Urban Outfitters Inc (URBN) 2006 Q1 法說會逐字稿

Good day.

All sites are now on the conference call line in the listen-only mode.

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

Please note that the 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.

This company disclaims any intent or obligation to update forward-looking statements.

No recording or rebroadcast of this call is permitted without the Company's written permission.

I will now turn the call over to your moderator, Mr. Richard Hayne.

Go ahead, sir.

Thank you, operator.

Good morning, everyone and welcome to the Urban Outfitters quarterly conference call.

Earlier this morning the Company issued a press release and outlined the financial and operating results for the three months ended April 30, 2005.

I will now review those results in more detail and my colleagues and I will discuss business trends and try to answer your questions.

The text of today's conference call will be available at our corporate website, UrbanOutfittersInc.com, that's all one word, UrbanOutfittersInc.

First I'll go over the quarterly highlights.

The Company delivered another quarter of solid sales growth and accelerating earnings.

Strong demand for our product and our shopping experiences continued across all brands and distribution channels.

As a result, both sales and profits set new first quarter records, and both exceeded all analyst published expectations.

First quarter highlights versus the same period last year included a 36% jump in total company net sales to $231.3 million, an 11% gain in total comparable store sales on top of a 32% increase in last year's first quarter; gross margin improvement of 116 basis points;

SG&A leveraging of 153 basis points; a 19.4% operating profit margin equaling a 304 basis point improvement; a 75 basis point reduction in the effective tax rate, and a 63% surge in net income.

With first quarter earnings per diluted share climbing to $0.32 this year from $0.20 last year.

Now going into a little bit more detail, first I'll start with sales.

Total company sales set a new first quarter record at 2-- $231 million, jumping 36% above the same period last year.

As in previous quarters four major factors drove this increase.

The first factor was the increase in comparable store sales.

The Company delivered comp store gains of 11% in the quarter on top of the 32% increase last year.

All three brands posted strong comps.

Anthropologie was up 9%, almost entirely driven by an increase in the number of transactions.

Free People comps grew by 45%, with approximately half of the gains resulting from an increase in the average unit retail price, or AUR, and the other half from the number of transactions.

Urban Outfitters 13% increase in comparable store sales was driven entirely by an increase in the AUR.

Demand was vigorous throughout the entire three-month period and across all geographic regions.

New and non-comparable store sales was the second factor that lifted total revenues.

For the quarter , the Company posted a 29% increase in the number of stores in operation, including four stores that were opened during the quarter.

New and non-comparable stores added $30.8 million in sales and accounted for more than 50% of the total company sales increase.

Total direct-to-consumer sales for the quarter exceeded $28 million, and was up 54% from the same quarter last year.

This was the third factor driving the sales increase.

The direct business grew by increasing total catalog circulation by 11%, by raising the average order value by 15%, and by growing the total number of unique visitors at the brands websites by 53%.

Included in the catalog circulation numbers is the mailing of a new, accessories only test catalog by the Anthropologie brand.

And included in unique visitor statistics is a new Free People website that was launched last October.

Both of these direct-to-consumer initiatives have proven successful and should continue to provide revenue growth in the future.

The last factor driving sales in the quarter was the surge in the Free People wholesale business, where sales from the period shot up 69%.

A more focused and compelling product offering drove significant increases in spring bookings.

A number of our better customers have experienced outstanding sell-throughs of the spring product including Bloomingdale's, where spring season-to-date sales are running 126% ahead of the prior year's period.

Better product and better purchasing has enabled the wholesale group to take and ship many more reorders this year.

Now I'll talk about operating margins.

We have repeatedly stated that our goal is to increase operating margins faster than sales.

In the first quarter we once again achieved this goal.

Operating margins grew by 268 basis points to 19.4% of net sales.

Nearly all of that improvement came from a 107 basis point increase in initial merchandise margins and a 153 basis points leveraging of SG&A expenses.

All three brands delivered IMU improvement.

They achieved lower merchandise costs by leveraging the increase in purchasing power that a larger store base and bigger direct business provides and by reaping some of the benefits available due to the elimination of quotas.

