Operator: Good day, ladies and gentlemen and welcome to Urban Outfitters, Incorporated First Quarter Fiscal 2011 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. Please do not queue for the Q&A portion of this call until announced. Anyone doing so prematurely will be deleted from the queue. (Operator Instructions). As a reminder this conference call is being recorded. 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.
I would now like to introduce your host for today’s conference Mr. Glen Senk, CEO. Sir, you may begin.
Glen T. Senk - CEO: Good morning and welcome to the URBN quarterly conference call. Joining me today is Eric Artz, Chief Financial Officer; John Kyees, Chief Investor Relations Officer; and the majority of our brand and shared service leaders.
Earlier this morning, the company issued a press release outlining the financial and operating results for the three-month period ending April 30, 2010. I will begin today’s call by reading prepared commentary regarding our performance, then the Group and I will be pleased to answer any questions you may have. As usual, you will be able to access the text of today’s conference call on our corporate website at www.urbanoutfittersinc.com.
We are delighted to begin the new fiscal year with the series of record breaking results for the quarter. The following summarizes our first quarter fiscal 2011 performance versus the comparable quarter last year; net sales increased 25% to $480 million. Income from operations grew 78% to $82 million, resulting in an operating margin of 17%. Net income increased 72% to $53 million or $0.31 per diluted share.
Comparable Retail segment sales, which include our direct-to-consumer channel rose 16% with increases of 22%, 25%, 22% and 9% at Anthropologie, Free People, Terrain and Urban Outfitters, respectively.
Total company comparable store sales increased 11%. Direct-to-consumer sales rose 42%, with all three brands posting double-digit increases. Wholesale revenue increased 4% to $25 million.
Gross profit margins increased 459 basis points, aided by significant gains in initial margins, reductions in merchandise markdowns to clear seasonal product, and the lower rate of occupancy expense driven by the strong store comparable net sales growth.
Selling, general and administrative expenses expressed as the percentage of sales, declined 55 basis points to 24.7%. Comparable Retail segment inventories, which include our direct-to-consumer channel, were 3% higher at quarter’s ends.
Finally, cash, cash equivalents and marketable securities grew year-to-year by $213 million to $773 million, increasing $28 million to the January 31, 2010 balance. I'll begin today by providing more detail on each of our key business metrics for the quarter starting with sales.
New and non-comparable store sales contributed $34 million, including a gain of $3 million in currency translation adjustments for foreign-based sale. The company opened nine new stores in the quarter; five Anthropologie stores including a second location in London, two Free People stores and two Urban Outfitter stores.
Within the quarter, comparable store sales were positive each month, but strongest in March, although on a two-year basis they were strongest in April
By region, sales in Anthropologie were positive in all locations, but strongest in the west. And sales at Urban Outfitters were positive in all locations, but strongest in the south.
By store venue sales in Anthropologie was strongest in lifestyle centers and sales at Urban Outfitters were strongest in malls. The stores transaction accounts were up 10%, average unit selling prices declined by 1%, and units per transaction increased by 2%.
Direct-to-consumer sales rose 42% to $86 million. The penetration of direct-to-consumer sales to net sales as a whole increased more than two percentage points to 18%, highlighting a continuing secular shift in the way our customer is shopping and the efficacy of our ecommerce strategies. These results were driven by more than 24 million website visits, a gain of 30% or nearly 6 million visits.
By merchandise category, women’s apparel and accessories were strongest in Anthropologie and women’s apparel and accessories and men’s apparel were strongest at Urban Outfitters. Each brand’s merchant team including planning, design, production and buying transitioned from winter to spring to summer, exceptionally well. As we entered the second quarter, the inventory content was fresh, compelling and appropriately balanced.
I'd like to now turn your attention to our Wholesale segment for the quarter. With the addition of Leifsdottir revenue increased 4% to $25 million. While Free People wholesale revenue increased just 1% to $23 million. The composition of the business was favorable, with sales to the specialty stores increasing 31%, sales to department store is flat, and sales to clearance outlets decreasing significantly. Leifsdottir's wholesale revenue increased 37% to $2.5 million, and we are continuingly encouraged by the brand’s long-term potential
I’d like to now turn your attention to gross margin, operating expense and income. Gross margins for the quarter increased 459 basis points to 41.8%, driven by gains in initial margins, reduction in merchandise markdowns to clear seasonal product, and a lower rate of occupancy expense. I’d like to reiterate that over the long term, we believe we have continued opportunity to increase initial margins and reduce markdown levels.
The organization continued to exhibit exceptional discipline in managing expenses, while making strategic investments in talent, design, supply chain, technology, our direct-to-consumer businesses, and our European infrastructure.
Total selling, general and administrative expenses for the quarter as a percentage of sales, declined 55 basis points to 24.7%, this improvement was driven by the control and leveraging of direct store fixed and controllable expenses which more than offset an increased accrual of incentive-based compensation expense based on our current year performance.
The company generated an impressive 17% operating margin, earning a first quarter record of $82 million in income from operations, an increase of 78% versus the same quarter last year. We also achieved our highest ever net income for our first quarter $53 million, an increase of 72% from the prior year, with earnings per diluted share of $0.31.
The company’s annual effective tax rate was 35.9% versus 36.1% for the same quarter last year and the company anticipates further improvement from the current quarter annual effective tax rate for the remainder of the year related to an increase in income generated from foreign operations.
It’s satisfying to begin the new fiscal year with record sales and earnings, but to do so within the greater context of our long-term goals is even more gratifying. As I think of the four key growth initiatives we laid out a year ago, our organization executed admirably.
Our first key initiative was to drive productivity in our core brick and mortar businesses through employing a variety of strategies in four areas; product, site selection and store design, store operations and marketing.
The team has made numerous process and systemic improvements across all four functions. In fact, I'd say that our first quarter 11% comparable store performance, our first quarter positive year-on-year performance, and our 10-year comparable store average of 6% isn’t just about fashion, it’s about strategy and execution.
The way we manage the supply chain has changed dramatically, beginning with assortment architecture and design, flowing through the production buying and logistics, and finishing with allocation. We are different, more controlled, more nimble company. And the exciting thing is that we still have a lot of opportunity ahead.
