Urban Outfitters Inc (URBN) 2004 Q1 法說會逐字稿

All sites are now on the conference line in a listen-only mode. The following discussions may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Note that results for the companies for the period being discussed may differ materially from the results projected or implied in the forward look being statements.

Additional information concerning factors that could cause results to differ materially from the projected results is contained in the company's annual report on form 10K and other documents filed by the company with the Securities and Exchange Commission. The company disclaims any intent or obligation to update forward looking statements. No recording or rebroadcast of the call is permitted without the company's express written permission.

At this time we will turn the conference over to your moderator today, Mr. Dick Hayne. Go ahead please.

Thank you very much. Good morning. Thank you all for joining us this morning. We had an outstanding first quarter, despite unfavorable weather conditions in the Northeast and the psychological uncertainties that are by-products of war.

Let me begin with the highlights of the quarter. Our strategic strength of creating differentiated and compelling shopping environments combined with the ability to predict customer demand for product once again helped us to overcome the difficulties we face in the quarter and for the quarter we delivered a 34 % increase in net income, record for first quarter sales and 2% increase in comp store sales, and a gross margin improvement of 124 basis points.

Overall, net sales grew by 14% for the quarter to a record $107 million. We achieved the growth by increasing the store base by 14% increasing comparable store sales by 2%, increasing the Anthropologie catalog circulation by 15%, launching a new Urban Outfitters catalog with an initial test drop of 300,000 pieces and increasing E-marketing messages by approximately 70%.

Total net sales broken down by business group were as follows.

Urban Outfitters retail sales increased 14% to $52 million with comparable store sales up 5% against a 12% increase last year. Anthropologie retail sales increased 12% to $41 million with store sales down 2% with an increase of 27% in the prior year period.

Besides the enormous hurdles of last year's comp, the primary reason for anthropology's comp decrease was the stores converted to spring merchandise earlier this year than last. That conversion combined with a much colder weather pattern in the Northeast combined with the comps for a better period.

As the weather warmed in the first quarter, Anthropologie comparable store sales improved markedly with the weather improvement.

Looking at the product category apparel performed best for both brands followed by accessories. Hard goods was the weakest (inaudible) hard good sales. Anthropologie has hired a new hard goods head merchant who will start in June and Urban Outfitters has hired a head of product design.

Direct consumer sales jumped 35% as a result of the 15% increase in Anthropologie catalog circulation, the redesign of the Anthropologie.com web site, a 70% increase in the email marketing at urban.com and the test launch of an Urban Outfitters category in March. (inaudible) wholesale sales decreased 3% due entirely to a reduction in (inaudible) sales.

The first quarter year over year sales increased slightly, an excellent find given that we are in the midst of repositioning the brand from the juniors to contemporary resource.

One of the goals is to drive operating margins up substantially. Consistent with this objective, we increased operating margins by 31% or 128 basis points to 10% of total net sales.

Two primary factors drove this increase. One, we achieved a substantial improvement in the initial merchandise margins at all three brands. This is due to better sourcing, a slight increase in the average unit selling price and a greater penetration of private label merchandise at both retail brands.

Two, we succeeded in reducing in-store controllable expenses due primarily to exceptionable management of payroll costs.

Partially offsetting the gains, mar markdowns increased slightly because Anthropologie had extremely low markdown activity in the fourth quarter last year. Freight cost leverage and fuel surcharges increased, due to the pre-war nervousness and the result of the rise in oil.

Startup costs associated with the launch of the Urban Outfitters catalog were expensed as incurred.

Summing up our performance, we're proud of the results that our team delivered in the first quarter. Despite obstacles, we continue to grow comparable store sales. We produced record first quarter sales, we produced record first quarter earnings.

We also grew earnings faster than sales and gross margins increased significantly. We leveraged SGNA expenses and we launched an Urban Outfitters direct to consumer catalog.

Looking ahead given the strength of the brand an the track record of the management team, we are excited about the company's prospects. Our retail and direct to consumer brands are poised to deliver continue top and bottom line growth.

We plan to drive the top line growth by at least 20%. To accomplish this, we plan to open 20 to 24 new retail stores this year, including eight to ten Urban Outfitters, 10 to 12 Anthropologie and one or two additional Free-People (ph) stores.

In addition to the two stores opening in the first quarter, 18 stores planned for this year are currently in the design and construction phase.

