Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Fourth Quarter Fiscal '21 Earnings Call. I would now like to introduce Oona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN Fourth Quarter Fiscal 2021 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3 and 12-month periods ending January 31, 2021. The following discussions may include forward-looking statements. It's important to note at this time, the global COVID-19 pandemic has had and continues to have a significant material impact on URBN's business. Given the uncertainty about the duration and extent of the virus' impact to the global retail environment, content discussed on today's call could change materially at any time. Accordingly, future results could differ materially from historical practices and results or current descriptions, estimates and suggestions. 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. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, please refer to our earnings release in the Investor Relations section of our website. On today's call, you will hear from Frank Conforti, Co-President, URBN; and Richard Hayne, Chief Executive Officer, URBN. Following that, we will be pleased to address your questions. 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 Frank.

Thank you, Oona. Good afternoon, everyone, and thank you for joining our call. On today's call, I will discuss our thoughts on our first quarter and full fiscal year '22. While we certainly have more clarity than we did at this time last year, there is still a meaningful amount of uncertainty in the year that lies ahead. Even with this uncertainty, both Dick and I believe there are plenty of reasons to remain excited and optimistic about FY '22 and beyond. We feel confident about our overall strategy, but have less clarity on the timing and magnitude of recovery. For example, we are confident consumer spending will rebound this year and believe apparel spending will be a beneficiary of the rebound. We believe as consumer confidence improves and the impact of the virus continues to wane, the consumer will want to go out and socialize more. When they do, they will want to wear new things. We are confident store traffic will improve. We have less clarity about the level and timing of that improvement. February has been a difficult month to draw conclusions about traffic trends as severe weather patterns negatively impacted the North American business and nearly all of our European stores remained on lockdown. Despite that, we are beginning to see signs of improvement, especially in the warmer weather stores. We are also confident that our brands are well positioned to take advantage of the improved consumer spending on apparel. We have strong brands that our consumers come to for trend-right product and inspiring shopping experiences, both online and in stores. We have swift sourcing capabilities and the ability to air product into country to chase consumer demand as it begins to build. I am also personally confident that I will enjoy plenty of challenges explaining our performance, be it versus LY or LLY or by channel or by geography. There are a lot of moving pieces right now. On that note, let me cover a quick housekeeping item. This year, when speaking to our results, we will largely focus on comparing results to FY '20. While we are starting the year more challenged than 2 years ago due to the ongoing impact of COVID-19 on stores, we believe this is the right comparison and measurement for our business performance. Now I will speak to the first quarter and a bit about full year FY '22. It is important to note that COVID-19 is not only negatively impacting our store sales performance. It is also disrupting our inventory flows. We continue to experience delays and increased costs in bringing product into the U.S. and U.K. from Asia. These delays impact our ability to replenish and deliver timely new receipts to all channels. We do believe these challenges will gradually moderate as the quarter progresses. We believe the first quarter will show a steady sales improvement versus FY '20 as the quarter progresses. Right now, we believe first quarter total company sales could come in low single-digit positive versus FY '20. This could