The reduction in SG&A expenses was accomplished primarily by maintaining tight control over store payrolls as comp store sales rose.

During the quarter store occupancy costs were flat, entirely due to the additional charge related to the clarification of the lease accounting rules that now requires the Company to include the preopening fit out period of the lease in the straight lining of rent.

Without this new book entry the Company would have shown an additional 40 basis point of leverage in store occupancy costs.

As to net income, overall the positive sales and margin factors combined with a slightly lower marginal tax rate to create a 63% increase in first quarter profit.

The Company earned a record $27.4 million in the quarter, up $10.5 million.

All brands and all channels of distribution, except for the two store Free People retail group, produced double-digit profitability.

Earnings per diluted share in the first quarter soared to $0.32 this year from $0.20 last year.

So to summarize our accomplishments in the first quarter: the Company grew comparable store sales by 11% on top of 32% last year, produced record first quarter sales, grew sales at the direct-to-consumer division by 54%, grew the wholesale business by 69%, grew earnings by 63% to a first quarter record of $27.4 million; continued to grow earning significantly faster than sales. and continued to increase the brand equity at all three brands.

So as I look to the future, once again, I reiterate our believe that the Company's success and its competitive advantage are derived from our ability to build strong, emotionally compelling brands.

These brands are highly differentiated in the marketplace.

Our style of retailing is experientially based.

The experience includes creating a customer appropriate environment and offering customer appropriate products.

It's the combination of these two elements that create strong brand equity and allows our businesses to compete successfully.

We believe that all three of our brands are in an early stage of growth.

And we are confident that the retail brands can continue to grow their store base at a rate of 20% per annum for a number of years.

Anthropologie currently operates 67 stores.

Many of them are located in lifestyle centers that cater to women in their 30s and 40s.

With more than 200 of these lifestyle centers in the U.S., and more opening every month, we believe that an Anthropologie has an outstanding opportunity to grow its store count to around 250 stores nationally.

Urban Outfitters currently operates 77 stores, 72 in North America and five in Europe; 15 of these stores are situated in regional shopping malls.

Looking at the mall stores as a class, and comparing them to the average Urban Outfitters store, we find that the class of mall stores generates a better ROS and a better ROI.

There are currently over 100 A malls in the U.S. and we believe that many of these mass present an excellent opportunity for the Urban brand.

In all, we believe that Urban Outfitters can grow its store count to approximately 200 stores in North America and approximately 50 stores in Europe.

Free People currently operates two stores, the first is located in a regional mall and the newer store in a lifestyle center.

In the original Free People, store annual sales now exceed $800 per square foot; therefore, we believe that opening more Free People stores provides the Company with yet another excellent opportunity to grow revenues.

To date, in the current fiscal year, we have opened four new stores, two Urban and two Anthropologie.

Our plan for the year is to open a total of 30 to 32 new stores which includes three to four new Free People stores.

Opening new stores should continue to generate more sales.

In addition, we believe that the direct-to-consumer and wholesale businesses will continue to grow sales as well.

We expect total catalog distribution for the year to grow by approximately 15%.

This should help drive the direct business.

The-- and as to wholesale, the advanced bookings for fall 2005 is currently running 117% ahead of last year's bookings at the same time.

This obviously augers well for the wholesale business in the second half.

Finally, we are in the process of implementing a number of systems and shared service upgrades.

These include, first, the new inventory and planning allocation system.

This is now fully installed and is currently running parallel to the old system to ensure accuracy.

The Urban merchant team has fully implemented the new system and the Anthropologie group will be fully converted by this August.

Second, the product development management system.

This also is fully installed and is now fully implemented.

And third, the company-wide point-of-sale terminal and software system upgrade.

Development of this system began in February and the hardware and software will be phased in over the next 12 months.

And finally, the new 450,000 square foot distribution and direct fulfillment center in South Carolina that includes a new warehouse management system.

This facility is currently deemed tested and is expected to be operational by late summer with a new WMS installation scheduled for the end of the third quarter.