The improvements we have made in site selection and store design are also beginning to pay off. Our class of 2009 was one of our best performing groups of new stores ever. In fact, for the company as a whole, in the first quarter our new stores had slightly higher sales per square foot averages than our comparable stores.
We are on track with the implementation of our cross channel database. We plan to be fully operational by the end of the third quarter. And we expect to see modest benefits in the fourth quarter.
Just imagine the potential. Once we know who is shopping, what motivates them to shop, how and when they want us to communicate, how they want us to personalize their shopping experience, we expect to mine this information to better serve our customers and ultimately drive productivity for years to come.
Our second key initiative was to increase the penetration of direct-to-consumer sales to total company sales by focusing on five strategic areas; our online merchandise assortment, the websites themselves, mobile commerce, fulfillment operations, and social media.
I have said before that we are channel agnostic as to how our customer reaches us, and now we are unwilling to set an upward limit to the level of penetration. Our mind shift is that we see our online experience as a robust expression of who we are as a brand, unbound by brick and mortar constraints.
We believe, however, that for our customers and for the lifestyle experience and types of products we sell that we are in a position of strength as a multichannel retailer. We believe that our 42% gain in direct-to-consumer sales indicates that our strategies are working. And I'd like to offer my congratulations and thanks to the myriad of people on the URBN team who have worked so hard to make this happen.
The third key initiative we discussed was international expansion, currently with an emphasis in Europe, but eventually moving to the Far East and other parts of the world. The mind shift here is that we no longer view ourselves as a North American retailer, instead we view ourselves as a global retailer and we were in the process of creating a strategy, structure and approach to support that goal.
In the meantime, our European business is becoming increasingly important to the company. The Urban brand continues to narrow the performance gap between North America and Europe. And during this past first quarter, Anthropologie successfully opened its second London location and launched anthropologie.eu.
Our final growth initiative was adding brands to the URBN portfolio, so that the company is comprised of a minimum as fixed significant brands over the next 10 years. During the first quarter, we continued to make important progress with Terrain and Leifsdottir, and we also announced the formation of our new wedding concept, which will launch during the first quarter of calendar 2011.
Before I finish with my prepared comments this morning, I’d like to formally recognize and thank John Kyees and Ted Marlow for their exceptional contributions to our company. John has been an invaluable partner to me and the executive leadership team during his nearly seven year tenure with the company. During John’s reign, our company revenue grew from $548 million to just under $2 billion. Our yearly profit grew from $48 million to $220 million. And our market cap grew from $404 million to $5.3 billion. We will miss John's stewardship. And we will also miss his kindness and decency.
Ted has been an estimable member of the Urban leadership team, as well. Under Ted’s nine year watch, the Urban Outfitters brand revenue nearly sextupled to more than $900 million. He opened more than a 100 new stores. He launched the direct-to-consumer business and the European business thrived. Ted is a powerful leader, leaving behind a strong global team and created vision and foundation that will carry the brand for years to come.
Personally and on behalf of the Board and all URBN employees, we thank John and Ted for their extraordinary commitment and wish them all the best in retirement. We welcomed Eric Artz to the company on our last call, so it’s now time to welcome Steve Murray. As most of you have read, Steve joined our company from VF Corporation, where he served as President of the VF Action Sports Coalition overseeing the Vans and Reef brands. Steve is a marketer and merchant at heart, and brings a vast global experience and brilliant track record in growing lifestyle brands and retail concepts. We are thrilled to have Steve join our executive team and we are confident that he will continue to build the Urban Outfitters legacy and business.
As we have often repeated our overarching goal is constant and simple, to grow revenue by at least 20%, to grow profit at a faster rate than sales, and to reach to minimum of 20% operating income. With a 10-year revenue CAGR of 21%, and a 10-year income from operations CAGR of 25% we are on course. Furthermore, I believe we are a better company than ever with sound strategies, a world class organization, and an unerring focus on superior execution. As always, leadership team and I look forward to continuing to inspire our customers and reward our shareholders and employees alike.
I will now open the call to questions, and as is our custom I ask each of you to limit yourselves to one question. Thank you.
Operator: Kimberly Greenberger, Citigroup.
Kimberly Greenberger - Citigroup: Glen, I am wondering if you can look back at the first quarter and talk to us a little bit about the differential in performance between Anthropologie and Urban Outfitters. We all tend to look at the one-year comp, understanding that the Urban division had a much, much, much more difficult comparison early on. I think we saw some sequential improvement at that division throughout the quarter. And then, if you could just give us your view on whether or not that is in fact the case in your outlook for the second quarter for both brands that would be fantastic?
Glen T. Senk - CEO: Kimberly, I think, as you know we are not providing numbers on store-only comps anymore, we're only providing the numbers on the total Retail segment comps. But I can tell you, if as we look the store-only comps internally, the difference between Anthropologie and Urban Outfitters on a two-year basis is minimal. And I had been with company for 16-plus years now, one year one brand pulls ahead another year another brand pulls ahead. I think both brands are executing well. I think, Urban in the first quarter look better and better as the quarter developed. And I wouldn’t read anything, I think both brands are executing well. And I wouldn’t read anything into the numbers other than that.
Operator: Adrienne Tennant, FBR Capital.
Adrienne Tennant - FBR Capital: Good morning and let me add my wonderful congratulations, job well done. Best wishes to John and Ted. My question, Glen it’s sort of about the increasing complexity of the business in many ways. How does the infrastructure of the business, either physical or human capital need to change to support this minimum six-brand company going forward?