be the result of Retail segment sales being up low single digits, and Wholesale segment sales decreasing by low double digits. One of the biggest unknowns impacting Resale segment sales is when all of our European stores will be able to resume trading. Based on our current sales performance and forecast, we believe our gross profit margins for the first quarter could be down several hundred basis points to FY '20. Deleverage in delivery and logistics expense resulting from the increased penetration of the digital channel to the total business could be the primary cause of this decline. Please keep in mind, on a stand-alone basis, our digital channel is far more profitable than our store channel. Quarter-to-date, our store sales are meaningfully below levels in Q1 FY '20. Since store occupancy expense is largely fixed, reduced sales create considerable deleverage in the store results. When the channel P&Ls are combined, the increased penetration of the more profitable digital channel provides a significant benefit to store occupancy expense as a rate of sales. We believe this is likely what will occur in the first quarter. If store sales improved throughout the quarter and year, which we believe is likely, the opportunity for gross margin recovery increases. Now moving on to SG&A. Based on our current sales performance and plan, we believe SG&A could grow in the low single-digit range for the first quarter and in the mid single-digit range for the full year versus FY '20. Our growth in SG&A is primarily due to planned marketing and creative spend to support our robust digital channel growth. Additionally, our SG&A growth is a result of planned incentive-based compensation, which was largely not achieved in FY '20. The growth in these expenses could be partially offset by lower direct store controllable costs. As we have done in the past quarters, our teams will manage SG&A relative to actual sales. We are currently planning our effective tax rate to be approximately 30% for the full year FY '22. We believe the first quarter effective tax rate could come in somewhat lower than our annual rate due to the timing of profits and losses. Capital expenditures for fiscal year are planned at approximately $250 million. The spend is primarily related to construction on a new distribution facility in North America, in addition to the completion of our automation equipment in our new facility in the U.K. Our new North American facility just outside of Kansas City, Kansas, will take approximately 2 years to complete Phase 1. This facility will support the growth and expansion of our Retail segment business in North America by providing more efficient and faster inventory processing as well as faster and more consistent delivery times to our stores and digital customers. Lastly, we are planning on opening approximately 55 new stores and closing 21 stores this year. Our new store number is larger than in previous years due to the addition of FP Movement store growth as well as the availability of favorable lease terms on new stores. The obvious question is, why open stores with the uncertainty around store traffic? The answer is the economics of our new stores are significantly favorable to our existing ones. Currently, we are successfully negotiating variable rent, also known as percentage rent, on most of our new stores. This provides reasonable protection against traffic fluctuations. Additionally, we are receiving significant capital reimbursements on many of our new or renewal locations making the capital investments in these new stores minimal. Lastly, our new stores are located primarily in secondary markets where traffic patterns are currently outperforming major metropolitan areas. While our new stores have these benefits, many of our existing locations do not. We will need to negotiate better occupancy costs at these existing locations when leases expire or we will be forced to close them. When I speak about the learnings, we look forward to this year, a better understanding of where store traffic and volume will reset to once the virus retreats is obviously at the top of our list. 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 am pleased to turn the call over to Dick Hayne, CEO of URBN.