So, in conclusion, we are pleased with the record results produced in this year's first quarter.

Our teams have now delivered a string of 13 consecutive quarters of record sales and record profits.

Our future growth path is well defined.

We are highly confident that we will continue to achieve our goal of delivering sales growth in excess of 20% and be able to produce the corresponding positive financial results.

That concludes my prepared remarks and I'll now open the floor for questions.

[Operator Instructions].

Barbara Wyckoff, Buckingham Research.

Can you talk about, I guess Glen and Ted, the catalog plans for this year, plans to, Glen, to continue the accessory catalog, what's going on with Free People and the tests there?

And, Ted, is there an opportunity to come out with a niche catalog like the accessory catalog in Anthropologie?

And the, I guess, I just have a question for John about the tax rate.

Okay, we'll go with Glen first.

As Dick mentioned or alluded to, the total an Anthro circulation for the direct side of the business is planned up 17% this coming year to a total of 18 million, 8 versus an LY of just over 16 million.

The accessory test was successful in Q1.

We'll launch a second accessory test in August, roughly August 15.

That's the only incremental book for this year.

With regard to Free People, we have been creating look books to drive our wholesale business and we decided to test dropping 100,000 look books this past spring, during Q1.

It was very successful.

We're very pleased with the Free People direct business and I think it'll be an important part of our growth strategy for that brand as well.

Ted?

Barbara, the -- the pagination of our circulation is a little different this year to last, but overall for the year we'll be up around 15%.

In regard to niche books, right now the work that we're doing is focused a bit more on format of the existing book and experimenting with some new ideas there as opposed to going niche right this minute.

As we get toward the end of the year, we had a very successful gift book last year which-- that we look to make a few changes in to take further advantage of that selling period.

But no new niche books as we go into fall.

Kimberly Greenberger, Smith Barney.

I'm wondering, your SG&A expenses as a percent of sale have continued to come down over time.

And are there any initiatives underway, or any thought, about possibly investing some in SG&A as your sales base grows, particularly on a store payroll side?

And then secondarily, Glen and Ted as you-- as you look at the first quarter of the year, obviously having done very strong comps on top of amazing numbers last year, there were a lot of successes to highlight.

In terms of your hindsighting where do-- where did you see opportunities in the first quarter that maybe you could benefit from 2Q.?

Kimberly, I think that it's always a delicate balance when you're trying to balance the store payrolls in-- in-- in-- in light of comps.

And I think Glen has some insights into that, but I think that-- I don't want anybody to believe that we're cutting store expenses.

We're increasing store expenses, they're just not increasing as fast as the sales are increasing.

So that's why we get the leverage in SG&A.

Glen, you want to talk about your initiatives?

Yes, Dick, having said that, one of the things we are testing in Q2, Kimberly, is a stylist position in about a dozen stores.

In our focus groups one of the things-- one of the opportunities that come up most often is the fact that customers need help putting outfits together or putting rooms together.

So we will be testing, by appointment, stylist selling.

And these people will be more expensive and we'll test it and evaluate the ROI.

And that's-- that's primarily the-- the kind of SG&A impact that I envision in the second quarter.

Kimberly, I think where we can really gain some advantage is once the new cash register software system are installed, I think we can have a much more robust people management in the stores.

And I think our goal, obviously, is to better-- have people to wait on customers when the customers are there and that's-- that's a fairly complex issue and we will be tackling that with the new software system.

So I think that we can do a better job without necessarily raising-- raising our expenses.

I think in terms of opportunities, suffice it to say on both the Urban and Anthropologie sides,-- and Free People sides, for that matter; we know there are a number of opportunities, and we are very confident that we didn't-- we didn't uncover every stone, every rock, of opportunity that exists.

And so-- I don't want to into detail where those are, but we-- we feel very confident that next year we will be able to do a better job.

Lauren Levitan, SG Cowen.

I was wondering if both Glen and Ted could comment on trends within the home business, and remind us of where you were at this time-- or going into the summer season and the back half of last year, and what opportunities you've had to continue driving that business?

