Urban Outfitters Inc (URBN) 2004 Q4 法說會逐字稿

Good day and welcome to the Urban Outfitters' fourth quarter earnings release.

The follow discussions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Please note that actual financial results of the company for the periods being discussed may differ materially from the financial results projected or implied in the forward-looking statements.

Additional information concerning factors that could cause actual financial results to differ materially from projected results is contained in the company's annual report on Form 10-K and in 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 this call is permitted without the company's express written permission.

Everyone on the line now is in a listen-only mode and I would like to turn your call over to your host, Mr. Hayne.

Please go ahead, sir.

Thank you very much and good morning everyone.

Welcome to the Urban Outfitters conference call.

I'm Dick Hayne, Chairman and president.

A number of my colleagues are participating with me on this morning's call.

That includes our Chief Financial Officer John Kyees, our brand presidents, Ted Marlow and Glen Senk, and other officers of the company.

Earlier this morning we issued a press release that outlines our financial and operating results for the quarter and year-ended January 31, 2004.

We will now review those results in more detail, Discuss from current business trends and try to answer your questions.

Please note that the formal text of today's conference call will be available at the company's website, urbanoutfittersinc.com

Fourth quarter results were a perfect ending for a record-shattering year.

Regardless of how one measures performance, the results we produced in the fourth quarter and the year were far in away the best in our company's history.

We are pleased to present the following fourth quarter financial highlights.

Consolidated net sales increased by 50% to a record 176 million.

Total comparable store sales increased by 21%.

Gross profit margins increased by 433 basis points.

SG&A leveraged by 175 basis points.

Operating margins grew from 11.6 to 17.6% of sales.

A jump of 608 basis points.

Net income soared 120% to a record 18.4 billion.

And earnings declined from 21 to 45 cents per diluted share.

Now I will go into a little bit more detail on the fourth quarter results, starting with sales.

Sales for the fourth quarter grew by 50% versus the same period last year.

Four major factors drove this increase: The first factor was a number of stores in operation during the quarter grew by 23%.

The company opened 11 new stores in the fourth quarter, bringing the total number of new stores opened during the year to 21.

Breaking this down by brand for the year, Anthropologie opened 13 new stores and Urban Outfitters opened eight.

These new stores plus the other non-comparable stores added 26.3 million dollars in revenue during the quarter.

As a group, the stores the company opened in the fiscal year of 2004 performed 12% better than the company average, in terms of average sales per square foot.

Since an average new store had a sales ramp, that goes from about 85% in the first year to 100% in year three, being above average in the first year bodes well for the class of '04.

The expansion strategy for Urban Outfitters retail is based to a large degree on opening stores in enclosed malls.

So it is important to understand how the enclosed mall stores are performing.

When taken as a group, the Urban enclosed mall stores were 14% more productive on a sales per square foot basis during the fourth quarter than the average Urban store.

And since the average Urban mall store is filling its first full year of operation it's clear that this group is significantly outperforming the non-mall group.

Furthermore, the mall stores delivered more than twice the return on investments, that's our non-mall [inaudible] achieved in their first full year of operation.

Anthropologie Retail opened a number of highly productive new stores during the year as well.

Including a new store in Dallas, Texas, that achieved the single highest opening day sales in the company's history.

The second factor driving the overall sales increase was that total comparable store sales for the quarter increased by 21%.

Comp sales at our Urban Outfitters and Anthropologie stores were up 21 and 22% respectively.

Analyzing the comp store sale increases more closely we find that they were all driven by full price sales, not by markdowns.

The average number of transactions rose by 19 and 12% at Urban Outfitters and Anthropologie respectively.

The average retail price was up 1% and 8% respectively.

The number of items sold per transaction remained unchanged.

And all product categories were positive for the apparel and accessory categories leading the gains.

The third factor driving sales was the extraordinary growth in the direct to consumer business.

Total direct sales during the quarter increased by 110%.

Gains in the Anthropologie direct results from the combined effects of the 24% increase in the customer response rate, and a 12% increase in the number of catalogs distributed.

Both of which easily offset a slight decline in the average order value.

Urban direct distributed approximately 1.2 million catalogues during the quarter, versus none in the prior year.

The effect of these both combined with a significant increase in web traffic grew a 60% gain in customer conversion rate and produced more than three times the number of customer orders in the quarter.

The last factor driving quarterly sales was a 29% increase in wholesale sales.

The wholesale results are particularly gratifying since the wholesale business has been lagging for a few years.

The sales increase was driven by a 48% rise in the average order value shipped combined with a 17% increase in a number of wholesale customers.

Now let me talk a little about gross margins.

Total gross margin dollars for the fourth quarter increased by 67%.

And the gross margin as a percent to sales grew by 433 basis points over the same period last year.

There was substantial improvement in all the areas and across all brands.

The components affecting gross margin as a percent of sales were as follows: First, initial merchandise margins for the period rose 229 basis points.

This comes on top of the 201 basis point rise in initial margins in the prior year's fourth quarter.

Better sourcing of our proprietary product and increased buying power were (marginally) responsible for this year's improvement.

Second, better inventory management combined with strong comp store sales increases reduced the need on percentage basis to use markdowns to clear slower-moving merchandise.

Total merchandise markdowns as a percent of sales improved by 148 basis points.

Total comparable store inventories as of January 31, 2004, grew by 3/10 of 1% over the prior period.

Breaking that year-over-year inventory growth by retail brand, Urban Outfitters and Anthropologie comparable store inventories were plus three and minus three respectively.

The average age of the inventory in the retail brand improved significantly.

With a 14% improvement at Urban Outfitters and a 3% in Anthropologie. (Careener) fresher inventory year's end should benefit first quarter margins as a result.

Third, the strength of our comparable store sales during the fourth quarter also led to a 187 basis point improvement in occupancy costs.

Even though a number of our stores have leases containing percentage rent provisions whereby we pay additional rent when sales rise above a fixed-rate point.