Thanks, Frank, and good afternoon, everyone. Today, I'll discuss our current business trends, the year ahead and give an update on several of our growth initiatives. As a reminder, when I use the word comp in reference to our current year sales, it will mean a comparison against FY '20 sales or LLY. Not against last year, since those results were obviously very distorted by COVID. We will use this LLY standard for the remainder of FY '22. Let me begin with our current trends. As previously disclosed in our Q4 sales release, all 3 brands showed significant improvement in January versus what I would characterize as disappointing holiday sales. Throughout January, sales strengthened as new inventory arrived. Beginning in early February, this trend was interrupted by abnormal weather events that depressed store traffic. As more typical weather patterns returned to the U.S. toward the end of February, store traffic and sales in North America showed meaningful improvement. This helped to drive mid single-digit positive Retail segment comps for the month, with all brands in North America positive. Meanwhile, in Europe, virtually all of our stores remain closed due to government mandates. Digital sales in Europe more than doubled and offset much of the store loss. But total Retail segment comp sales in February decreased by high single digits in Europe. Combining these factors, we believe total company Retail segment comps could be positive for the quarter. The magnitude of comps, however, depends on many factors, including when stores in Europe are permitted to reopen. During Q4 in February, both the Anthropologie and Urban brands continued to benefit from strong home sales. This, even though new home inventory received from Asia were delayed by 4 weeks or more, as Frank discussed earlier. Compared to the prior year, current customer back orders for home products are up over 350% and now exceed $20 million. We expect the timeliness of inbound freight to slowly improve over the next several months, which should help comp sales as we ship back orders to customers, but we also believe freight costs will remain elevated for much of the year. While home products are selling briskly, performance within the all-important apparel category is spotty at both larger brands. Dressier apparel underperformed in January and much of February while casual apparel was mixed. Some classes are selling well and others not. Obviously, COVID-related stay-at-home mandates impacted customer buying behavior. More recently, however, we're seeing signs of customer interest in going out-type apparel beginning to emerge. We believe as vaccines become more widely distributed, new COVID cases continue to fall and government restrictions begin to loosen, women will feel more comfortable venturing out and apparel demand will accelerate. The exact timing is hard to predict, but we believe it will coincide with spring weather. Moving to Free People. This brand seems immune to the virus. Their business has remained positive throughout the pandemic, except for a brief period last March. Almost all Free People product categories enjoyed success in both January and February. This drove strong double-digit retail segment comps in both months. Positive outliers include casual apparel, shoes and, of course, FP Movement. Movement is one of our most exciting growth initiatives. In Q4, new Movement customers grew by 138%. And digital sales advanced by more than 150%. All channels: Digital, Retail and Wholesale posted strong gains, and that trend has continued into Q1. During the fourth quarter, we opened 2 more stand-alone Movement stores: Boulder, Colorado and Coconut Grove, Florida. Along with the first store that opened in Century City last October, these stand-alone stores performed nicely above plan in February. This year, we're excited to open an additional 10 locations across the country. Given the abundance of available locations and favorable lease terms, we plan to increase that number next year. With Movement achieving outstanding results across all channels, including stand-alone stores, triple-digit gains in digital sales, high productivity in the 54 shop-in-shops inside Free People stores, plus a growing wholesale account base, we believe Movement is poised to grow revenues from just shy of $100 million last year, to over $250 million in FY '24. Another exciting growth initiative is AnthroLiving. This past year, the Anthropologie team rebranded the home category as AnthroLiving and delivered positive Retail segment comps in all 4 quarters despite stores being closed or impaired. During the year, the AnthroLiving digital customer base grew by over 60%. We believe the brand offers a unique aesthetic in this category and will continue to deliver outsized growth with the ability to more than double revenues and exceed $1 billion in sales in the next 5 years. Finally, I would like to make you aware of a marketing initiative we began testing in early February. It's a paid membership program we call UP. In exchange for an annual fee, UP provides membership benefits across our entire portfolio of brands. UP is designed to drive increased frequency, capture a greater share of wallet, improve retention, provide opportunities for greater cross-brand exposure and selling and attract new customers. We believe the ability to access benefits at all Urban brands, for the price of one membership fee, offers a key differentiator for our program. The test launched in 2 markets, Dallas and Atlanta, and will run for 6 to 12 months, depending on the rate of sign-ups, and the speed of our learnings. We look forward to sharing more about the UP initiatives on future calls. Before closing, I know many of you saw our January announcement concerning management changes at the Urban brand. I want to congratulate Sheila Harrington on a well-deserved promotion to CEO of both the Urban Outfitters and Free People brands. Sheila started with 3 people in 2002 as the head retail merchant in charge of opening the first Free People store. She has been instrumental in building this now iconic brand over the past 19 years. She's been responsible for driving positive comps for 16 of the past 17 quarters and incubating the FP Movement brand. Right now, she's actively searching for a head merchant for the Urban brand in North America as Gabrielle Conforti has left URBN to pursue another opportunity. I'm confident Sheila will be successful in her new role. And besides maintaining positive quarterly comps at Free People, will now help drive consistent growth at the Urban brand as well. In closing, I thank all brand and shared service leaders, their teams and our 19,000 associates worldwide. Back in March of 2020, when the pandemic first hit North America, we imagine that URBN would incur a very substantial loss for FY '21. Instead, we made a profit. The hard work, resiliency and creativity of our teams, together with the cooperation from many of our partners around the world, made that happen, and I thank all of you. I also thank our shareholders for their continued support. That concludes my prepared remarks. Now for your questions.