We plan to continue to grow comparable store sales in the low single digits. May retail sales to date are modestly above that plan.

We plan to grow to direct consumer business faster than the retail businesses by increasing circulation in the Anthropologie catalog and circulating 2.5 million Urban Outfitters catalog in the fall through holiday time period and by increasing the urban.com electronic marketing messages. We believe that Free People wholesale sales will continue to be flat or down slightly as we transition our account structure to the contemporary stores.

To that end, we just finished showing the fall product lines at the Intermezzo Trade Show in New York, the premier contemp temporary show in the United States. It was one of the most success successful trade shows ever.

We plan to continue improving the pretax operating margins and the goal is to achieve margins in the low to mid teens over the next several years.

Lastly, we plan to maintain our position as a premier lifestyle merchant, serving in the upscale 18 to 30 and 30 to 45-year-old markets.

That concludes my prepared remarks. I would accept questions at this time.

At this time, if there are any questions, please press the star and one on your touch tone phone. To withdraw that question at any time, press the pound key. Once again, if there are any questions at this time, press the star and one on your touch tone phone now. Give us just one moment to get the cue up.

We'll take the first question from Jeff Klinefelter of U.S. Bancorp Piper Jaffray Inc. Go ahead, please.

Jeff.

Mr. Klinefelter, your line is open.

Let's move to the next, please.

Yes we'll take the next question from Kimberly Greenberger of Lehman Brothers. Go ahead, please.

Thank you. Good morning and congratulations on a terrific quarter.

Thank you, Kimberly.

I have a couple of questions. If you could, I know you don't break comps out by month, but if you could give us a feel for how the second quarter of last year patterned, in other words just provide us if you could context for understanding the current trend of slightly positive comps. Is that against sort of an easier comparison relative to the rest of the quarter or more difficult comparison?

Okay. Kimberly, let me first say that for the first quarter our comp store sales -- our sales momentum gained throughout the quarter, and throughout the month of April. That's just by way of background. When we look at last year and second quarter, the comp store sales decreased in each month of the quarter. So, in each month we will have an easier hurdle to get over.

Oh, wow. Okay. So, that's despite, you know, what has been like a not great weather climate here in May?

I think last year -- I mean, if I can borrow my 30-some years experience in this, I think last year we had an early spring, and that is typically followed by a harder summer. Meaning that many, many people go out and buy the clothes when they need it, so they buy early and then they have what they want, and summer sales are usually a bit tougher. This year, what I would expect to say that the -- the exact opposite. People have deferred their purchases, I believe, and I would expect the summer to be a little stronger. So, just a different pattern.

Okay. Great. That's enormously helpful. Then, if you can just talk about inventory a little bit. Just looking at inventory per square foot, and this is sort of a rough number, but I -- it looks like it's up in the low double digit range. Can you talk about where your inventory investment is, is it in the home product or apparel, and how are -- how is the apparel inventory turning at this point?

Yeah. That's fine. Now, I'll let both Ted and Glen speak about it. I'll take the first crack in general. I mean, I -- our inventories are up slightly higher than the comp store sales on the comp basis. I believe that that's very healthy. Last year, particularly at Anthropologie, the inventory was turning much too fast to be sustainable. This year, we see Anthropologie's comp store sale inventory comp store inventory up, and I think it's a very healthy point. This is what we planned for and Glen has gotten the inventory in line with what we planned. I think that the apparel inventory is turning nicely at both Anthropologie and Urban Outfitters. Anthropologie is turning slight faster. I don't believe there are any problems in the apparel inventories or the home inventories.

Glen, do you want to add to that?

Kimberly at Anthropologie, where the increase is in the low double digits, the increase is entirely in the apparel area. As I have consistently said, the apparel is running with less than ten weeks on hand, which we think is a very good number. As Dick mentioned, last year, we were inappropriately low. We were so low that any kind of increase expressed as a percentage is going to seem high but in the absolute sense, I think we're still turning well on plan and faster than many of the competitors turn.

Great. Thank you.

Ted, do you want to add anything about Urban?

Just that the inventory investments we're getting the turns on a week-in/week-out basis that we want on the inventory and where we have the heavier concentrations of inventory is in the areas of the business where we are trending positively. I don't have concern with the inventory position as it relates to additional markdowns.