And then separately for Glen, I know you've tried some things in the high volume stores.

Can you give us some sense of whether or not you're-- you're seeing those initiatives met with success and how you would-- maybe-- maybe that stylist addition is part of that high volume store initiative, but if there are other metrics that you could indicate whether or not those initiatives are working out that would be helpful?

Lauren in terms of-- this is Glen, in terms of the home business, the trend is excellent, we had a great home business for the first quarter.

The trend built throughout the quarter to nice double-digit comps.

And we really feel-- that was, again, more or less a flat business last year.

The business, the home business, started to turnaround in Q4 and it's just improving consistently week to week.

And I really see that continuing.

I feel very, very comfortable with the content and the execution.

In terms of the high volume stores, we've done, we've taken a myriad of initiatives, everything from operating the stores 24/7, changing the fitting room designs, changing the cash wrap design, changing some of the management and we continually evaluate the return on all of those decisions and I'm pleased.

The productivity in our high volume stores continues to improve.

We'll have, I believe, seven stores well in excess of $1,000 per foot this year.

Lauren, this is Ted.

In regard to home and Urban, the biggest thing I would comment on in regard to the quarter was we made a managerial change in-- in the business and knowing that we were going to do that, we distorted real estate and investment and other categories in the mix to really drive margin in the quarter.

I'm optimistic that the changes that we've made, we'll see payback from that as we go forward through the balance of the year; most importantly as we get into gift time of year in fourth quarter.

But-- we, I think, compensated for that very well compared in regard to the performance of the total business, in regard to the way we managed the other categories and real estate allocation for the quarter.

Lyn Walther, Wachovia Securities.

The first one is-- two questions.

Your Anthropologie and Urban comps were driven very differently;

Anthro through transactions and Urban through the AUR.

Is this something that's planned or is driven that way or is it just how it turns out?

And is this how you expect the business to run for the next couple of quarters?

First of all it's almost diametrically opposite of what happened last year, where Anthropologie was up mostly by AUR increase and less by transaction, and Urban was almost 100% transaction driven.

I will speak both for Glen and Ted, although they're free to join in when they choose.

On the Urban side it was absolutely planned.

We decided that because of the increase in transactions that happened last year on top of the 32% comp store that it was-- we were disappointing customers because of the amount of traffic in the stores and felt that it was going to be difficult to add business in terms of number of transactions.

So we-- we on purpose raised prices and that sort of fit in with the fashion trend as well.

As you probably know high-priced denim, for instance, is-- is a fairly large trend that is occurring right now and that is one of the items that is helping to drive that.

But it's certainly not the only item.

We try to incorporate it across the board in Urban.

In Anthropologie, because of the price rises recently and because of the home comps, the-- the AUR did not go up and because of the lesser-- it tends to have lesser expensive items in home, the number of transactions did go up.

So, yes, it was planned and, yes, it was successful.

Okay.

Great.

If I could just ask about the inventory at the end of the quarter, how did it break out by brand?

Just give us a little bit of color there.

And how is it planned for the end of Q2?

Glen, you want to talk about Anthropologie?

Yes, Lauren, our comp inventory is up about 14%, John?

Yes.

But the important thing to note is that our comp inventory last year was relatively flat on tremendous comps.

In the women's area, which is the area which from an inventory point of view we focus on with intense-- with great intensity we've been averaging about ten weeks on hand; which is a number that we're very comfortable with.

We do have more home inventory relative to last year.

And in the overall mix, since the home penetration is increasing, that does have an impact on the total inventory.

I feel very, very comfortable with the content, with the aging, and I feel like our inventory is exactly where it needs to be right now.

And the Urban business, we've tended to run the business between 8 to 12% on a unit basis less than last year on a comp store basis.

Obviously the dollars are up to last year because of the increase in AUR we just discussed.

But our key metric has really been watching units and unit weeks of supply.

Christina de Marval, Sidoti & Company.

Two quick ones for you guys.

First, for Glen, given the success of the accessories catalog, are you thinking about expanding the assortments in the stores?