Fourth, and slightly offsetting the positive effect on margins of the above three factors were small increases in delivery and merchandise handling expenses.

These increases were entirely related to the direct business as an unexpectedly large surge in holiday orders caused some inefficiencies in processing and shipping customer orders.

Now let me talk about SG&A expenses.

Selling general administrative expenses during the quarter decreased by 175 basis points.

Strong gains in comparable store sales, tight control of store expenses, and more favorable rates on fees related to debit-card sales were the primary factors driving this improvement.

And finally I'll talk about operating margins and earnings per share.

Our stated goal has been to grow the revenue line by at least 20% year-over-year and to improve our operating margins in a rate faster than that.

Last spring we spoke to you about our three-year goal to raise operating profit margins by 300 basis points from our fiscal year 2003 level of 10.7%.

This past year we achieved operating margins of 14.7% of sales, which constitutes a 398 basis point improvement over FY '03.

So we have now accomplished our stated goal in one rather than three years.

For the fourth quarter, the growth in operating profit margins was even steeper.

Margins increased by 608 basis points to 17.6% of sales.

Earnings per diluted share of the quarter reflected this rise, climbing from 21 to 45 cents.

This extremely strong performance is made even better by the fact that all of our operating businesses made meaningful contributions to it.

The fourth quarter results I just reviewed are tremendously positive.

I can assure you that while the entire management team in our company is understandably proud of their accomplishments last year, they are now totally focused on this year and the future.

Our team believes strongly that we have just begun to realize our extraordinary growth opportunities.

Let me now discuss some current trends and new developments and share with you a few of our longer term goals.

First, as we have stated in this morning's press release, the sales momentum created during the fourth quarter has continued into the fourth quarter -- first quarter of this year.

Sales are significantly above plan and all of our operating entities.

Customers are responding well to the fashion and all three brands even though the fashion offered at each brand is very distinctive.

Once again, apparel is the strongest performing category, but all categories are positive including [inaudible].

The direct business continues to see impressive gains in year-over-year sales.

The catalogues and web sites at both retail brands are generating higher response rate and significantly more orders than last year.

We are currently filling direct orders from approximately 50,000 square feet in our existing distribution center in GAAP Pennsylvania.

As I mentioned earlier, when the order volume increases, the efficiency of this operation comes under pressure.

So in order to accommodate the anticipated growth in the direct business, one of our corporate initiatives this year is to open a new 150,000 square-foot stand-alone fulfillment center.

We hope to accomplish this by September of this year.

In the wholesale business the positive sales trend established in the fourth quarter of last year is continuing.

That comes from our spring and summer lines are considerable ahead of last year and planned.

A number of larger customers have reported they are enjoying considerable success with our spring shipments.

The search for new three people president is proceeding and after seeing a number of candidates, I'm glad to say we are beginning to narrow the field and we hope to have a president named or in place by late fall.

Initial margins in all of our operating businesses remain strong and as mentioned earlier, the condition of our inventory going into this year were extremely clean and fresh.

This combined with strong product demand makes all factors positive for continued gross margin and operating margin strength.

Two corporate initiatives aimed at facilitating either -- even better gross margins down the road are now in the installation stage.

They are product development management system, which has been licensed through Gerber Technology and a planning and allocation system that has been licensed through NSB Retail Solutions.

We believe that these software systems will allow our merchant, designer and production staffs to be more efficient and productive while making better business decisions.

We believe we should begin to see the benefits from these systems in the fourth quarter of this year.

We expect to open between 24 and 27 new stores this year.

One or two of these new stores will be additional Free People stores, the remaining new stores will be split approximately evenly between Urban Outfitters and Anthropologie.

We expect to open between 10 and 12 new stores in the first half of this year, clustered around the May, June period.

Our goal is to continue to deliver 20% plus (composite annual) sales growth with the current success of both retail brands, especially the Urban Outfitters stores in enclosed malls and the Anthropologie stores in lifestyle centers, we believe that both brands can expand the store base at a rate of 20% or better for many years to come.

We believe that the Urban brand can support at least 150 stores in North America and Anthropologie can support over 200 stores in North America.

The Free People brand is in its infancy and could support aggressive growth for many years.

So in conclusion, we are very pleased with our fourth quarter and full-year 2004 results.

Of course it's always gratifying to report a record-breaking performance.

We see our recent results as confirming the validity of our lifestyle experiential approach to retailing.

We believe that this approach creates strong resilient brands that have deep bonds with our customers.

Because of this brand strength we believe that we have an excellent opportunity to continue to achieve sales and margin growth and our goal is to continue to produce record performances for our shareholders.

Thank you very much and I will now open the floor to questions.

At this time, if you would like to ask a question, please press the star and one on your touch-tone phone.

You may withdraw your question at any time by pressing the pound key.

Once again, to ask a question, press the star and one on your touch-tone phone.

We'll take our first question from the side of Janet Claudeenberg from JJ -- JJK Research.

Please go ahead.

Good morning, everyone.

Hello Janet, how are you.

Good, how are you.

Very good.

Congratulations on a very good quarter, outstanding.

I wondered if you could you talk a bit about the opportunity for further IMU improvement this year and also if you could talk a bit about your penetration of private labels and how that's moving, and what direction that will move this year?

And for John, if he felt that the (part) development and planning and allocation systems would offer the company any margin benefits this year as well.

Thank you.

I'll take a little shot at that, then I'll let Glen and Ted come in and talk more specifically.

Thank you.

I think in terms of initial margins we still have a -- a long way to go.

We have spoken publicly that we believe that there is at least 100 basis points over a 3-year period available to us in initial margins.

A number of reasonable amount of that will come from sourcing initiatives and also come from leveraging our increased order sizes.

I just came back from the far East and visited many of our factories and I believe very, very strongly that there's at least 100 basis points available to them in that area.

Right.

Glen, do you want to --

I -- I would just agree with what Dick said and with regard to the private label percentages, Janet, we're running at about 50% and as we've said over the last year we really intend to keep it there.