Glen T. Senk - CEO: That’s a great question, Adrienne. We’ve said repeatedly, as a company, that we embrace complexity; we don’t try to minimize it. And the reason why we do that is because we believe our customer appreciates complexity. And I know that that’s a different model than many of our peers, and I don’t think it’s better or worse, it’s just different as who we are as a company. This company has never been about a single person. It was never about a Dick, and it’s certainly not about me. It’s about the group of leaders in the organization. We are an organization that spends a lot of time on choosing who we bring into company. Once we bring people into the company, we spend a lot of time on strategy and clarity of expectations. We have terrific information systems that allow us to understand whether or not our daily, weekly, monthly, yearly decisions are working or not working. There is a high level of accountability, but we do push decisions down on the company. I remember I was saying when I first became CEO that I was no longer viewed myself as a merchant, but I viewed myself as the strategist and a manager. And each of the brands are run by merchants, and they are the people who are calling the merchandised decisions. And I think that long-term that’s the way we can manage the level of complexity we have in the business. So, I am not sitting in product reviews on a brand-by-brand basis, like some of my peers do. It’s just not the way I envision my role. I envision my role as a mentor, as helping people strategy, as being someone to bounce ideas off and so on. And quite frankly, if I use the two (vendees) who have very successfully run Anthropologie for the last three years, they've done a better job with Anthropologie than I did. And that’s to their credit. And I am sure they would credit the staff below them. And that’s just the way our company works.
Operator: Lorraine Hutchinson, Bank of America.
Lorraine Hutchinson - Bank of America/Merrill Lynch: Just following on from the press release about share buybacks that you issued. Just curious if you have started buying back any stock. And then, how you view that program? Is it a way to return an outsized amount of your cash to investors or are you looking to just offset dilution. How should we think about that going forward?
Glen T. Senk - CEO: I'll ask Glen Bodzy to respond to that.
Glen A. Bodzy - General Counsel and Secretary: Yes, the data on the buyback of course is reported quarterly. This was simply to update you and remind you that the board did approve it in 2006. So, you'll be able to see it on a quarterly basis when we put out our Qs.
Lorraine Hutchinson - Bank of America/Merrill Lynch: And maybe just some thoughts on how you are thinking about it going forward?
Glen T. Senk - CEO: I'd rather not talk about that now Lorraine, I think we will follow the rules. And if you do a buyback you'll see it at the appropriate time.
Operator: Betty Chen, Needham & Company.
Betty Chen - Wedbush: This is Betty with Wedbush. Congratulations, everyone on the great quarter. I was wondering Glen if you can talk a little bit more about the direct business. Clearly, another great quarter and (you have) seen a penetration of overall sales from that channel. Can you remind us if you have a target on what mix of the overall sales could come from the direct business, any difference by brand. And also how we can use some of the data mining you’ve mentioned, whether is it going to be targeted email, special offers? And then lastly the margin difference between that channel and the Retail segment?
Glen T. Senk - CEO: That’s a lot of questions, Betty. I’ll try to remember them all. The group, as I said on the call, the group who manage the direct-to-consumer business across all of our businesses did a superlative job. As I said on the call, we are not limiting ourselves in terms of penetration. We finished the quarter with 18%. Could it be 25%, 30% over the next five years, absolutely? Could it be higher than that, perhaps? And much like we do in all parts of our business, we let the customer decide. So we put it out there, we try to be as competitive as possible with our websites, our product offers, our marketing, our fulfillment and then the customers are going to tell us how he and she want to shop. In terms of the margin differential, I know John has repeatedly said that our direct-to-consumer business is the most profitable part of our business. I don’t want to go into specifics on how much more profitable it is, but it is the most profitable part of our business. But that’s a side benefit to the increasing penetration. The real reason we are increasing penetration it’s because that’s what our customers are asking for.
Betty Chen - Wedbush: Can you see them buying anything differently just related to that just, Glen?
Glen T. Senk - CEO: The best sellers Betty are the best sellers across channels. And as I said in my prepared comments, I believe for our customer across all of our brands and the businesses that we're in. There is an advantage for multichannel retailers. I think it’s a wonderful thing for our customer to be able to buy online one day, through catalog another day, and the store third day to be able to return in a store exchange to the experience is there certainly a consistency of brand DNA across the channels, but the experience within each channel is different. And I think depending upon the need or the day that someone gets up, he or she may want to experience each brand differently.
Operator: Michelle Clark, Morgan Stanley.
Michelle Clark - Morgan Stanley: A question on the SG&A. If you take a look in the first quarter SG&A dollars were up about 22% year-over-year. That compares to up 8% for the full year last year. One, how much of that is being driven by the incentive comp? And then, how should we think about SG&A go forward for the remaining three quarters of the year?
Glen T. Senk - CEO: Yes, Michelle I’ll ask Eric to answer that.
Eric Artz - CFO: Michelle, I'd frame your question around our goal of growing profits faster than sales which translate to our goal is to continuously leverage our SG&A. And I think you just have to keep our comps in mind, as we talk about this as well. I’ll go back to what Glen mentioned in his prepared remarks, when you look at our SG&A we've leveraged all of our categories with the exception of incentive-based compensation which is obviously a good thing because that means that we're tracking ahead of our internal plans. Now the leverage is somewhat muted by the investment that we also have spoken about here. Our investments in our Europe infrastructure, the Anthropologie new store, the ecom business or the ecom launch of Anthropologie, our overall technology investments, and continued investments in direct and people. So, when you add all those up or to give you a sense of magnitude of those items that I just mentioned, it equates to about a third of the 22% increase. I'd also comment that as we look forward through the balance of the year, many of those comparisons become more favorable, specifically the incentive compensation piece. So, just to reconfirm, we're definitely rushing to assure that we have the infrastructure in place to achieve our growth plans, but we are not rushing to achieve our 20% operating target margin.
Michelle Clark - Morgan Stanley: Any comment on what the SG&A leverage point is then to the remaining three quarters?
Eric Artz - CFO: Not at this time, no
Operator: Michelle Tan, Goldman Sachs.
Michelle Tan - Goldman Sachs: I was wondering if you could talk a little bit about gross margin. You are back to the '05 peak, but it seems like since then there has been a number of the structural changes to the profit potential, the direct penetration being up five points, sourcing changes that you've made. I was wondering if you could give us some sense of what those things have added to the gross profit potential. And how much room there is to still get back to optimized markdown rates?