And, secondly, are you thinking about potentially another niche catalog featuring, perhaps, the home area given the early stage of turn around there?

And then also a question for John about the tax rate with the headquarters and DC investments?

Christina, we-- we see accessories as a tremendous opportunity for an Anthropologie.

The accessories business was strong during Q1, we expect it to continue.

We're making inventory investment, fixture investment.

We've split the buying team so that we can focus better on specific categories.

So to answer your question, absolutely we'll be going after the accessory business more aggressively.

In terms of other niche books, there's a possibility that we may do a home book next year.

So we're-- we're evaluating that right now.

The thing that I really want to stress, though, with the direct business is the strength of the Web.

It's gone up exponentially, I mean-- I don't even understand how high is high, it's growing so-- so nicely.

And what we-- we really, as I've said before on prior calls, we've learned from the Urban folks here; a year ago we had virtually no non-catalog product on the Web site.

Now as much as 60, 70% of the Web business in any given week is driven by non-catalog Web products.

So that's just been a terrific effort for us.

We're going to start using the Web to test product categories, to kind of help us forecast fashion.

So there's a lot of strengthening probably due to some customer research.

There's a lot of strength in the Web that I'm very, very excited about and, as Dick has mentioned earlier, it's extremely profitable for us.

In terms of the non-catalog products, the 60, 70% that are exclusive to the Web, is that a blend of apparel, accessories, can you describe that a little bit?

Yes, it's pretty consistent with the store mix, so it's largely women's but it is home, too.

The majority of that non-catalog is product mix that's in the store so what we're doing is -- we've literally added a merchant position to the Web site, so we're merchandising the Web much like we merchandise our stores.

If there's a hot trend we'll-- you'll have an e-mail blast, we'll change the page that pops up when the customer signs on to the Web site and so on.

And we're getting much more dynamic about it and the payback's been tremendous .

And you wanted to be the tax rate.

Basically, tax impact-- we've just moved into the South Carolina building, really haven't started operating there yet.

So no, impact from that as of this point.

We obviously haven't moved into our new offices, that won't happen until early fall for Anthropologie and the balance of the Company mid next year.

So the 39.75 that we showed in this quarter is kind of reflective of what last year ended up with the lower fourth quarter.

And we think the year probably ends up in the 39% range and probably next year in the 38% range.

Our target ultimately is to get to around 36.

Dana Telsey, Bear Stearns & Co .

Can you talk a little bit about IMU, what you're seeing in terms of any changes in category?

And as you move forward with the different concepts, is there benefits you can get from cross-buying for the different concepts in IMU?

And then next, it seems like international's doing a lot better.

How have the recent results been in terms of their percent to total?

And just lastly, you had mentioned in the past distortion and being able to to be more in stock in key items, how's that trending?

First with the IMU, we would not try to leverage the different brands.

Sometimes we're in completely different factories with different brands.

And we keep those relatively separate.

But we are seeing very nice leveraging of-- as I said in my remarks, leveraging the store size-- I mean by size.

And I think we're getting a lot of play from the elimination of quota, but I think we've only have begun to reap the benefits that that holds for us.

So I think that we've got a lot of room to go in the IMU area and that's what we've always talked about in our presentations.

And so we're very, very pleased at what was delivered this quarter; but we're very, very excited about what we potentially can deliver in future quarters.

And as to distortion, Glen, Ted you want to speak to that?

Dana, I-- I-- I give Anthropologie actually kind of maybe a B minus on distortion in Q1.

I think that we've had tremendous growth.

I mean, we've virtually doubled our business in the last couple years.

And we, part of that we've added staff and I think there was some greenness there.

So, particularly in the retail business, I think that I have opportunities to do a better job with distortion.

It's something that I personally focus on quite a bit and I was not happy with our execution.

I think Mr. Marlow probably was happier with his.

As I mentioned in one of the other questions, we purposely drove more volume through our women's and women's accessory business in the first quarter.

Feeling good, very strong about the trend there and as well in regard to real estate to offset some volume that we anticipated giving up in home.