The operator will now take questions. Your first question comes from Adrienne Yih of Barclays.

I want to stay on the topic of what's happening at the West Coast ports. Frank, can you help us understand how much is sourced from the Far East or, alternatively, how much of your product comes in through West Coast ports? I believe some or most shipments come through the East Coast. Does that help mitigate some of the disruption? And if you can provide any quantification, perhaps the percent that freight is of sales and what portion is inbound versus outbound, that would be very helpful.

Adrienne, it's less about the ports right now and more about the containers. And it's less about apparel and more about home. So while, yes, the ports are absolutely experiencing congestion, especially on the West Coast, LAX and Oakland as great examples, and we're seeing anywhere from 2 to 7 days of delays in the ports, the bigger challenge is actually on just inbound vessels, having enough containers over in Asia to bring product in and the category that's the most impacted right now. It's not to say apparel is not impacted. But the category that's the most impacted right now is the home category. Affecting Anthropologie, then following Anthropologie, the Urban Outfitters brand. We are starting to see some very, very slight improvement, and we're hopeful that the improvement will continue at a moderate pace as the quarter continues to progress.

Your next question comes from the line of Kimberly Greenberger from Morgan Stanley.

Okay. Great. I wanted to follow up on the commentary regarding the first quarter and the momentum that you saw towards the end of February. And Dick, did I hear you correctly say that you saw significantly positive retail segment comps in the back half of February, and then you expect that Retail segment comps could be positive in the first quarter. And it sounds like you're measuring that against 2019. Did I hear you correctly? And if you could just peel back the onion a little bit on what's working and sort of what gives you hope that the recovery could, in fact, progress along this path. That would be great.

Okay. Kimberly, I'll start with that, if I could. You did hear me correctly. I think that we saw comps, and again, let me define comps for you. It's LLY. That's what we're going to use for FY '22 going forward. So unless we specify otherwise, it's always against LLY. Yes, the comps did firm up, I would say in the last 10 days of February, and the more striking thing than the fact that they did improve was what we saw improving. Up until recently, I think you all know that the faction that's been predominant has been, I guess, I'd call, casual and home comfortable. And anything that sort of fits that description had a very high chance of selling; anything that didn't had no chance of selling. We started to see that break a bit. One stat that I like to give is that in the last week of February, Anthro list of top 10 selling items on the anthropologie.com website included 7 dresses this year. And up until that point, over the past year, we were lucky if they included 1 or 2 dresses. So that's a very striking change. Now some of that definitely could be product-related and some of that could be imagery-related, both of which, I think, improved but it is a striking change and one that we find very positive. So I think that we're beginning to see, I guess, what I'm calling, go-out fashion start to take hold. And just about everything you're hearing in the media today is starting to reinforce that people want to get out and be with friends again and go out to dinner and do this and that. So I think the apparel business will be in for a change in terms of what categories sell. Did I answer your questions more or less completely? Okay. On to the next question.

Your next question comes from the line of Paul Lejuez from Citigroup.

Curious how you're thinking about private label as you look out to 2021. Where was private label this past year as a percentage of sales at Urban and Anthro? And just how are you thinking about the long term? I'm also curious, Frank, I think you gave CapEx for this year, curious about how you're thinking about CapEx over the next couple of years.

Paul, I'll take the first question. I can't speak for all the brands and would let each speak, but we don't have time, so let me try to answer. Free People is basically its own design; I hesitate to call it private label. They're almost completely that now, and I expect they will remain so. I believe Anthropologie will slightly increase the penetration of owned product versus market product. At the Urban brand, we want to increase the style count, and to do that we will likely slightly increase the penetration of market product in the overall brand. I don't know if that answers your question in sufficient detail. If it doesn't, I'd be glad to talk to you offline.

Your next question comes from the line of Matthew Boss from JPMorgan.

On gross margin, relative to the 31.5% pre-pandemic level in 2019, what is the best way to frame the gross margin puts and takes this year if we consider retail merchandise margins and occupancy?

Matt, this is Frank. I'll take that one. The puts and takes really have to do with the three line items I talk about a lot right now when we discuss gross profit margin. One is delivery and logistics expense, which has deleveraged on the total company P&L due to increased penetration of the digital channel. The other is, honestly, store occupancy, which has remained flat. But when you look at store P&Ls on a discrete basis, store occupancy on a store-only P&L has deleveraged significantly because our store sales are meaningfully down from where they were in calendar 2019 or fiscal 2020. The reason you're not seeing that store occupancy deleverage on the company P&L is the favorable benefit of growth in the digital channel. As we've covered on previous calls, the digital channel is more profitable than stores. So the opportunity for margin recapture will come as store sales start to recover. As Dick mentioned and I have mentioned, we believe they will continue to improve as the year progresses. That is what creates the opportunity for margin recapture as the year progresses and allows us to see the benefit of increased digital penetration while store sales improve.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

Can I follow up on net gross margin question? Is there a level of store sales that you'd need to get to as a percentage of 2020 store sales to stem the decline in gross margins? And where do you think the e-commerce penetration might shake out over the next couple of years?