Glen T. Senk - CEO: Michelle, it's Glen. I don’t want to give too much detail on that. What I've said in my prepared comments was that I believe over the long-term we have continued IMU opportunity and we have continued markdown opportunity. And I also want to reiterate what Eric said, I think all of those sitting around this table are highly confident that we will achieve our 20% plus (ROS) profit goal. But we are also very, very cognizant of investing in our business because we all want to be here as in 10 and 15 years from now, and we want our business to resonate with the customers even more 10 and 15 years from now than it does today. So, we are putting investment not only in areas such as IT, logistics, infrastructure and people but we're also putting investments in product, quite frankly. So, we absolutely have a plan to continue to raise IMU in lower markdowns, but we're going to do so in a very methodical way because in this economy today we are still fighting for every dollar. I’ve said repeatedly, we're not back in 2007. It’s still tough out there with the customer expects more and more value, more surprises and delights. And we are winning right now because our product is better. And that comes at a price. So, with regard to the markdown rate, I don’t know how low it can be. I think that we’ve made such progress in calendar compression, such progress in the way we plan, such progress in the way we allocate. So, when I look at what’s on board from a systems point of view all of the upcoming enablers – I don’t know how low it can be. I have got to think that we'll be able to make very, very good improvements. So the message is what Eric said, we are going to work as far as we can to grow profit faster than sales. I think we're all confident about the 20%. But I don’t want to give you any more insight other than that.
Operator: Christine Chen, Needham & Company.
Christine Chen - Needham & Company LLC: I was just wondering if you could give us an update on what the percentages between your own brands versus third-party brands, particularly at Urban. Are you where you'd like to be, and if not, where do you think it can go to by the end of the year?
Glen T. Senk - CEO: I’ll ask Steve to talk about that.
Steve Murray - President, Urban Outfitters Brand: Yeah, Christine. It’s a mix. So, there is actually a difference between North America and Europe, and there is a difference between women’s and men’s. So, in men’s, it's a little bit more national brand heavy, so the resonance of external brands tends to be a little more important to the male consumer. In women’s, what we’ve done is we’ve used a lot of our proprietary brands to fill the gaps frankly that we feel missed out that for the right type of design with the right type of product. And we think we get the license to do that from a female consumer maybe a little bit more than we need to or get from men’s. So, it’s higher in women’s, as far as North America goes it’s probably a target to get it to about 70/30. We occasionally in the past have looked above and beyond that, but that feels about right. In men’s, in Europe, it's a little higher, right now. It’s more like 85/15, but with the target to come down to about 70/30, as well. But we are constantly playing with that. And that’s something that I am digging into in a bit of detail with the merchandisers to now report to me.
Christine Chen - Needham & Company LLC: And so, what is women’s in North America running right now?
Glen T. Senk - CEO: Ted, can you give us a specific on that?
Tedford G. Marlow - President, Urban Outfitters Brand: Your 70/30 is a good call, yeah.
Glen T. Senk - CEO: And any component that is the 30 that's collaboration developed product as well as branded product out of the market.
Operator: Anna Andreeva, JPMorgan.
Anna Andreeva - JPMorgan: Glen, you’ve talked about productivity improvements as really one of the biggest priorities for the company, and you are already operating at pretty impressive productivity levels. So, we were just wondering, could you may be talk about how you see some of the drivers of productivity by division. And what are your goals by division in the next couple of years?
Glen T. Senk - CEO: Yes. The strategies to drive productivity are pretty consistent across each of our brand. The first strategy is to continue to do a better job with right products, right place, right time, right price, and I could talk about that for an hour. The way we'll continue to make improvements there are in a better planning system and continuing to compress the calendar so that we can make decisions at the last possible moment and get the inventory as correct as possible, so that we can allocate more effectively. When you think about the stores that we have not only in North America but around the world, we cover a variety of weather zones, fashion types. We have different kinds of price elasticities, depending upon where we trade. And the more we can micro allocate, the more productive we can make each of our stores. So there is a lot of opportunity still in the way that we plan our merchandise, buy it, design it, and allocate it, and price it quite frankly. Number two, is our site selection. Now, I was really please to review the results and see that our new store group was more productive than our comparable store group this past quarter because it means we are doing a better job picking sites. We are using empirical data, objective data now. And we're also being smarter about the way we design our stores. So, that’s important. Next, the way we operate our stores. And those of you who know anything about store operations know that a great store manager can probably impact a comp number by as much as 25% or more. And we are working as a company to understand to kind of institutionalize what it is that a great manager does and to make sure that we do that across all of stores. The way one manages a $15 million store is different than the way one manages a $10 million store or a $5 million store. And we are working harder to understand what those differences are and make sure that we are appropriately distortive. And last, and certainly not least, is this database, this multichannel database. Let me remind everyone that right now we do not know who shops at our stores. We don’t know when we communicate to people, we have a big sense (or shopping at our) stores. We don’t know if that communication works or doesn’t work. We don’t know how often our customers come in, what they buy with what and so on. So, it’s like flying blind. And when our database is up and running, which we expect to be towards the end of the third quarter, we will begin to collect this information. And over time we will have robust information. And really the reason for us having this information is that the more we can know about our customers, the better job we can do servicing them. So, it’s not about shoving additional product down their throats, it’s really about doing a better job understand their wants, and needs, their timing, how they want to be communicated with and so on. And because we haven’t done this, we don’t know what it's going to be worth. My hunch, my intuition tells me it’s going to be worth quite a bit. In terms of the targets that we have, we have quite a bit of variation within our existing store base. So we have stores with, if I look at Anthropologie which on a net basis trades at slightly over $800 a foot, we have many stores that trade in excess of $2000 a foot. So, I really much like the direct penetration. I don’t want to put a limit on it. Our goal, our internal goal is to try to take the last 10-year average, comp average which is six and so try to replicate it over the next 10 years. And so if you just take 800 bucks a foot and multiply eight times six, 10 years out you’ll get to a number. I hope we can hit that. We certainly have a lot of work on our plate to continue to drive comps.
Operator: Paul Leguez, Credit Suisse.
Tracy Kogan - Credit Suisse: It’s (Tracy Kogan) filling in for Paul. I have question on the IMU. You mentioned continued opportunity there, and I was just wondering what you were seeing on the product sourcing side. Are you seeing any cost pressures in the second half? And are you able to more than offset those by increased volume?