Kimberly just to add to it. Some of the inventory increase that you are witnessing is due to additional private label merchandise that's on the water. So, there's more private label merchandise that has not been received into the stores, but it is indeed -- we show it as owned. And that's driving it up somewhat.

Great. Thanks, Dick.

Our next question comes from the side of Kindra Devaney of Fulcrum Global Partners.

Great, thank you. Just one question on the inventory. What is the carryover versus last year?

The carryover?

Yeah.

Steve, do you -

We need to talk -- when you talk about carryover, I'm sorry -

Stuff that you had opened to clear out in Q1.

Well, we look at aging. The aging is down slightly from last year. -- slightly from last year when we look across the board.

Great.

Particularly the oldest merchandise. The 120 to 180-day merchandise is down.

As Dick said, Kindra, at Anthropologie, we really almost converted too early this year. At the end of the fourth quarter I think we had about two weeks of sweaters on hand, for example and what happened with the weather relative to the last two years with the cold weather, our business was hurt early on but I think we're well converted into current merchandise as we have ever been.

Great. On the SGNA controls that you mentioned, often in the urban test, are those sustainable through the year. Would you expect that you should see SGA leverage provided that you can hit a low single digit comp.

I think the SGNA leveraged only slightly. It was done through the control of store personnel. We -- we would hope and expect to see that continue. We think that we can get some relief and things like the fuel surcharge, although you realize that even though the gas prices come down, the surcharge also come down much less quickly. So, we think it's sustainable as long as we continue to drive the comp store sales in the manner they're going right now.

Okay. The IME, is sustainable through the year as well, or is there a point where you see big increases from last year?

No. We -- we expect it to be sustainable. When we get into next year at this time, of course, it may start to come down. The increase may start to come down. So, but through the year, we believe it's sustainable.

Great. One last final question. The question stores -- you've opened a lot of stores in the last couple of quarters, but heavily weighted and how are the stores doing more stores this year, what is going on with the occupancy costs relative to sales?

Okay. Why don't I let Glen and Ted talk about that.

I mean in aggregate, the new stores are performing very well. One of the things that I said I'm particularly proud of is that there was only a couple of dollar difference between the total sales per square foot number and our comp store sales per square foot number which means that we're getting increasing productivity at the new stores. In part because we're downsizing them, and I think in part because we're making good real estate choices and, you know, and so on. But overall, we're very, very pleased.

Great.

I certainly wouldn't diminish the importance of the catalog drops to drive those sales also. It's incredibly important and the marketing that goes into the catalog is an integral part of what Glen's strategy is at Anthropologie. Ted, do you want to talk about the urban stores?

Well, we are getting ready to have our first anniversary on King of Prussia, which was the first move into an enclosed mall. That's the one that we have --as a result we had the longest look at. We do see continued opportunity and growth in that store as we refine mix and our team there gets a bit more seasoned in their leadership of the business there. They are going to come in where we had the business planned in their first year, and as far as the stores that we opened in fourth quarter, we think, you know, pleasant stories all the way around. Some actually exceeding fairly nicely where we had them anticipated.

Our latest opening was Houston Galleria, and it's really only been up and running at this point for four weeks. But thus far, we're pleased with what we're seeing there in that the square footage of the store is just about 6,700 square feet selling, which is pretty tight for us, so, the productivity out of that store should be pretty dramatic.

Yeah. We're very pleased with the first five mall stores that we have opened are clustering nicely and clustering above or at plan, and so we're very encouraged and we see the strategy working. We'll go forward with it.

Great. Then, Steve, can you talk about the occupancy?

We had about 40 basis points of impact in the quarter. Negative impact. Driven more by increases in real estate taxes. We have talked about what we have seen across the nations as cities and states trying to make up the revenue shortfalls. Our expectation is that we'll see little, if any, deleveraging going forward as ideally, we are able to sustain our below single digit comp plans.

Great. Thank you.

The next question comes from the side of Christina de Marval of Sidoti & Company.

Hi, guys. Great quarter.

Thank you.

I wanted to ask keeping with the question of the number of stores open by concept and the square footage, Steve, if you have that at the end of the quarter by concept.

We opened only one of each, and approximately 7,000 square foot for each. So, that was the update from the fiscal year end.

Okay. Were two planned for Anthropologie? Or was I mistaken?

