of Nuuly, told analysts that about 60% of new subscribers haven’t previously rented from any company before.
“We don’t see ourselves necessarily always stealing share in the Nuuly business,” he said. “We feel like we’re growing a new market and rental is a new concept that people have to learn.”
Hayne cited Nuuly’s ties to the other brands in the company’s stable as key advantages. In November the unit reached its goal of having 200,000 subscribers, he said.
“With the strong 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,” he said.
Jeffries analysts called out Nuuly’s strength as a highlight of the quarter. Overall in the period, total company net sales rose 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 rose 22.5% at Free People and 13.2% at Anthropologie, and fell 14.2% at Urban Outfitters.