Okay.

So no change on that front.

No.

And there was really not significant change this year.

Most of this -- almost all of this year was driven by sourcing initiatives and leveraging of our -- of our buys.

Okay.

And we expect that to continue.

As to the -- the [inaudible] allocation, we are currently starting the installation process and the training process.

That probably won't be finished until sometime in the mid-third quarter and so we will begin on a small basis to see benefits we believe in the fourth quarter of this year.

But much more the benefit I would expect to come next year.

And when do you think the -- the new distribution center will be up and running?

Well, we have some aggressive goals but what we're saying is we plan to have it done by September.

We'd like to have it done before that and we think it's possible, but September's the date that we'd like to tell all of you.

Great.

Thanks very much.

Yep, thanks, Jan.

Thank you.

We'll take our next question from the side of Kim Greenberger with Lehman Brothers, please go ahead.

Hi, Kimberly.

Good morning and congratulations on a very, very nice quarter.

Thank you Kimberly.

I'm wonder if you can talk about the marketing initiative this year.

I know last year was the first year specifically for Urban catalog.

If you can just tell us, you know, what your plans are this year relative to last year, that would be helpful.

And then from a margin opportunity perspective on the gross margin side, we obviously saw a more substantial ramp up in the gross margin in the second half of '03 relative to the first half, does that mean that, you know, here in the first half of '04 we still have some of that, you know, really nice opportunity.

Yeah, let me -- let me take your first question first, which is the marketing efforts.

The Urban Catalog as you know, the first drop, which was a fairly small drop, occurred last March, so we are (anniversarying) that as we speak.

Urban Catalog drops this year will be about 8.2 million versus just slightly over 3 million last year.

So it's up almost 300%.

Anthropologie plans to drop somewhere around 15.5 million this year up from just under 13.5 million last year, about a 15 or 16% increase.

I don't think that tells all the story.

Anthropologie has gone through a redesign process and you can see the results in the spring and summer catalogs, which is having a very, very strong response, and so I think that it's not just the pure percentage that we have to look at but the quality of the drops as well.

And your second question was?

On the gross margin we saw just such a big ramp up in gross margin in the third and fourth quarter last year, is -- is that sort of opportunity available here in the first half of '04 as well.

Well, I tried to indicate that there -- that the strength of the -- the factors that weed into operating margins are continuing.

You know, our initial margins are still strong.

Some of the other issues, the markdowns, because the inventories are so clean and fresh, should be in check.

So I would say that I don't want to go beyond the statement that we believe that the margins still should be strong.

Okay.

Great.

Good luck here in '04.

Thanks, Kimberly.

Thank you.

We'll take our next question from the side of (Lauren Levton) with SG Cowen.

Please, go ahead.

Thanks, good morning.

Dick I'm wondering if you would care to make a new operating margin goal considering you already exceeded the old one.

And maybe give us a sense of timing if there is a new goal.

And then, I was hoping if you could give us a little bit more clarification on the mall stores.

Given that -- the great success that you've had with those initial mall stores, is there any sense that that mix of mall stores within Urban Outfitters could be greater over time and does that potentially have any implication on what you think the potential store base could be for Urban Outfitters?

Thank you.

Sure.

Let me take the first question, then I'll ask Ted to respond to the second one.

We have at a few conferences in the past few months talked about -- we believe there's still an opportunity to get somewhere around 250 basis points over the next three years in margin improvement.

What I'd say about the -- the margin improvement to date, which has been substantial, is that many of the things that we discuss when we are talking about 300% -- 300 basis point improvement really haven't been put into place.

So we think that there's still a reasonable amount of margin leverage left, some of that comes, as I said, through increases in initial margins and some of it comes through some of the initiatives that we're taking like the [inaudible] and allocation package, which should get the right stuff and the right store at the right time, and give us the ability to reduce markdowns.

So there are a number of issues there we think that we still have 250 or so basis points to go over a three-year period.

Ted, do you want to talk about the -- the second issue?

Well, the only thing I would add to what's been stated is that in the mix that we've put together this year, currently we are looking to be somewhere in the neighborhood of around 12 stores this year.

Three of those locations would be street locations, so you can see that we are skewing it a bit to either a lifestyle opportunity or a mall opportunity in the mix that we're putting together for this year.

However, the street and freestanding -- we -- you know, internally talk about the importance of that and our overall brand position, and, you know, what those facilities allow us to do in regard to just the strength of the environment, which the strength of the environment is a very critical thing and our point of differential in the market.

So we'll continue to have an interest in the street but making up for the lack of mall stores in the current portfolio, yes, that would be distorted to a more aggressive number go forward.

Great.

And can I just ask a clarifying question.

Dick you said in your earlier comments that the new stores were doing 12% better than the average mature store, was that referring to Urban stores or Anthropologie stores, or all?

That was referring -- what we call the class of '04.

Okay.

All the stores opened in fiscal year 2004.

And at what point would you -- I mean based on that, and I know that there was a real estate shift incorporated in the '04 class as well, at what point would you rethink the way you even model those new stores.

I guess I'm not quite getting the question.

Do you feel -- do you still model your new stores assuming they're going to open at about 85% of a mature store.

Yeah.

I think it's still legitimate to say they open at 85%.

Obviously what we've seen is that the -- the real estate placement we've had some real successes, and -- and so of course we're trying to learn from that and put the stores in the future in similar kinds of locations.

Great.

But I still think there's a -- a ramp factor involved in the stores.

Great.

Thank you very much.

Sure.

Thank you.

We'll take our next question from (Adrianne Tennant with Wedbush Morgan).

Please, go ahead.

Good morning everyone, congratulations on a great quarter and year.

Thank you Adrianne.

My first question is on -- the SG&A leverage that you got from Q3 to Q4, can you just remind us why we got so much more leverage in the Q4 time period on a relatively similar comp.