Lorraine, I honestly wish I had that answer.

Yes. We all do Lorraine.

I would tell you, I put it in my prepared commentary, to be honest with you, I think where store and digital, I'll call it sort of traffic, resets this year as the impact of the virus begins to wane, is really, I would say, either at the top or certainly in the top 3 items on our list of what things that we're going to watch this year. Because they're tied together, I can't specifically speak to what store occupancy would recover to and the impact on gross profit margin without knowing what digital penetration is and how digital sales are because there's obviously a relationship there. But if you're assuming that stores are beginning to recapture and beginning to recover their sales volume versus where we were in fiscal '20, and digital is still continuing to grow, as that continues to progress, as stores continue to progress and show that improvement, you should see improvement in recapture in gross profit margin overall.

And Lorraine, this is Dick, if I could add to that. This is why as we're negotiating new leases or extensions of prior leases that we're almost insistent, so very, very few part this way of getting percentage rent deals. A percentage rent really insulates us pretty nicely from fluctuations in traffic. So with a lack of visibility to where it might end, percentage rent is what we want.

Your next question comes from the line of Mark Altschwager from Baird.

Frank, I think you're guiding to SG&A growth up low single digit on a low single-digit increase in sales for Q1, which is a bit interesting. And in years past, I think you've guided to SG&A ahead of sales, typically, given some of the investments in the growth areas like international, wholesale, new lease. So I guess my question is how are you thinking about some of those incremental growth opportunities in fiscal 2022? How are you thinking about investing behind them today versus perhaps waiting for a bit more clarity on where the sales trends normalize?

Yes. Thank you for the question, Mark. I think, and I'll take credit, that for the last five years our SG&A growth, excluding this year, has been below our sales growth. We've leveraged and done a good job controlling SG&A growth. With that said, you're correct. Based on our current view of sales and plans, we think SG&A could be up low single digits versus fiscal 2020 in the first quarter and up mid-single digits versus fiscal 2020 for the year. Obviously that number is highly sensitive to sales, and we adjust SG&A growth as sales fluctuate during the year. The investments we have in the business, as well as inflation in the marketplace right now, are built into the plan. We are continuing to invest in many initiatives across the company, including Free People Movement, AnthroLiving, and the new business; that is baked into the plans.

Your next question comes from the line of Kate Fitzsimons from RBC Capital Markets.

Frank, I guess, piggybacking on that in terms of the FP Movement stores this year. Can you guys maybe expand on what you're seeing early days in that concept with store opening, digital new customer acquisition? It feels like the athletic category can appeal perhaps to a wider, maybe older demographic. So just curious in terms of what you're seeing there in terms of new customer acquisition. And then, Dick, you talked about the UP Membership program. Can you just give us a little bit more detail how much is the membership? You said it's in 2 markets, any pricing learnings? That would be helpful.

Okay, Kate, I'm going to ask Sheila Harrington to speak to the first question.

Kate, our new stores for FP Movement, we are extraordinarily pleased with our conversion and AUR, which is actually higher than the Free People stores, which gives us a lot of optimism as we open future stores. I think because of the time frame of which we opened, it's difficult to say how many new customers that we will be able to capture. We are pleased that the customer coming in does seem to be of what you talked about, a wider breadth than our Free People audience, which is why we think the size of the business can be as large as it is. So between our omni Retail segment, we are really pleased with our new customer growth. As Dick said, it was in the triple digits this past year.

Okay. And Dave, do you want to give an update on UP?

Yes, sure. Kate, thanks for the question. We're really excited about UP. UP is a new program and we're just rolling it out in two markets, currently testing in Atlanta and Dallas. We're testing across two price points: $48 and $98. The benefits for both tests are the same. In each market, once someone signs up they will receive a gift card; the gift card value differs by price point. Members also receive free shipping and free returns on all orders, 15% off all orders, and a $10-off coupon every month for new subscriptions. The goal is to test and learn, to understand how intrigued customers are by these offerings and to measure over time how customers respond and whether their behavior changes when they become members. It's early days — we launched a few weeks ago, but we're encouraged by the early feedback so far and excited about the program.