Glen T. Senk - CEO: (Tracy), what we've said is that it’s not going to be as easy this year as it was last year. Make no mistake last year was a buyer’s market. And I think at the supply level, we lost a lot of supply last year because the demand came down and all of a sudden as a feeding frenzy and people need product. So, the balance of supply and demand shifted, and when that happens prices go up. Now, having said that, we have a terrific organization both here and overseas and we have terrific partners in our factories. And they understand what it is we need to be successful and they have (supported us). So, I do think we’ll see – I think we’ll experience pressure. I don’t think the pressure that we expect to experience will be quite what some other people experienced. Remember a lot of our products have so much more layer and detail to it that it's not as quite as dependent on the commodity pricing as some other more basic retailers would be. And I think that’s our problem. And just like bad weather or good weather or bad economy or good economy that’s our problem and we have to be smart about it. And we are not easing of our factories and we are not easing of our sales.
Operator: Sam Panella, Raymond James.
Samantha Panella - Raymond James: I guess, just going back to your goal of getting to minimum 20% operating margin. Now, as we think about that do you need a certain level of ecommerce penetration or is it matter of getting beyond some of these investments that you are making, just some more thoughts around that goal?
Glen T. Senk - CEO: No, Sam I don’t think we need anything. I think we hope that we will be more profitable this year than we were last. And that goes along with saying that we hope that our profits rise greater than our sales. And we, as Eric said, against our internal plans we had a wonderful first quarter. So, we do have a plan – an internal plan to get 20%. I just don’t think it’s appropriate to me to share the timing with this group. And there are a lot of moving pieces to this. Higher to penetration of ecommerce help, absolutely, but so will a larger business in Europe, so that we can leverage the existing infrastructure we have there. So, we’ve made an investment in Terrain and Leifsdottir as those businesses get larger and go from making losses to making profits that will help. So, we look at our business as a very layered portfolio and we have a lot of different levers that we can pull to accomplish our objectives. And each business manager is focused on the lever that they control. It is really no secret, it’s just kind of business as usual to get to these goals.
Operator: Barbara Wyckoff, Jesup & Lamont.
Barbara Wyckoff - Jesup & Lamont: Glen, could you spell out a little more of the timetable for future IT initiatives? And you've talked about the universal database collecting starting in third quarter, but what others are in the pipeline and when will they come on board?
Glen T. Senk - CEO: We're lucky to have (Calvin) with us today. So, I’m going to ask Calvin to give you some of the detail on that.
Calvin Hollinger - CIO: Barbara, this is Calvin. So, the theorem as Glen mentioned is of our Q3's (total) this year. That’s a big marketing database. Here the big initiative we have is a single SKU, that’s being both for retail and our ecommerce backend systems on a single SKU. To get visibility across the enterprise, we are in the final testing phases of that. We hope to be up in the next two months with Leifsdottir our first smaller brand, Free People by the third quarter, another two big brands by the first quarter of next year. What that enables us is to be able to serve the customer demand, multichannel, cross channel, that’s the big investment. We continue to invest in our sourcing, production, logistics initiatives. As we mentioned, we are in the process of rolling our TradeStone. We have a couple of 100 vendors on TradeStone which represent above 90% of our own brand vendors. We are seeing some efficiencies on purchased order side, we plan to roll this out to all vendors towards the end of this year to get more visibility of the merchandise coming in. We are investing heavily in our logistics infrastructure with more automation into our distribution centers to make sure we can fulfill both our retail and our ecommerce customers more effectively
Glen T. Senk - CEO: Talking about POS.
Calvin Hollinger - CIO: On the sale, we are looking at the potential piloting a handheld mobile device in our stores, couple of stores hopefully by in type of peak of this year. So, that’s still early, we're just starting that developing work both little change as a whole where we can (serve the) customer in the stores. Planning, as Glen mentioned, we just rolled out an assortment planning system to both the large brands, so we’re seeing some impact of that. We are now looking at a new planning and allocation system. We're starting evaluation, they are summing up by next year we believe. Again, the purpose there is to get more timely information on the allocations, make it little bit easier to allocate the merchants out to our stores. I’m probably missing at least five (five of the mission is going on).
Operator: Edward Yruma, KeyBanc Capital Markets.
Edward Yruma - KeyBanc Capital Markets: Can you talk about your comfort level with your new store pipeline, particularly given that some of the new developments seem to have been halted? And as it relates to online, does strong growth in that channel cause you to dampen your enthusiasm for your overall store growth prospects?
Glen T. Senk - CEO: I think with regard to our pipeline I feel very confident. We have terrific internal processes. We have wonderful people working on it. We are in good shape for this year. We are in good shape for next year. And it’s business as usual there. And in terms of the increasing direct penetration and how that may impact the way we think about brick and mortar expansion. As I said, I personally believe that there is a major advantage to multichannel distribution. So, I think for someone to go to their iPhone or computer and then to be able to walk into the store is a very positive thing, particularly when it comes to selling the kind of product that we sell. If we were a book retailer or we were retailer of commodity or product that might feel otherwise, I probably would feel otherwise. But I think that there is a wonderful synergy that happens between all of our channels. And I don’t see that changing anytime soon, although we’ll certainly keep (arrear) to the ground.
Operator: Roxanne Meyer, UBS.
Roxanne Meyer - UBS: As one of the best growth retailers in the space and with all of the initiatives that you have on your play, including the new brands international, direct. I am just wondering, how we should think about how are you reinvesting in the business for the longer term? I know that you mentioned the 22% of your 1Q SG&A growth came from some of these investments. But can you help us just look farther out and think about how much we should expect you to reinvest?