And then secondly, if you could just give me the CAPEX and depreciation for caps for fiscal '04 and then for Ted, uh, if you could talk about the men's business.

Last year at this time it seemed to be outperforming the women's and just some indication -- early indications seem to suggest that the men's business is decently strong this year.

And then finally for Glen and Ted, if you can talk about opportunities in the home business.

Thank you very much.

Okay.

We'll try -- try to go with that.

Do you want to go first John?

I'll take the shot on the leverage -- Adrianne, I think the real key issue is even though the comps were -- were close to being the same between third quarter and fourth quarter, the absolute volume in those two quarters is so substantial that -- that the occupancy leverage becomes significantly better on a 21% comp in the fourth quarter.

That's probably the key issue as to why the operating leverage improved that much.

Is that something -- should we be kind of looking more for -- closer to the 175 on a similar comp, on a 20-type comp looking more toward that type of leverage.

I don't think we can give those kind of (reactions).

Okay.

And then on the CAPEX and depreciation forecast.

John.

Well, we're projecting this year to be somewhere in the neighborhood of a $40 million CAPEX number.

Okay.

That's assuming the 24 to 27 stores and a reasonable amount of tenant allowance.

Okay, and depreciation.

Yes.

Depreciation's around 25, 26 million.

Yeah.

And the one thing that that does not take into consideration is the potential for us possibly to purchase a fulfillment center.

Okay.

But that would be separate.

Okay.

Okay, and then the men's business.

Ted.

Yes, Adrianne.

The men's business last year, they -- I would say that both men's and women's last year, good solid performance, both were double-digit comp positive.

The women's business build and strength through the year, they were not as strong in the first quarter but as of the second quarter through the balance of the year, really built into some very strong numbers.

Men's on the other hand started off pretty strong and, uh, I -- I think they could have had a better back to school.

They did have a good holiday season.

At the present time, they are both posting good solid strong business.

The fashion is a little stronger in women's right now, so there's a bit more opportunity there for us than in men's, I think, at the moment.

But that's not to say that they necessarily -- the men's business is necessarily falling off in performance, they're still in a -- performing very solidly.

But the men's could be an opportunity for the (backhouse).

I believe so.

Okay.

Great.

And then home.

Home business, uh, as you know is a little rough in the first half of the year.

We were comp positive in home in the -- in the second half of the year.

They had a pretty good holiday season.

Uh-huh.

And as we've turned the quarter -- corner into the new year, they are continuing to run -- run positive.

Okay.

And any -- and Glen, can you talk about the home business as well, any strategic changes.

Yeah, Adrianne.

You know, as Dick mentioned earlier, the business improved dramatically in the fourth quarter.

It -- it's nicely positive now.

We -- we had some senior management changes towards the end of the second quarter last year and the personnel is really getting kind of comfortable and, you know, there's a lot of traction there.

We've had a lot of, you know, strategic conversations over the last several months and literally today and tomorrow, for example, we have 20 customers in the home office, working with the home buying staff, looking at new products, critiquing the stores and so on.

This kind of thing has been very, very productive for us, this kind of customer research in the women's area over the last several years.

So there is -- there are a lot of strong points right now and I'm feeling very, very optimistic about the potential here and about the team.

Are there any material changes that we'd be able to see at this store level that you have planned for today, you know, in the second half or should we be seeing that in at any time soon.

I mean, you know we never talk about specifics.

Right.

What I say is just go into the store and --

Right.

And always I make myself available to walk in the store with people and there is a lot of new product in the store, if you look at the catalog, there's a lot of new products in the catalog, and as most of you know at this point if it's at regular price it means it's selling.

Great.

Well, everything looks great in the stores and congratulations again.

Thank you.

Thanks.

Thank you.

We'll take our next question from the side of Richard Jaffe with UBS.

Thanks very much and my complements to all of you as well.

It's an outstanding environment for you guys and your taking advantage of it.

Dick, just to follow up on the new-goal question.

I mean, should we look for Urban some day to be at 17% or 18% operating margin business, is that the implication here?

And then a follow-on.

Obviously, favorable comparisons in -- in February and early March, if you were to pull out the weather component, how's business, the underlying business is obviously good but if you can just quantify that, that would be helpful.

Well I can't quantify it specifically, but I can say that, you know, we do take a look at some of our southern stores and -- and southern westcoast stores to get an idea of true spring, because there's so much variation in the northeast and in the mid-west based on weather.

And we feel very confident about the -- the fashion appropriateness and where the sales will be.

Of course, one of the things that sometimes happens when you're in the northeast and the mid-west when you have a slightly warmer spring than the prior year, that sometimes burns out in the June, July period.

So we have to be very cognitive of that and make sure that the fashion change is enough to give women particularly a reason to buy.

As to your first question, you know, I think if you look at the mid-14%, where we are presently, and talk about -- add to it what I was just talking about, which is we believe we have 250 basis points over three-year period to add to it, you'd certainly get the 17%.

And we think that there's no reason that we can't be there.

So I think that that can clarify that question.

Just -- just a follow-up and I guess it's more directed to Glen.

As he's looking for new president for Free People, has his vision for Free People evolved a bit?

Glen if you could just talk about how you see Free People growing, developing beyond its current limited distribution and single store.

Well the -- in terms of the wholesale business, we're -- you heard Dick say that we've added some new accounts but what we're really trying to do and we've been very successful with this right now is we're doing more business in our existing accounts.

We started repositioning the brands several years ago, kind of smacked in-between Urban Outfitters and Anthropologie and, you know, there are in addition to those demograph -- that demographic positioning there's an esthetic positioning as well that's quite different from Urban and Anthro.

And I think what we've been able to do in the last six months is to improve a lot of the sales forecasting and the buying process, so that we actually own what we're selling.

And, you know, the demand for the product has been there for the last year or so, we didn't do a real good job, maybe six or nine months ago, at kind of managing the inventory, and I think that the big difference -- I think where sales is probably doing a better job of selling right now and we actually own the inventory that we want to own.