No, I don't believe so.

Okay.

One of each, two in total.

I see. Okay. Let's see here. I guess getting back to some of the questions -- to the questions about the mall stores on the Urban Outfitters' side. You mentioned that the store in Texas is a little bit smaller. What kind of categories do you take out to accommodate that. You also talked about some refinements in the mix. I'm curious about if you could be more specific there.

In regard to full-fledged categories, we don't take out any categories. We continued to merchandise, men's, women's, home, gift and novelty product in that store. They -- the mix is put together based on what we feel the opportunity of the individual market is, and Houston is a --we already have one store there. We feel like we have a good understanding of the customer in the market.

And so the fashion mix that we put together in that store is --we think, very sensitive to what the needs of the market are, and we tend to distort the categories, the items within the categories in regard to inventory investment that we think will be most productive there. They may not have as broad a skew assortment as a 14th and 6th which is approaching 20,000 square feet, but they -

Wow.

They would certainly have a mix that would be totally representative of the businesses we're involved in every store.

Yes. I guess if you -- I know that you don't have that many --maybe it's premature to generalize, but can you talk about any meaningful differences between the mall stores and the street front stores in terms of merchandise mix, or even key selling metrics like UPT's or what have you?

: I don't know that we have really focused so much on looking at taking our enclosed malls -- enclosed mall stores and analyzing what goes on there vis-a-vis balance of company. We do manage -- we are fortunate in regard to our size to be able to manage at a very micro level the specifics of inventory mix on a by-store basis. We have a product categories and particular classifications that trend differently on a store by store basis. We have done very little, you know, categorization of a street store versus a lifestyles center store versus a mall store. We just haven't gone to that level of looking at the business. We consider the -

If I might add -

Honestly, we consider the stores Urban Outfitters stores. They happen to be an enclosed mall venue.

I guess the last question is about the catalog. It sounds like it was a real success. I'm wondering about plans for a follow-up catalog test and any potential surprises or things you might change or what you might have learned from the debut catalog?

Well, our second drop will be in July. And this drop will be in between 650 and 700,000 books. And in regard to real takeaways on the first book we he feel like we could have realized more opportunity by going with a bit more density in the book. I think that as we look at other direct product that is in the market, our customer likes -- our customer loves breadth of assortment and breadth of offer. I think that's one of our strengths in regard to the web site, and it's something that, you know, we -- we feel like there is more opportunity for us to take advantage of in regard to the direct mail piece.

Okay. Would you change -- it sounds like circulation will be up significantly. Will you change anything in terms of how you start circulating in terms of trading area, or process?

Well, we do have people that have requested to be on mail list, et cetera, that we have mailed to about on the initial drop. We mailed to about a third of the list that we have. We're going to increase the drop to store related names. And we are probably going to put more catalogs in store. The catalogs were -- disappeared on the in-store. We put 20,000 catalogs into the store just for pickup. They disappeared instantly. We're going to increase the amount of catalogs in-store. We did get a decent amount of response in the call center on the catalogs that were picked up in-store.

Thanks a lot.

The next question comes from the site of Richard Jaffe of UBS Warburg. Go ahead, please.

Thanks very much. You can talk about the business in Anthropologie and Urban from the men's versus women stand it point, the men's in particular, the men's having been a tough category for many of the retailers?

As we went through the quarter, the strength of women's business, and I think it had a lot to do with a bit of the mood of the fashion of season as we did get a bit more warm weather and few more warm days as opposed to cold and snow days.

Our trend in the women's area improved consistently as we went forward through the quarter. Our men's trend came out fourth quarter as you recall pretty healthy, and maintained that run rate and that healthiness as it went through the quarter.

There are categories in men's that have improved in regard to their comp contribution and we're feeling that we can maintain the health and the comps in the men's business as we go into back-to-school and fall selling.

I think that Richard, the most optimistic note in regard to that question from our apparel perspective is, you know, the --if we could see a little bit more consistency in the weather, I'm quite optimistic that we have got some real good health in the women's apparel business right now.

I guess how is your visibility for the back to school period, men's versus women's as well? Any key trends or things to hang your hat on for the back-to-school period ?

You're treading on the question that we don't like to answer. I will tell you this, there are classifications that I feel like we were not that strong in last year that we had opportunity in, and with good deliveries. I'm optimistic that, you know, we're going to realize that opportunity this year.