Glen T. Senk - CEO: I’m not sure how to answer that question, Roxanne. I think that, that may be a bit more detail than we want to provide. I think that good plans and good business management is all about maximizing return on investment spending and that’s something that we, I think, are getting increasingly good about. When I look at the budgets that we prepared over the last few years and I look at the results that have come out of those budgets I am very, very proud of the work that the organization has done because I feel that we’ve spent money wisely. And we are sitting on three cash machines, Urban Outfitters, Anthropologie and Free People and I think from a business point of view it's very prudent to continue to invest in those businesses. They all have a lot of runway, they are all very profitable, and they are all investments that we can make in those three businesses to continue to drive them. I’ve said in the prepared remarks that we no longer define ourselves as a North American retailer, we define ourselves as a global retailer. And I think that we have a lot of work to do in that area. I used in my mind think that international sales could be 5%, 10%, 15%, 20%, 25% of our business, who the heck knows, we may find out over time that it could be 50% or more of our business. So, we have to work to understand that. We have to make sure that we have the right infrastructure from an IT, logistics, talent, legal, et cetera point of view to ensure our success. And we’re not going to do that if we don’t expect to make money doing it. But if we do expect to make money, we will make those investments. Same thing with new brands, we don’t invest in new brands for the sake of investing in new brands. We invest in new brands because we think that there’s going to be a return. And I think the most important thing is for us to be internally rigorous, transparent, disciplined about measuring where we are against where we were thought we were going to be. So, other than that, I don’t know what information I can give you.
Operator: Laura Champine, Cowen and Company.
Laura Champine - Cowen and Company: My question is directed at Steve who I know has been with Urban for a month and a day now. But any changes that he may make in the brand or strategies that he may emphasize, just given his first blush look at the business?
Steve Murray - President, Urban Outfitters Brand: Sure. I'm glad you prefixed that. Well, I've been here a month and a day. I am really in observational mode right now. I mean, I think like any new leader I am trying to see what I have inherited here. This is a successful business, a very successful business, and a very strong brand. And frankly, the runway that it's got and the model that I am inheriting here was one of the biggest incentives for me to (up stakes) and actually come to Philadelphia. But I think it would be inappropriate for me to start articulating new strategies, number one, on a successful business and, number two, as early as this. I am clearly looking at the mix of business between Europe and North America. I am clearly looking at the different profiles of the different formats we have at retail between metro centers and traditional malls and lifestyle malls. I am clearly looking at the brand mix that Christine referenced earlier. And I am trying to get to know my people. So, that's a fairly time consuming thing. And with four weeks and one day, I just think I need a little bit more time to answer your question intelligently. But come back to me in three or six months time, and I'll give you a better answer.
Operator: Liz Dunn, Thomas Weisel.
Liz Dunn - Thomas Weisel: My question was actually on fashion. I was wondering with this emerging skirt trend that we're seeing and I am certainly seeing it in Urban stores and to a lesser degree in Anthropologie. How should we expect that to play out from the standpoint of units in AUR? And will it be a positive trade if the consumer buys a skirt and a top instead of a dress?
Glen T. Senk - CEO: Liz, you know we don’t like to talk about fashion on these phone calls. I do go back and watch who listen to these and we all know that a lot of our competitors listen to these. So, I really don’t want to give that information. What I would say to you is I am not worried about the UPCs or the AURs, and I don’t think the group is either. And there is a lot of fashion in our business. I think all of our brands look very good right now and I'll leave it at that.
Operator: Erika Maschmeyer, Robert W. Baird.
Erika Maschmeyer - Robert W. Baird: I wanted to ask about your calendar compression progress. Where are you at in terms of number of weeks from design to store and often I can (hear) is starting quarters are something like 40% open to buy. What do you think is your potential to increase that with TradeStone and your other efforts?
Glen T. Senk - CEO: Erika, that’s a great question, but it’s a really complex question. I am looking at (Barbara Rozsas) across the table from me. And I think we have something like 165 calendars in the company.
Barbara Rozsas - Chief Sourcing Officer: Close to that.
Glen T. Senk - CEO: Close to 165 calendars in the company. And what that means is that virtually every product category and every brand has at least one of its own category and some of the product categories the bigger ones have multiple calendars. So, it’s a very, very complex answer. What I would say to you is we have taken weeks off of the calendar in total. And if we are properly positioned on fabric in the right kind of product, I have seen our group be able to move product within two to three weeks. And that's as and if, we need to own the fabric, the factory needs to be onboard that we're going to place a follow-up order with them. But we were never able to do that a few years ago. What I can tell you is that we are much, much more liquid 90 days and beyond than we have ever been. I look at our open to buys every week, but I always look at them the morning of an earnings call or the night before an earnings call. And I am increasingly struck and impressed by how liquid we are in the following quarter, so not the quarter that we are in, but the quarter beyond that and the quarters beyond that. We have much more flexibility than we ever had. I think (for our) average we’ve cut 6 to 8 weeks of the calendar.
Barbara Rozsas - Chief Sourcing Officer: On average we have. And I think what’s important here to understand is that we take our (keys) from the business and the customer. So, we are not really articulating a certain goal of calendar compression. We know that we need to work closely with our merchants and our designers to ensure that the customer gets what she wants, when she wanted. So, we're not going to state a percentage that we're looking. We're just continuing to look for opportunities to optimize our inventories.
Glen T. Senk - CEO: And what Barbara means by that Erika, when you think about the calendar, there are in certain of our brands, in certain of the businesses various collection products that the brands are going to do irrespective of what’s happening with the fashion. And those can be on a different calendar than some chase product. So, if there is a category that becomes hot within a season then it’s our job to chase that product, and that’s the kind of product that we might get in two to three weeks. What Barbara is talking about is we don’t want to put the entire company on two to three weeks that would be lunacy. So, it’s a very, very layered approach. But kudos to Barbara, to the merchant teams, to the designers and to our factories oversees because they've all worked together as a team to make dramatic improvements here. And everybody understands that it’s mutually good for everybody if it’s right for the customer.
Operator: Richard Jaffe, Stifel Nicolaus.
Richard Jaffe - Stifel Nicolaus: Glen, if you could just think out loud with us about international growth and how you intend to approach some of these new countries. Obviously, Anthropologie in England is still pretty new. The European (continent back ends,) you mentioned Asia. Is your thought process to build stores to get a feel for the market, the follow on with Internet, could the direct consumer business lead the way into the European market or for that matter into Asia? Will you take it step-by-step brand-by-brand or turn on two, three brands at once. If you could think out loud about that would be very helpful?