So that's the positive on the wholesale side.

For the retail business, we are very, very pleased with the performance at retail.

I think it's still too early for us to talk about Free People as a third retail concept, but as you heard Dick mention earlier, we're planning on opening probably a couple of stores this year.

We're going to try to be fairly strategic in terms of where we open these stores so that we get a good sense of where they work best, maybe where they don't work so well and we'll probably be prepared to talk more about, you know, the business at hand in nine months or 12 months.

And the opportunity for it.

But I'm very, very excited about what we've been able to accomplish in the last six months.

I just think it's terrific.

In terms of wholesale distribution, is there a chance we'll see, you know, every Macy's with a Free People shop in a couple years.

No.

I mean, we've been very, very selective.

I mean, this is a true contemporary business and part of running a contemporary business is to manage the distribution selectively.

So we've been very kind of selective and strategic as to who we partner with.

You know, for example, on the East Coast we're with Bloomingdales, on the West coast with Macy's, in the mid-west with Marshall Field.

There's -- we're -- you know, in addition to those three majors we're working with Nordstrom, possibly Sac's.

And in terms of the majors, that's about it.

And we're in the scoops in the Fred Segals and the better specialty stores, the chains and the one-offs.

And we want to keep it like that, but I've got to tell you that with that account base alone, there's just a tremendous potential.

We are just at the beginning of the potential.

Sounds very exciting.

Thank you very much.

Thanks, Richard.

Thank you.

We'll take our next question from the side of Jeffrey Klinefelter with Piper Jaffray.

Please go ahead.

Yes.

Congratulations on a great year.

A couple quick questions.

One, could you just recap again, Dick, the metrics of the comps, just I think I might have missed a couple things, but if you could go through the metrics of the comps between the two divisions and then I have a quick follow-up.

Okay.

Comparable store sales, rose 21% overall and breaking that down between Urban Outfitters and Anthropologie, 21 and 22% in the fourth quarter.

I told you that most of that was driven by full price.

I told you that in terms of the average number of transactions at Urban Outfitters, it was up 19% and Anthropologie it was up 12%.

In terms of average unit retail price, Urban was up 1% and Anthropologie was up 8%.

And the number of items per transaction was essentially unchanged.

There's some rounding errors in there that make up the difference.

Okay.

And then in terms of the dynamics between those two businesses, I mean we're hearing a lot about a very strong bottoms trend denim, etc., is that helping or will that help now particularly well on the Urban side to even drive that average retail price up higher as bottoms become more and more prominent during the fall season, or what -- what should we expect from that fashion trend in terms of dynamics on your comps.

Well, Ted, I'll let you talk about Urban.

Well, in the -- in the current scenario for this time of year, denim is, you know, performing, you know, nicely.

I wouldn't say that it necessarily is exceeding expectations, however, we, you know, would be optimistic about the category as you really get into its season in the second half of the year.

That going up against last year, which I would say it was not a high-demand category, necessarily, in the back-to-school time period.

We accomplished bottom sales and other categories last year and back to school.

So, you know, potentially, you know, what you're saying could bear out.

There's been, you know, a great deal of strength in the last year numbers in the tops category, which tend to be at lower AURs.

So there -- you know, that could come to pass.

However, it's not necessarily the way we're building the budget at the minute -- at the moment.

Okay.

At this time would that explain the slight difference in average retail between Anthro and Urban.

I think that there has been a -- and Glen I don't want to speak for you, so please jump in.

I think that there's been a bit more aggressive posture taken on the part of Anthro and moving into some higher average unit retail positions.

In the Urban business, however, and really trying to engage our total fleet of stores across the country, which all of our districts were double-digit comp positive during the year, we felt like that there was really some core product that we were lacking in, you know, some of our lower-volume stores.

And we really have sought to have, you know, strong replenishment inventory and base inventory positions in all stores to do business day in, day out.

And I think that that is -- really kept our AURs fairly flat.

But at the same time, it's allowed us to generate sales in stores that we weren't generating as strong a sales in and make them -- the overall group more productive.

Okay.

Great, thank you.

Sure.

Thank you.

We'll take our next question from the site of Gabriel Kivitz with First Albany.

Please go ahead.

Hi good morning and congratulations.

Thank you very much.

First question is for Glen, and then second question I'll follow up with is either for Ted or Dick.

First off for Glen, could you discuss any plans that you may have for a customer loyalty program at Anthropologie.

We -- we're discussing it now internally.

I think if we do this, it would happen in calendar 2005.

We're looking at POS systems right now and CRM packages and in the process of doing -- doing our due diligence.

The one thing that I've been consistent about with regards to customer relationship programs is that if we do them, and I would guess that we will, we'll do them in an Anthropologie way.

So, by that I mean we will not use price to -- to reward loyalty, we will use other kind of perks that I think are more appropriate for our customer base.

But, you know -- but I think the thing that I'm most excited about is, you know, as someone who has a fair amount of experience in the direct response world and someone who has been able to kind of use the technology and the direct response world to the company's benefit, I'm really excited about taking that technology and applying it to the retail business.

So, you know, it's not just about a loyalty program, it's about understanding who's buying what when and communicating with those people in a more efficient and effective manner.

Does that make sense?

Yeah.

Thank you.

Okay.

And then the second question is on the Urban Outfitters side.

In the past you've talked about the risks of alienating your 20-something customer at Urban if the concept were to gain more popularity among the teenagers.

Is that still a concern to you as you open more stores in mall locations and, what are you doing to try and preserve the concept 18 to 30-year-old target?

Well, the business that -- you know, I would say it's not so much the issue of who is shopping with us as who are we merchandising to as a target.

And the target that we intend to continue to merchandise to that we're merchandising to at the moment is a mid-20s customer.

I would say 22, 25 years old, college experience type of customer, is who we merchandise our ideal assortment for.

The staff that we have in the store provides us with a great deal of feedback in regard to content as well as staff that merchandises the business in the home office.