Your next question comes from the line of Janet Kloppenburg from JJK Research.

Good to hear the encouraging news. I was wondering, Dick: you said earlier that the apparel business at UO and Anthropologie was maybe just okay in February and early March. I know you are seeing dress-up pick up, but could you identify what was soft, why you think that was, and how you expect it to unfold going forward?

I'll give a general and then ask Hillary to talk a little bit about Anthropologie. Yes, the apparel business was softer than we would have liked, particularly in categories like dresses. Now dresses did pick up, as I said, towards the end of February. But for the first part of February and certainly in January as well and going back probably almost or definitely going back to March of last year, dresses really have not been strong at all. They've been very weak. There are a number of other areas that have been fairly weak as well. In general, I would again classify it as a split between that comfortable casual stay-at-home dressing and stuff that women would typically choose if they were going out to meet friends, have a cup of coffee, to have dinner, all those kinds of activities. Hillary, you want to be a little bit more inclusive and maybe erudite than I just was?

Sure. Janet, I would start by saying that over the course of the better part of the last year, our business has shifted fairly significantly to being almost entirely casual. And as you know, that's a big shift for Anthropologie. As we entered February, I would say that apparel picked up a little bit in the beginning of the month, still driven by casual and really lounge and the denim businesses being the primary drivers of that, but still quite challenged. And I would add at that point that home continued its strong momentum throughout the month of February. As we reached the end of February, we saw a very distinct shift in consumer behavior. We've had very strong session growth all year long, but it's been disproportionately going to home, and we really started to see that change at the end of February. We saw 1,000 basis point lift in apparel views as well as a conversion improvement and an AOV improvement. And that was really driven by two things: dresses, dresses, dresses. And then also just a general shift to what I would call dressy casuals and then versatile clothing. So dresses is really the name of the game for Anthropologie in the first half of the year, and it's very, very encouraging. When I look at those 7 styles that Dick talks about, I think that is the wheelhouse of Anthropologie. So it's very encouraging.

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

Congrats. And Sheila, congratulations and very exciting, I'm ready for some dresses. I'm done with slack pants, so done. I have 2 store questions. The inventory levels at your stores have been exceedingly clean, rightly so. How are you thinking about building that as, hopefully, traffic comes back? And how are you thinking about store size going forward? You're opening a number of stores with the digital portion of the business, so important. But stores being very important, how are you thinking about the right size for your stores these days?

So Marni, I'm going to let Dick answer the question on inventory because I feel like he planted that question with you. He's so anxious to answer it. So I'll let him talk a little bit about stores.

Marni, I knew you'd ask the question, something like that. And I've been screaming about inventory in stores now for probably 2 months. I love the way you fashioned that on a positive way, saying that they were clean. Everybody around this table is smiling because they've heard it maybe not so positively expressed. I think that particularly in Anthropologie, store inventory in apparel is light. And we would benefit from having more of it. I think that that's true of the other 2 brands as well, but not anywhere near to the same degree. I would say that it's been a month now and each of the brands have been transferring some of their inventory that they hold in common, so on the inventory that gets designated as digital inventory, and they've been shipping extra inventory into the stores. So I think that you've seen probably a bit of an uptick in inventory in stores. But I think we still have a long way to go. And if any of this current trend continues, we're going to need more inventory in stores. I'm going to also take the store side. If you don't mind.

Okay.

I don't think there's any question that most of our stores could lose anywhere from 5% to 10% of their square feet, and we probably wouldn't miss a beat in terms of sales. But I also have to remind you that the vast majority of our new leases or renegotiated leases are percentage rent deals. And when you do a percentage rent or variable rent, whatever you want to call it, the size of the store is certainly less meaningful. Now if you went from, let's say, a 10,000 square foot Anthropologie store and whittle that down to a 4,000 square foot, you could get rid of a lot of other expenses that would be mostly labor. But if you're on a percentage rent, your occupancy would probably remain pretty much the same. So I think that the answer to your question is, stores could get smaller. And if we're paying rent on a per square foot basis, then I think, yes, they should get smaller, maybe anywhere from 5% to 10%. But if we're on a percentage rent basis, there's not a lot to drive that. But I would say that we are looking at slightly smaller spaces.