Glen T. Senk - CEO: Andrew McLean who has been with us about a year and a half has helped us really tremendously and he has been living in Europe now for even nine months. And he has done a lot of wonderful research work in terms of helping us understand size of markets, logistical and legal complexities, ability to make money in market and so on. And as I’ve said in prior earnings calls, 70% of the size of business in Europe is actually about 10% larger than the size of business in North America. 70% of that opportunity is in five markets, the U.K., France, Spain, Italy and Germany. And I think we have an opportunity to be strategic about that 70%. What we are doing Richard is really doing a very thorough due diligence in each market. And I think we’ll have that kind of a market-by-market approach as opposed to the opportunistic approach which has probably characterized their first 10 or 12 years in Europe. Your question about using the direct-to- consumer as a guide, absolutely; Calvin will have the database in Europe in about 18 months. So, I think once we have the database there. Also in terms of the single SKU that Calvin talked about, once we have the single SKU in Europe. So, to share a product SKU between North America and Europe we'll be able to do an even better job with that. But I think we will use analytic tools through real estate in Europe just like we use here. We'll use the direct-to-consumer database like we use here. And we'll use research like we use here. And I think that we have moved slower in Europe, Richard than we have moved in North America, but we have enough signs in the business in both of our brands to be pretty confident moving forward. We are also starting to shift Free People. We opened up (Little Cortez). We have plans to open up several other accounts in Europe. So, all three brands will be in Europe. With regards to Far East and other parts of the world, we will approach it the same way we did with Europe. We're in the process now of due diligence. We're looking at real estate, speaking to potential leaders. We'll likely go with one brand first, but I think we would follow with the second brand pretty quickly.
Richard Jaffe - Stifel Nicolaus: Any launch date for the pound-denominated website and then the euro-denominated websites?
Glen T. Senk - CEO: We are live now with pound and euro-denominated websites in both of our major brands. That was when I said that. And Urban has been live, Ted with EU website for how many months?
Tedford G. Marlow - President, Urban Outfitters Brand: Fall of '06.
Glen T. Senk - CEO: Fall of '06 in pounds and euros?
Tedford G. Marlow - President, Urban Outfitters Brand: Pound (indiscernible).
Glen T. Senk - CEO: So, Europe about a year and half ago, and Anthropologie went live this past quarter.
Richard Jaffe - Stifel Nicolaus: For Europe as well?
Glen T. Senk - CEO: Yes. And both sites are doing very well.
Operator: Robin Murchison, SunTrust.
Robin Murchison - SunTrust: Piggyback just for a second back to the concept-to-market discussion. And Glen, if you can remind us where you are right now in terms of air versus boat freight and where you want to go?
Glen T. Senk - CEO: Yes, Robin, that’s not something that we usually publicize. I’d just say that we as a company historically have aired more than we boated, and I think we have to look at that. Thus far, it’s served us well, but we’ll continue to look at that. Those extra 10 or 12 days we believe are worth it, but back to what I said before about transparency, discipline, constant measurement and it goes to air freighting and boating just like it goes to anything else we do.
Operator: Howard Tubin, RBC Capital Markets.
Howard Tubin - RBC Capital Markets: Glen, how do you feel about inventory levels currently and should we expect them to be kind of flattish to up slightly for the rest of the year?
Glen T. Senk - CEO: Howard, I feel the group has done an exceptional job with inventory. Personally, I think that we can continue to reduce weeks of supply on a very, very moderate basis over the next few years. The better our planning systems get, the better our allocation systems get, the more we compress the calendars, the more we can weeks of supply. I don’t want anything drastic. I want the merchants to do what they think is right and that’s what they’re doing and they’ve done a good job. As you know we don't plan numbers, we plan weeks of supply. We are planning weeks of supply improvement this year versus last, but its evolutionary not revolutionary.
Eric Artz - CFO: Howard just for your information since we changed the way we're reporting comps, last night, we also posted to our website the inventory comp information as well, which includes both the stores that are active that helps you as well.
Glen T. Senk - CEO: So, we were actually down for the retail -- the store component only we were down a couple of percent and we feel comfortable with that. On a combined basis including our direct-to-consumer business we were up 3%.
Operator: Jeff Black, Barclays Capital.
Jeff Black - Barclays Capital: So on the wholesale business, the more favorable specialty store read indicate they are opening up or reopening some accounts, and do we get a sense of department stores can catch-up? They seem to be lagging here, are there reasons for that?
Glen T. Senk - CEO: I think that we are seeing the specialty store business get stronger and I think we are very pleased with our department store business. We have some, personally, I think we have some refocusing to do with some of our department store account, but our retail business within the department stores is excellent and I think as I've said in the prepared comments, the fact that our outlet business was significantly down, is just a very positive thing. I think Free People had a very good quarter and I think it's positioned to have a good year.
Operator: Janet Kloppenburg, JJK Research.
Janet Kloppenburg - JJK Research: I first want to thank John and Ted for working so tirelessly with me over the last several years and helping me understand the business so much. Thank so much you guys, you’ll be missed and to congratulate you on a great quarter. Then Eric, I wanted to also ask you to just dwell into the SG&A a bit. Up 22 with sales up 25, I am just wondering if the incentive comp increase was an unusual one given that you may have had some catch-up from last year when it might have been right or if the investments in the new businesses lead to wedding direct international exposure may have been increased because of the strength in the business. I know you don’t give guidance, so it’s up to us to model it out and so I just need a little bit more help here?
Eric Artz - CFO: The incentive comp in fact on the first quarter was not a catch-up. It’s purely the performance of our business relative to our internal plans. Comparatively to the first quarter of last year, if we go back to that time right, our view was more skeptical over time and the accruals were lighter. So it’s a comparative issue that we face that corrects as we go throughout the year, meaning last year we added to our accruals from Q2 to Q4…
Janet Kloppenburg - JJK Research: So in other words, it may not be as a big discrepancy or comparison as it was in Q1 compared to Q1 ’09?
Eric Artz - CFO: Correct, the balance of your comparisons are easier. Could you repeat the second half of your question?
Janet Kloppenburg - JJK Research: We’d like to measure how much that catch-up was, so that the comparison was on the incentive comp, because it seems that the rest of the investment in growth of the business which, of course, will continue, so if we don’t have guidance on what level of SG&A to expect for the rest of the year, it’s up to us to model it. So should we expect SG&A to grow in line with our line growth or should we expect that to be about the same level of leverage, 55 basis points, or could it increase if comps were to stay at these levels?