Okay. I'll take that as a yes.

Yes.

Thanks very much.

Surely.

We'll take the next question from the site of Joseph Teklits of Wachovia Securities. Go ahead, please.

Thanks and good start to the year, guys.

Thank you.

I want to ask about private label inventory, which was mentioned. If you could give me a little color or history on private label as a percentage of your inventory mix or of the sales for Anthropologie or Urban Outfitters, whether it be what the trend line was last year or where we are today versus some point in history where you were at the private label levels, Q1 or plan going forward, specifically at urban outfitters where you have vendor relationships, brand and vendor relationships to maintain as well. I'm only looking at this because it's like you can't have your take and eat it two type of questions. I know the margin impact is good. Where is the potential shortfall of private label.

Joe, you are talking about penetration private label?

Correct.

Glen, do you want to start?

Yes. Joe, as most people know, private label is a relatively new thing at anthropology. We started three years ago. Last year we planned it for the spring season at 30%, we ended up penetrating at 40%. This spring season, spring season, we planned at 40% and it's penetrating closer to 50%.

As I have said in a lot of one on one's, the reason why I think that's happening is because I think the private label strikes a cord with our you have undisturbed customer in a way that the market probably does not.

So, we're continuing to be --we're obviously very much committed to having a mix of private label and market product but we're likewise very, very pleased with the private label performance.

I think, Ted, I'll take a first crack at the Urban, the penetration of private able at Urban up slightly but that's more because of a lesser importance in some of the brand areas. And so, we makes -- the mix has changed somewhat. But it's not -- the amount of increase in urban outfitters, the penetration is probably up a couple of points maximum.

Okay. So, when you talk about inventory being a little heavier out of Q1, part of that being extra private label, it's not significant, especially in urban outfitters. It might be higher.

What I meant to say, I don't know if it came across, is that the private label is on the water, and now if you have the vendor, if you are buying from a vendor, you don't count the time period that is on the water. And so, it's just a matter of timing. Now, that accounts for some of it, not all of it.

Okay.

The Anthropologie inventory is up. That was planned to be up, and it's up according to the plan.

Got you. Thank you.

Yeah.

We'll take the next question from Elizabeth Pierce of Sanders, Morris & Harris. Go ahead, please.

Good morning. Congratulations, everyone.

Thank you, Liz.

Ted, just back on the Urban side of things, if could you just clarify -- in the Houston store, I guess I'm curious because I have seen it, if I understood you correctly, you're just capitalizing on I guess the statements about, you know, the customer likes breadth of product. Just help me, if you will, kind of reconcile. Reconcile the two.

Well, I guess I would turn and ask you the question. Did you feel like we had breadth of product -- breadth of product assortment and you felt like it was an Urban Outfitters experience when you shopped there.

I absolutely did. I thought it was tight.

You didn't see a Ping-Pong table there.

No.

Things like that have to go when you are merchandising,6700 square feet. We would have liked to have had more space in the Houston Galleria. Its just that, as we put that deal together, available space, we took what we could get, and we -- we were looking to tighten up, but, you know, we may be a bit too tight there. I do not think that we are under-serving the customer in regard to an Urban Outfitters shopping experience in the market, from what I have seen, and from what I have heard. The SKU assortment in all areas of the business, apparel, accessories, shoes, home is, is a broad assortment that we manage for the total company.

Needless to say, in every category of business, there are key items, and base businesses that we have to finance and count on for day in and day out productivity. Those businesses will be present in that mix, as well as the key fashion stories that we feel are appropriate for the Houston market. Perhaps some tertiary items in the mix that, you know, may come in, sell through. We don't reorder in chase. They may get less of that type of product. But they will certainly have product to tell the proper fashion story as well as core Urban base items to drive day in-day out volume.

Okay. What about all of the back table the pinball machines and as you pointed out, the Ping-Pong table. In a smaller store, that's going to be really hard to do.

One other thing that I would allude to is we're putting a lot of emphasis on our work right now on creating individuality. Our individual store locations. Our individual store locations. I don't doubt that we'll come up with unique answers in merchandising, and putting that store together that works specifically for that store that addresses the lifestyle needs of the customer and the stories that we want to tell. It may not be in retro-video games. It may be in some other area. But I think that we remain true to offering a strong lifestyle shopping experience to our customer, and doing that in a very unique and individual way based on the store that we're working with. I think that we -- you know, we would probably be coming up with answers that work in a different way, in that specific location.