You know, really for, you know, for the most part, they are, you know, within a few years right spot-on our target customer, so they have a great deal of sensitivity to the lifestyle of the customer that we're merchandising and, you know, the intention and -- we have a high degree of sensitivity, is keeping it in the range of, as I said, that college-age scenario.

Gabriella, if I can just mention a few things about that.

First of all, nearly 80% of our customers are between the ages of 18 and 30 and of course that's one of the things that, you know, we are very, very interested in maintaining.

As you said, we do not want to see it slip.

The way -- I think it's interesting to think about why it typically slips, and I think it has to do a lot with the brand identity and what I always talk about is teenage girls seeing their older sisters who come home from college wearing a certain brand, and then they sort of adopt that and it sort of slides right down the -- the age ladder.

And the way they can do that most effectively usually is when the fashion is highly identifiable.

And that's -- usually revolves around, you know, T-shirts, sweat shirts whatever that have names plastered across the front.

So if somebody's wearing a -- you know, a logo T-shirt or a logo sweat shirt and it says the certain brand name, it's very, very easy for the kid sister to go to the appropriate store and buy that same item.

It's much more difficult for them to accomplish that when Urban Outfitters is not really about a name across the chest, it's about a look and it's very difficult for them, if not impossible, to adopt that look in the same kind of time.

So I don't think it's really going to be as big an issue for us as it is for some others.

Okay.

Great.

Thank you so much.

Yep.

Thank you.

We'll take our next question from the side of Holly Guthrie with Morgan Keegan.

Please go ahead.

Thank you and my congratulations.

Thanks.

Free People.

Did -- can we assume that your comments regarding the business in general, the spring continuing to be strong follows through to Free People, or is -- could we be looking for a little bit better performance since we're kind of at the beginning of the acceleration of that business.

Well, I think I -- I mentioned Free People specifically, that it was -- we did see the -- the increases that we enjoyed in the fourth quarter continuing into the first quarter.

We see bookings and I -- you know, obviously we can't talk about sales, but we see bookings, up nicely for both spring and summer seasons.

And the response to the product so far for spring has been, as I said, very strong and -- and generated a number of reorders.

So I think it's fair to say that we're optimistic about Free People, about continuation along the path of what was produced in the fourth quarter.

And historically the margins have been substantially higher, the gross margins for -- for Free People, does that still hold true?

Well, it -- wholesale as you know is a very highly leveraged business and the margins can be up dramatically and can fall dramatically.

So right now we see -- we see margin strength, we believe that there's a lot of positive things going on, but as I said, you know, it's a little too early to talk about where margins are going to come in in the first quarter.

Okay.

And two quick questions for John.

Share count was a little bit higher than what I was looking for, what -- do you have guidance for the year for the share count, fully diluted?

And then also interest expense flipped a little bit from the third quarter, but from an income -- and I was wondering if you have any guidance on that for the year?

Yeah, the share count is -- is a little bit higher and we're projecting in the 41 to 42 million range for the year.

And then interest expense versus interest income.

Yeah, we'll have to get back to you on that.

Okay.

And then just one quick follow-up on the Urban Outfitters' mall stores.

I believe you said that the Urban Outfitters mall stores were performing at 14% above the entire group, is that adjusted for any seasonal, events, i.e. malls are opened when colleges are closed.

No.

What we did is we took an average of all Urban stores and we took the mall stores and on sales per square foot basis and took the differential.

And so included in that group, of course were some stores in the fourth quarter that would traditionally have not as good sales, but, you know, I think it's striking that, you know, in its first full year, the -- which is what the mall stores are averaging right now, that the mall stores are 14% above the average.

We think that this is very significant, we think it's only going to get better offer the -- once these mall stores ramp, and so we're very, very -- I wanted to convey that information because it gives us an awful lot of confidence that we're on the right track as we use this information to open more stores in the future.

Thanks.

Yep.

We'll take our next question from the side of Liz Pierce with Sanders Morris Harris, please go ahead.

Good morning, congratulations everyone.

Thanks, Liz.

I guess actually just more of a housekeeping and maybe John has it.

Do you have the ending square footage for each concept.

Sure.

We normally provide this information in -- on a selling square-foot basis.

End of -- end of the quarter selling Urban 600,298.

Anthropologie 406,642 and Free People, 1,750.

Total of 1,008,690 square feet.

Okay.

Great.

And then Ted, how is the new store doing in London, is it in the Oxford Street one opened or just [inaudible] Garden.

I'll take that. [inaudible] Garden is the one that opened and it's doing very, very well.

It is -- on page to match the other store in London.

The traffic there is phenomenal, I went over for the opening.

And could hardly get in the doors.

So I think it's doing very well.

Oxford Street is supposed to open sometime in late second or early third quarter of this year.

Okay.

That's great.

And then if -- Glen if you wanted just to maybe share with us what you learned on your fourth quarter, particularly like the holiday assortment, which was so vastly improved this year over last year and your thoughts for '04.

Just that, Liz, that, you know, obviously we -- we did a very effective job of communicating the holiday spirit to the customer and the -- you know, the fact that we're kind of like a gift headquarters.

And, you know, I think as I've talked about before, I think the windows, the efforts, the platforms, the gift presentations were just dead on.

We've already designed this year's and I -- I believe they are going to trump last year's.

And, you know, just -- just that.

I mean, really to focus on the gift aspect of the business.

Okay.

I mean the other thing Liz that we've talked about before but not recently is that we transitioned much better this year than -- than in the prior two years.

We -- we -- you know, that we had a really kind of full receipt of wear-now kind of spring-look product that delivered around 11, 15 to 12, 15 which was, very different than -- than we had done in the prior year.

And, you know, that was just very effective and we'll continue with that.

Okay.

And Glen are you doing -- have you already tested for back-to-school -- well, the fall time frame, not back to school for you.