Glen T. Senk - CEO: Our SG&A growth is not going to outpace our sales growth. And I do think that the increase that we are seeing here because of some of these comparative issues will come down over time. So, I do see the growth in the first quarter being higher than the balance of the year.
Operator: Dana Telsey, Telsey Advisory Group.
Dana Telsey - Telsey Advisory Group: Congratulations on a great quarter and Ted and John, both best of luck in the future, very much enjoyed working with you. Glen, as I think about this call today and obviously the existing growth of the current business and the initiatives and the investment spending that’s being made for the future growth of the business, how do you look at the guidepost of the future growth initiatives to say we are on track? What should we be watching for as we go through the rest of this year or next year to say this is coming through fruition? Thank you.
Glen T. Senk - CEO: Dana it’s a great question. We have a one-year plan, a three-year plan and we actually have a 10-year plan. We are not going to share those with you, but what I would say is we are on track if we continue to grow profit faster than sales and if we continue to achieve our 20% plus target in top line revenue growth. So I mean it’s really it’s as simple as that. I don’t know how else to say. Eric, you want to add anything?
Operator: Stacy Pak, SP Research.
Stacy Pak - SP Research: Glen, I was hoping you could talk a little bit about what you are seeing from your U.S. versus European versus tourist customer? What you are learning in the Anthropologie London stores? I think you mentioned the California or West Coast was the strongest for Anthropologie. Why would that be? Is that just sort of the continuation of good acceptance on the Coast or is there something going on there? Then lastly, there was a slowdown in overall retail in April. Are you sort of feeling that was weather? Do you think it is economy? I just wanted to get a bigger picture on your sense of the customer and the economy and sort of a bigger global picture?
Glen T. Senk - CEO: So that sounds like two questions, but I’ll try to answer the two that I think I heard. The first one is what’s the difference between geographic regions, both within North America and the world at large? And as Steve said and Eric and Ted has certainly spoken to this earlier that there is a good bit of difference between the assortment in Urban Europe and Urban North America. Having said that, the two geographies performed relatively evenly. Within Anthropologie, there’s a large amount of overlap between Europe and America and those two businesses also performed evenly. In terms of the geographic differences, I question whether or not we should even report them, because I think that they are kind of irrelevant. If we use one way in Urban in one quarter and other way in Anthropologie in one quarter and generally speaking, the differences aren’t that significant. If there’s extreme weather in the country, sometimes it will impact that. If there are extreme geographic economic issues, it may highlight that. But right now, I don’t think there’s anything to read into any of the geographic data. Finally other than the natural differences relating to weather and fashion differences, the business is pretty consistent. With regard to the flow of business from month to month, as I said, March was strongest for us but on a two-year basis, April was actually strongest for us. I continue to say that I do not believe we are out of the woods. I am not optimistic about the nature of the economy. I think that there are many positive signs, but I think this is going to be a slow and lengthy recovery. We are not overly confident about our business. I think we’re doing a good job. I think we’re doing a great job creatively. I think we’re offering the customer great value. I think we’re executing beautifully and I think we’re getting market share. But as said earlier, it’s not easy, and I see a lot of our pier group quite promotional. I was concerned by some of the April numbers that I read myself, but that’s them. Our business, we had a great quarter, and April was our best month on a two-year basis and you will learn about the next quarter in the next earnings call.
Operator: Marni Shapiro, Retail Tracker.
Marni Shapiro - Retail Tracker: I actually, after all this time, do have a question. Congratulations to John and Ted, by the way, and good luck in your retirement. My question is about the home business, and I know you don’t expect to give us details, but if you can give some update on the home business at the two brands and could you talk about the home business internationally? I’ve noticed online you have extended assortments including a pretty outstanding assortment at Anthropologie online, including some artworks and things like that. So just any kind of color you can offer there on thinking about that area?
Glen T. Senk - CEO: The home business in both brands is positive. Both brands have done an excellent job. I think the assortments look great in both brands. Anthropologie definitely has a concerted effort to expand its home business online. That’s a great example of a business that doesn’t need to be constrained by the brick and mortar and they’ve done a good job with that. In internationally, much like what I said to Stacy, the business is pretty consistent internationally versus domestically. So we feel very comfortable with where our home business is right now.
Operator: Jennifer Black, Jennifer Black & Associates.
Jennifer Black - Jennifer Black & Associates: I just have a quick one. Most of my questions have been answered. I wondered if you could give us the timing for Leifsdottir’s line extensions. I think you said handbags and accessories and I wondered if you were considering any other categories.
Glen T. Senk - CEO: Yes. Jennifer, we will actually start with shoes first and they will be shown in the fall and they will shift for spring, and handbags will follow after shoes. There will likely be other categories of merchandise, but we’re not prepared to discuss those yet. We did launch our website in the first quarter. We are planning on opening our first store in the first half of next year.
Operator: David Weiner, Deutsche Bank.
Dave Weiner - Deutsche Bank: Most of my questions have been answered, but I guess I was hoping if you could give some further color on the foreign business and the European business and specifically your strategy on product pricing. Obviously, you’re not going to give specifics, but any color you can give on product pricing both on the Internet and then the stores, particularly given the potential pressure we are seeing and continue to see on the Euro?
Glen T. Senk - CEO: Yes. David, it is same way we do everything. It's customer driven. So we don’t have a formula. We look at our competitive stats wherever we trade. We look at the product we sell, what our competitors are selling. We kind of do a supply and demand analysis and we come up with a price. Sometimes the prices are equal, sometimes they are double, but it’s not formulaic. I mean we do have to be mindful of the fact that customers toggle back and forth between .com and .EU websites and you can’t abuse customers. But other than that they understand that one set of prices have that, one set doesn’t. Logistically, there’s a different cost of getting goods to one of the world than another, but it has to be within reason.
Operator: I’m not showing any further questions at this time. Would you like to continue with any further remarks?
Glen T. Senk - CEO: No. Patty thanks so much for doing great job and everyone thanks for the wonderful questions and we’ll talk to you in a few months.
Operator: Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect. Everyone have a great day.