It seems to me that those things are great draws to the guys. Who -- the guys to get them to hang out. If you look at your men's business being as strong as it's been particularly versus the peer group, I guess the question is, what is the correlation between having these kind of extracurricular activities in the store.

Well, we still have a what we refer to as a men's lounge area in the store, despite it being tight on space?

Right.

And the hangout factor, I think, is in place in that store, and working well in that store from what I can tell. From the productivity of their men's business.

Have you seen an impact on the other store in Houston?

The other store in Houston has given up some business, but they're in line with when we got talking about the deal where we thought they would be.

Great. Now, I'll switch over to Glen. Glen, can you address some of the plans for the back half of the year on the gift side, since that was a category that you weren't as pleased with last year?

I was not pleased with -- I was not pleased with the gift assortment and I was not pleased with the gift execution. Particularly, that relates to visual merchandising. So, I think we have made great progress with the visual merchandising plans. I feel very comfortable with what we have in the store.

In the home area, I think we're making good progress and, you know, the business is getting a little better, and I expect to see continued improvement as we face the second half. In terms of apparel, I feel very good about what we have on --you know, in the store.

And the new person starts in June, correct?

Right.

Is that what Dick said. He or she will be doing -- I believe it's a he?

Yes. He will be the divisional merchandise manager for the home business. We will make a formal announcement towards the end of May.

Okay. Do you, Glen, envision a radical change on the home side like really de-emphasizing some of the slower turning, perhaps furniture?

No, I think that we just have not had enough change in the business. I think that for the most part, the classes that you see in the store will remain. I think that some of the looks need to change, and the execution needs to get better

Great. Actually, back to the catalog at Urban. Were any of -- anything mailed internationally?

No.

No. And any comments on the international stores?

I would let Dick take that.

Well, I think that, Ted, maybe some catalogs got into Canada.

We did not drop on Canada.

Okay. The international -- I assume you're talking about the stores in Europe?

Yes.

The stores in Europe are comping (ph) positively and nicely. And we have plans to open one or two more this year and they're doing quite well. We have hired a manager of that division, Martin Parker (ph), who has a number of years experience, and we have seen some nice improvements since he has been there. We believe that we will continue to grow it slowly, but we believe that it's a very great opportunity for urban outfitters as we move forward.

And, Dick, would you -- is it the stores -- sorry -- the stores you planned to open in the U.K.

Yes. Our plan is to continue to open them slowly and up until maybe eight to ten stores we would want to keep them in the British Isles.

Great. Thanks. Good luck, you guys.

Thanks.

We'll take the next question from Richard Baum of Credit Suisse First Boston. Go ahead, please.

I have a couple of questions to follow up. One is on the inventory on a going forward basis, it was up about, whatever, 14% or so per square foot, Steve, what are your plans for the balance of the year in terms of inventory per square foot?

I don't think that the number will be as dramatic. I would expect it would come as you recall, we were modestly positive at the end of the second quarter. I would think high single digit numbers per square foot would be appropriate for quarters two and three.

Okay. Just some clarification, Dick, on the response that you gave to Kimberly in terms of the comparisons for the second quarter by month. Because the second quarter last year was an up quarter significantly on the comp side. Could you just repeat what you said in terms of what the --what those comparisons are like on a monthly basis?

Well, the second quarter last year, the total comp was up about 11 points

Right.

And the question, as I understood it, from what I answered, was how do it flow in the quarter. My response was that we had a decrease in comps, in positive comps, throughout the quarter. Meaning that they were higher in May, less in June, and lowest in July. In terms of positive comps. All totaling 11%.

Did you ever provide any breakdown by month for us, or would you?

No, I wouldn't and we haven't. No -- as you know, we only report quarterly, and we report monthly only in the month of December.

Okay. That's fine.

Thanks, Richard.

That clarifies it. Now, just a couple of others. Ted, I know that you guys don't like talking about what plans you have going forward for merchandise, but actually for both Ted and Glen, would you be willing to comment on what categories worked particularly well for you in the first quarter so that you can get an historical look back?