No, but I mean as you know, one of the -- one of the -- I think the really brilliant things about -- about the concept both at Urban and Anthro, is that when we have a feeling for something, you know, the assortments are not so rigid that we can't let something in.

So I think there's a lot of fashion out there right now.

And, you know, we don't talk to the fashion, but, you know, Dick has indicated that the trends continue and I think if you go into our stores you are going to see a lot of newness and a lot of fashion and, you know, I think I speak for Ted as well when I just say that we're very, very excited about what's happening right now.

Okay.

And then one other housekeeping, I guess for Dick.

Have all the deals been signed for this year.

Virtually all of them.

I mean, there might be one or two that haven't been, but we are very, very good shape relative to where we have been in the past.

Okay.

And are you already looking into next year.

Oh, absolutely.

Okay.

I mean we have some deals signed for next year, we have a number of letters of intent that are -- are -- have been issued and so, yeah, absolutely we're (inaudible).

Okay.

That's it, great.

Thank you guys.

Thank you.

We'll take our next question from (Barbara Whitehaus with Buckingham Research Group).

Hi everybody, congratulations.

Thanks, Barbara.

I guess -- I guess I have a couple questions about accessories, don't seem to be much conversation about accessories yet today.

You know, where's this business, I know it was very, very strong, where do you expect it to go?

And then I guess the question for both Ted and Glen is, you know, such a terrific quarter and year, but if you could do it over, what would you do differently?

Okay.

Good question.

Ted, do you want to go first on accessories.

Well, I would -- the one thing I'd say about the accessory business within Urban that I really enjoy is the broad range of product that falls under that heading for us.

And I would speak -- and I would guess you would be speaking primarily regarding women's.

There -- you know, are business that are, you know, really turn on and are very hot on a, you know, kind of a tight time-period basis and then may, you know, back off a little and there are some businesses that run over a broader period of time.

You know, fortunately over the last few years, we have been able to come up with a component of businesses that we really have been able to mine very successfully and, you know, put the businesses that aren't so hot, at any given point in time, on the back burner.

That is no different at the moment, we have some businesses within the accessory area that are performing terribly, terribly well for us and that we're very optimistic about.

And we have some others that, you know -- that the trend that might have been fueling them this time last year may not be as vibrant right now, but the overall, you know, strength of the business is definitely there.

And there are certainly the majority of the classifications that we merchandise in accessories are running, you know, good, strong business right now.

Barbara, it would be very unusual not to have a number of classifications in the accessory area, really firing strongly, and that's the beauty of that business.

Catching those up-trending classes early as the secret performance in the accessory area.

Okay.

And if you could do it over?

If I could do it over, I would think we could perform better at back-to-school and the men's category than we performed.

And I would have liked to have been in a better base inventory position in our home business in the first half of the year last year.

All right.

I think if one had the ability to have knowledge of what was going to happen beforehand, of course we would have been in -- we would have allocated inventory slightly differently and we would have made more commitments in some inventory areas and never be out of stock in anything.

But I think that -- I think that both Ted and Glen did a very effective job of managing their inventories and their assortments and I think, you know, the -- where we came out of the year in the inventory position is extremely clean and fresh, it's better than it's ever been, I believe.

So, you know, while we may have lost a few sales here and there, I think that they -- they did the right job in managing the risk.

Barbara, to Dick's point, my highlights are really more from a tactics standpoint than necessarily a fashion content standpoint.

You know, I think tactically we could have executed a little better in two areas of the business.

Okay.

And then you want to talk a little bit about accessories, Glen.

Yeah.

I mean I -- when we talk about women's in Anthropologie, it -- it -- we kind of are including accessories in that number.

And the accessory business was terrific for the fourth quarter and it continues to be terrific and there are hot spots in virtually every category.

And, you know, essentially every time there's a fashion change and there have been a lot of them and I'm sure there continue to be a lot of them, every time there's a fashion change, there's an accessory change that goes with that.

You know, neck lines drop, necklaces are in, if they go up then rings are in.

So, you know, earrings are in and it's just really important to be conscious of how the pieces of the puzzle go together so that you can turn the inventories and the assortments on and off.

And I think we've done a good job at that.

In terms of what we could have done better, last year, you know, obviously the biggest miss at Anthropologie was the home business.

It was very frustrating and, you know, as I said earlier, I feel like we've got our arms around it and I feel like there's a lot of opportunity there.

Something that Dick mentioned earlier was we redesigned the Anthropologie catalog starting with the spring book of this year.

I think that the -- the autumn, [inaudible] the fall book and the gift book and the winner essential book, we have four catalogs that dropped in the fall season.

I think that they were just okay.

I think that the spring book and the summer book were -- were pretty wonderful and I think we learned a lot the last several months that we can apply to -- to the -- to the catalog effort this year.

And, you know, with -- with 16.5 million catalogues circulated in the year, that's about probably 80 million impressions.

I mean, there are very few magazines that have circulations as large as the Anthropologie catalog has at this point.

So even though it's a four-walled, stand-alone profit center it's incredibly important marketing vehicle for the Anthropologie brand and I spent a lot of time focusing on that and how to better communicate what the brand is because it has such an impact on the retail business as well.

So that's a definite opportunity.

I would focus on those things.

And obviously I'm with Ted on the tactical things.

We're always discussing, you know, calendar issues when we deliver a certain weight of fabric, a certain weight of yarn, and you know, what we can do differently and better the following year.

And there's always opportunities.

I mean, the name of the game in this business is continual improvement.

Great.

Thank you so much.

Thank you.

Our next question comes from the side of Dawn Stoner with Pacific Group -- sorry, Growth Equity.

Go ahead, please.

Thanks and I'll add my congratulations on the quarter and year, fantastic job.

Just a couple of quick questions.

The first one for Glen.

I noticed the introduction of petite sizing on Anthropologie's website and I'm wonder if this is a test or if you're planning to roll it out to the entire store base?

It was a test, it did really well.

It ran as much as 20 to -- 22% of the sales.