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

As you think about the digital channel and the customers that you're capturing, how were the new customers in each brand coming in this year? What did you see that differentiated them or that you learn from on that side? And digital marketing expense as you think about marketing spend for this year, how do you look at it this year versus last year or versus 2019, I should say?

Sure. Do you want to take the last?

I can talk about digital marketing spend for sure. I can tell you that as we look at an annual SG&A number of roughly up mid-single digits, the biggest line item there is certainly digital marketing, and that is to support not just the robust digital growth that we're seeing in the business right now, but it's also to support retention of the really impressive gains that we achieved this year in new digital customers onto each of the brands.

If we're talking about customers and what differentiates them, total digital customers grew by about 50% for the year across all brands, and that growth was fairly consistent across the three major brands. At that 50% increase, I would assume a reasonable portion, but not a majority, were store customers who, when stores were closed, shifted to digital. As stores reopen, we expect some of those customers to return to shopping in stores, although not all will. We believe we have an opportunity to convert those store shoppers into omni-channel shoppers, which brings me to retention. Retention over the past three to four years has been about 25%, so we retain roughly one quarter of new customers. We are going to have to work really hard this year to keep that percentage up because, as I said, some of those 50% new customers are store customers, and if they prefer stores to digital they are likely to return to in-store shopping. Our goal is to retain them, and to do that we are sending personalized messages and continuing to advertise with social media influencers who probably first attracted them to digital.

Your next question comes from the line of Ike Boruchow from Wells Fargo.

Frank, just kind of curious if you could talk about wholesale, the guidance for Q1, I understand, what's your visibility with the order book there? And then from a margin perspective, just for the wholesale channel, are you expecting to be able to get back to the kind of mid-teens margins you were having kind of pre-COVID? Just kind of curious on the profitability.

So I can let Sheila talk about sort of the visibility to her book. But I can tell you and give Sheila credit as Free People, obviously, is the lion's share of our wholesale business right now. But I don't want to discredit Urban Outfitters on the growth that they have. The Wholesale business has started to really regain and recapture the successful profit margins that they've had in the past. And we feel like mid- to high teens operating profit margin this year is where the business can achieve and is going to run out on a regular basis, again, which is great to see. And maybe Sheila can talk a little bit more about our bookings going forward.

Okay. One part of what happened during the pandemic was that Free People had the opportunity to reset its customer base and make smart decisions about which partners to align with to continue growing our business. I think that has benefited us from a profitability standpoint and also gives us the opportunity to grow the business appropriately with these partners. We feel very confident that we selected customers who have significant growth potential, are digitally savvy, and put the customer and product first. So we feel very optimistic across most of the categories that Free People offers.

Our last question comes from the line of Jay Sole from UBS.

Great. I guess I'm just looking for a clarification on the guidance for the first quarter. If it sounds like February trended positively overall, I think what you said was, is that on a comp base or on a total sales basis? And then, thinking about the low single-digit positive guidance for the quarter and your comment that spring weather could bring a real boost in dresses and some of the other categories that maybe didn't trend so well during the pandemic, is that baked into the guidance? Or is that more of an upside opportunity if warmer weather really does start to drive a lot of pent-up demand as we get into late March and April?

Jay, this is Frank. The answer is low single digits assuming we continue to see the improved performance we are seeing now. I think there is an opportunity for performance to look even better. We are comparing to fiscal 2020. Largely, the opportunity for us right now is in stores, not that digital cannot continue to perform at the high levels it is, but as stores improve that lifts both gross profit and operating profit margins. Our low single digits plan is based on some of the acceleration we have seen recently, as Dick noted over the last ten days. Also, this is a two year comparison, so our comp actually gets a little harder as the quarter progresses, with March being the more difficult comparison. I expect I will be fumbling a lot when talking about statistics this year. Thank you.

All right.

I will now turn the call back over to Mr. Richard Hayne for some closing comments.

Well, not a lot of closing comments. Just thank you very much for joining us, and we hope to see you in a few months.

This concludes today's conference call. Thank you for participating, everyone. You may now disconnect.