Let me take the first crack at the totality. As I said in my opening remarks, our apparel by far was the best performing category. Accessories, as a whole, was the next best, and as I said before, and I think we said consistently home has been the laggard. That's what you look at on a total basis. This has been through -- this has been true of Urban Outfitters both in the United States and in Europe, and it's been true of Anthropologie.

I'll let Glen and Ted if they want to talk any further about it.

Richard, other than with the unseasonable cold in February, the women's business has been excellent. We have a lot of trends, you know, as I say, when I'm with people, we don't talk to fashion but if it's a regular price, just go to the store, it probably means it's selling. Our accessories business has gotten continually stronger through the quarter. We feel that there's a lot of action involving the women's area and accessories area as we look forward to summer and fall.

I'd like to add something to that. At anthropology, as I said last -- in the opening remarks, last year they had 27% comp store increase. A good portion of that was driven by the women's apparel, and for Glen and the Anthropologie team to comp positively in the women's apparel area, is I think extraordinary. It shows just how strong and how good the apparel selection is at anthropology, and so, we're very bullish about the -- about our prospects and it's mostly derived from the apparel sales.

Just one last question, and that is with regard to the Free people. You indicated that you're repositioning the brand away from juniors and more as a contemporary brand. What is the -- if any, is the relationship now between Free People and Anthropologie, and do you -- do you anticipate that as you go through this repositioning that much more of that product or much more of that product would be sold to Anthropologie than they have historically bought, if any?

Historically, Anthropologie had been a significant Free People customer keeping the brand well. There was a conscious decision to de-emphasize that -- conscious decision to de-emphasize that that started about a year half ago as they built their private label business and as we decided to refocus our brand. That really will be up to the merchants at Anthropologie as we will present and do present our collection to them, as we do any existing customer.

I guess my -

Well, Richard, I think just a bit of explanation about how a company works. The wholesale division is absolutely a separate entity. The wholesale showroom and the people there show the line to the buyers, and the appointments that are made. If Anthropologie wants to make an appointment and go see what Free People is doing, they have every opportunity to do that, and of course, it's an arm's length deal. Free People make the decision if they want to sell to them and how much they want to sell them. So, we really keep the two businesses separate. I know that -- I think what you are really getting at is in the repositioning is it a target for Anthropologie. I think where we see the Free People brand position is really exactly in the middle. It's in the middle of urban outfitters age group and Anthropologie age group. I think it would be appropriate for both, but both brands are able to say they don't want to carry the free people label.

Great. Thanks.

Sure.

The next question comes from the site of Lili Tominga of Piper Jaffray.

I have a couple of questions -

Is Jeff okay?

I'm not sure. I think he got caught up on the Target call. I want to ask on the comp metrics. Could you give me an idea where you are averaging at retail versus the number of transactions for specifically by division?

The average unit retails in each division were up modestly in both cases a higher proportion of full price selling driving that more than any conscious price raising, and some mix issues which also served to drive the numbers up. The average unit per transaction both divisions were relatively flat. The total transaction, the average transaction was up slightly in both.

One of the things that was driving it is the home business, which is -- as a percent of total is down somewhat, and the average retail price at the home tends to be lower than the average retail price of apparel. So, as apparel becomes a great percentage of the total, then the average retail price in total tends to go up.

Okay. And in terms of the head of the Hard Goods. I know that you guys had discussed, you know, putting out an offer to this person, I think a up. Couple of months ago. I'm just wondering is this kind of the same person or is it difficult to find talent out there, or -

Certainly the answer to the last question is yes. It's always difficult to find good talent. I'll let Glen answer the former question.

We will make a formal statement on the individuals towards the end of the month. This is the same individual that we hired about four to five weeks ago, and -- four to five weeks ago. He needs to give notice at his current place of employ. He will start with us June 2.

Awesome. Are there any other holes that you are looking to fill on that level?

No. We, as I mentioned in I think the last call, we promoted Wendy Wersberger (ph) who had been the women's and women's accessory divisional for five years. We promoted her into the general merchandiser manager's spot in December and hired a gentleman named Matt Cangoram (ph) who was most recently with Cache and Sax (ph) before that to replace her as the merchandise manager for women's and women's accessories. We have also recently hired a new head merchant for Anthropologie direct, a gentleman named Howard Citeman (ph) who was with Bloomindales (inaudible) by mail for 13 years.