That is not something that I have interest in doing in the retail business, but will certainly -- we had a lot of success offering all sizes in the catalog or in the direct business and that certainly something that will continue to focus on.

I mean one other opportunity by the way I think that Urban just did an outstanding job with their web in the last year, and I think Anthropologie has been -- was to a fault probably more focused on the catalogues and less focused on the web so you will see a lot of effort on the e-commerce side of Anthropologie this year based on Urban's extraordinary success.

And among that would be things like offering petite sizes and probably tall sizes.

So there are -- you know, I mean it would be an inventory nightmare to offer these sizes at retail, and a space nightmare, can you imagine what it would be like to take, you know, a size run in a regular sizing and then a petite sizing and then a tall sizing and we'd have a dramatic impact on the way we merchandise the floor, a negative impact I think.

But I think it's very easy to do this in a direct business and we'll continue to go after that.

Great.

That's helpful.

And in terms of your customer research, have you looked at this really as an opportunity to do more business with existing customers or as a way to reach new customers?

Really, really both.

And, you know, everyone knows that 20% of the customer base has the potential of doing, you know, 50 to 60% of the business and that's -- that's a lot of what we'll go after with a customer relationship program and the software so that we can better track the behavior.

But also, you know, I always think to myself that that, you know, there's a very aspirational component to all of our brands.

But at the end of the day, you know, I really want to be the Starbucks of kind of contemporary retailing.

I want to appeal -- I want to stay aspirational, but I want to appeal to a pretty broad group of people.

And I use the research to kind of understand where I'm hitting and missing.

You know, I want to stay aspirational but I want to sell to, you know, a relatively average upper middle-class consumer.

Great.

And then Dick I was wondering if you could remind us with respect to first quarter comps last year, were they fairly balanced or was there some volatility during the quarter.

No, actually Anthropologie was negative last year in the first quarter and I think we have spoken about this before, but just to remind everybody who might be on the call for the first time, you know, Glen I guess made a -- a tactical mistake modeling last spring on the spring before.

If you go back to the -- two springs ago, it was the warmest spring in the northeast, I think on record, and you go back last spring, it was one of the coldest on record.

So Glen, you know, in hindsight knows that he brought in merchandise that while it was appropriate from a fashion point of view, it was virtually unwearable if you were in the northeast or in the upper mid-west.

And we have spotted that pretty early because as I said before, we take a look at southern California stores, the Florida stores, and Texas, and Arizona stores, and we can see that in sales -- the rate of sales in those stores was very, very strong and positive.

So we knew the fashion was right, just knew that we had to wait until the weather warmed up and it didn't warm up, I think, until mid-to late May.

So there was a -- a shortfall in the apparel side last year with Anthropologie, Urban had positive business.

John do you have the exact numbers.

We were up 4% in the quarter.

Yes.

So Urban's business was more consistent whereas Anthropologie strengthened as the quarter progressed.

Strengthened as the quarter progressed and as we went into the second quarter it got very strong.

Okay.

Great.

And then just the last question for John.

What tax rate should we be using for fiscal '04.

40.5.

Great.

Thanks very much.

Thank you.

We'll take a -- our next question from Richard Baum with Credit Suisse first Boston.

Please go ahead.

Thank you.

I guess for a moment there I thought I had pressed the wrong button.

Hey Richard, how are you.

How are you guys.

Great.

(Should be) really good.

Well, it's almost lunchtime so I'm going to just ask a very -- it is.

Dick, I think one of the things that you have been talking about is trying to get more balance in your store openings throughout the year.

You did indicate that you were going to get that at least on a half basis, 10 to 12 and then 10 to 12.

Yep.

Can you be any more precise in terms of what your plans are by quarter for the two -- for the two brands.

Yeah.

Most of those 10 to 12 in the first half, as I indicated, will come in the May, June quarter.

And then the -- the remainder, I think are going to be spread almost evenly between third and fourth quarter.

So while it's still a little bit more, loaded toward the back part of the year, it's certainly much much better than it was this past year.

And as we look going forward, of course we're trying to accelerate this to have most of them come in the first and second quarter.

Some come in the third quarter and almost none in the fourth quarter.

So that's our goal going forward.

This year it still won't be there but we'll be much much closer to that.

And is there -- is there any reason why in the first half you're not opening more stores in the -- you know, February, March, April time frame.

I think it's just the way that some of the stores fell out.

Typically, as you know, the -- the landlords, particularly in the malls and the -- the existing malls and existing lifestyle centers want to wait until after Christmas to kick someone out and make room for us and I think that this was one of the -- the biggest problems we ran into this year, that they were delivering the stores to us in January, February, March allowing their existing retailers to conduct a full year's worth of business and enjoy the holiday.

We are getting the stores and then going in and building, and we typically need two to three months to do our build-out and so you're seeing a -- a very large group come on board in May and June, followed by August and September.

And then we'll have another group in October and November, hopefully we'll have very few in December this year.

Sounds like -- particularly with the mall-based retailers that the -- call it the 10,000 square-foot retailer could be an endangered species once Urban --

Well there's some opportunities as you know in a couple of retailers that are downsizing or disappearing altogether and we're certainly out there as one of the people trying to get those spaces and we've had a reasonable degree of success.

The malls seem to be interested in having the Anthropologie and Urban brands included in their portfolios, so, you know, we are -- we are on it and we -- we see nothing but good things.

I want to wish you all the best in '04.

Thanks, Richard.

Thank you.

We have a follow-up question from (Lauren Levton with SG Cowen).

Please, go ahead.

Thanks.

It's been answered now.

Hello.

Sure.

All right then, we have our last question is a follow-up question from Kimberly Greenberger with Lehman Brothers.

Please, go ahead.

Thanks.

My question was answered as well.

All right.

And if -- there appears to be no further questions at this time.

Okay.

Thank you all very much for dialing in today.

So long.

That does conclude today's teleconference.

Thank you for your participation and have a great day.