I don't characterize those as holes.

I guess infrastructure build. I think thats what I meant to say. Sorry about that. In terms of just the promotional environment, we have already heard so far this week, it could get hairy out there, especially on the men's side in terms of the teen and college age focus consumer here in the second quarter. I just want to know how do you feel about the -- how your positions maybe respond to that. Clearly, I think your men's business is doing very well. That's rare these days, but it could get pricey -- price competitively out there. So -- just wondering how you feel about that?

We based both businesses on the notion that we're adding value in a different way than cutting prices. What we think we're very good at is creating these environments that make the shopping experience compelling, and that's been one of the ways in which we have been able to maintain our prices and maintain our margins. What we believe is, of course, that you know, we don't exist alone. And if there happens to be a rash of extraordinary price cutting, we could be affected. I'm not trying to suggest that we wouldn't be. But I don't -- I wouldn't expect that the activity would be more unusual than what we have seen in the last 12 to 24 months where there's been an enormous amount of price cutting.

Great. Well, thank you so much, and congratulations, and good luck for the next quarter.

Thank you very much.

Thank you.

The next question comes from the site of Dawn Stoner of Pacific Growth Equities.

Good morning. Thanks. Great job on the quarter.

Thank you, Dawn.

Two follow-ups on earlier questions. First we got a little bit of flavor for anticipated changes at Anthropologie on the home side. I was wondering if Ted could address the same question, anything we should look for for fall at the home business for Urban?

As Dick mentioned, excuse me -- as Dick mentioned in his comments on intro, we did make an internal move with the -- one of our stronger creative individuals into the home area in the second half of last year.

To work with our home team on product development. The product development that took place at that time will be flowing in for back to school and third quarter. And we're optimistic in regard to that addition to our assortment. On an execution basis, we have made some enhancements in our planning process to get stronger performance out of the core items. We have been a lot of -- a heck of a lot more specific in development of key item strategies and financing those appropriately for the back-to-school time period.

We feel like we will have much more strength in base as opposed to -- a roller-coaster effect of in and out inventory positions on items that are key for our day in and day out business. I think that we have taken some steps on the creative front as well as the tactical front that should predict for improved results as we get into selling for back-to-school in the second half.

Does that mean that the assortment will narrow somewhat?

We have taken steps overall at urban on that specific topic. Not just in the home area. We have really established a process that, you know, for lack of a better term, functions as a style open to buy process whereby we have based on history declared a finite number of styles that we want to operate each classification business with.

And we have, I think, done a pretty good job on the execution of that, in the first part of the year. Tightening up the style roster and financing, you know, core businesses, a bit more dramatically than we might have this time last year. So, it's not necessarily just less styles and home, we have tightened up on the style roster overall.

Great. That's helpful and then just my last question for Glen on private label penetration. You talked a little bit about where it is. It's at 50% now at Anthropologie. I am curious if you have a cap in mind for private label or can it go much higher than this?

We are kind of letting the customer, Dawn, tell us what she wants it to be. I talked a lot about the fact that -- 30 to 45-year-old customer and how under-served she is both at the retail level and wholesale level. More than 50% of the customers have kids. 80% of them are married or in committed relationships, and she's really not a contemporary customer. She's interested in fashion but also comfort and that is not a function that a lot of the contemporary lines provide for her. She's also not an iffy (ph) customer. The private label has kind of been hitting the sweet spot for this woman, and to the extent that it continues to do so, we'll let the customer, you know demand it, and it will grow organically having said that, the whole novel for -- model for Urban Outfitters and Anthropologie is to have a very eclectic mix of market and private label products. We never want to overexpose ourselves to getting too vertical, you about as the customer continues to demand it, we'll offer it. I doubt we will plan it to be higher than 50%. For the foreseeable future. If it continues to sell through bet r than the market product, we'll let it happen.

That's helpful. Lastly, Steve, can you tell us what the increase, if there is any, is anticipated for for the second half for anthropology --Anthropologie catalog circulation?

I'll defer to Glen on that. I did want to express our best issues to Marcia.

We'll pass that along, thanks.

The total circulation for the year is planned at 12% increase. And it's planned down slightly in the third quarter and up in the fourth quarter, but in general, in the low teens.

Great. Thank you. Good luck.

Thank you.

At this time, we have no further questions.

Thank you very much.