Much of that business-- that business at this point is really a multi-layered business that is driven by some basic items, key items as well as fashion.

And in the basic key items, we put a lot of time and attention on a weekly basis to distorting those where we see significant volume opportunities.

They also, in regard to your IMU question, present us with real opportunities for IMU growth when we can do meaningful volume on those items.

And your last question was about international.

International had a very good year last year.

And, for the first time, was a profitable entity.

And they are currently maintaining that profitability.

So the growth at the international group sort of reflects what we've done in other areas.

If we were to look back into the early '90s and see the growth of Anthropologie; it would be a very, very similar curve.

And we expect, as the international group gets larger and can leverage some of its expenses a little bit more efficiently, we expect that it will gain in profitability.

But we're very pleased with their performance and we're very excited about their potential.

Monica Brisnehan, RBC Capital.

Can you talk a little bit about =trends of branded versus private label at each of the concepts, what's going on there, where you see it heading?

Ted, you want to take first?

Sure.

Within the Urban business, as Dick had commented a minute ago about some of the strengths in the branded denim business as we've gone forward over the last really better part of a year, it certainly was strong through the quarter.

We run a bit higher percentage of branded product in our men's business than we do in either of the other divisions; home or women's.

But as well, the branded piece of the women's business and denim and to some degree in footwear in both businesses, is a meaningful part of our business.

That said, we really try offset that with growth in IMU and volume items to compensate and allow to us grow our IMU totally despite the importance of brands in the moment-- at the moment in the mix.

Monica, for Anthropologie, the mix of vertical to private label or branded is flat to last year.

Gabrielle Kivitz, Deutsche Bank.

Going back just to the discussion on the AURs at Urban Outfitters, I'm not sure I heard you say anything about the opportunity in the second half of the year.

Could we see similar percentage increases in average price in Q3 and Q4?

How should we think about our comps for the second half of the year?

You know, on a percentage basis I don't know how to really guide you there.

I will tell you that this has been an initiative that's been in place in the business, at this point, for the better part of a year and it's something that we've seen good headway in regard to what it allows used to on our profitability.

Those will be an important part of the mix as we go forward for the balance of the year.

We saw some growth in AUR in the back half of last year.

And more so in fourth quarter than in third.

Okay.

And then on the number of transactions side, because you are starting to increase the higher AURs, I guess later this year, are there any initiatives just to drive traffic?

Anything on the catalog side, maybe, to try and drive traffic a little bit?

Well, I think that catalogs, Gabrielle, always drive traffic to the stores and the website.

So that is our, as you know, our primary marketing vehicle in all-- in both the Anthropologie and the Urban brands.

So that's our initiative in terms of marketing.

And, as we said, we expect the catalog circulation totally to be up around 15% on a year-over-year basis.

So we would expect to get increased traffic from that.

The first quarter Urban's catalogs were relatively flat to last year.

Okay.

So it'll be accelerated circulation in the back half versus the first half?

That's what's planned.

Richard Jaffe, Legg Mason.

Just, I guess, a couple of thoughts.

The opportunity to build inventories across all brands is attractive.

Do you see it by brand, different by merchandise category?

If I can address that to Ted and then Glen that'd be great.

Richard, I think we kind of missed one or two of the words it broke up.

Can you just repeat the question again?.

Sure.

The inventory build up by brand, by merchandise category, could you provide some detail?

Oh, okay.

I think in general, at Urban, the women's area and the women's accessory area, particularly, was built at the expense, to some degree, of the home.

And that was a purposeful decision both in terms of where we see the trends going and the fashion going, and also what we were dealing with internally.

So I think that that was purposeful.

We certainly are not abandoning home by any means.

And-- and we wouldn't see that continue.

I think we've made the statement that we're going to make and I don't believe that we're going to accelerate that.

Can you just review, I think you mentioned gross margin occupancy leverage versus merchandise margin improvement.

I missed the numbers on that, if you could just break that out again?

The gross margins?

Well, reported gross margin and how the two different factors.

Okay, gross margins improved by 116 basis points-- totally.

And when we look at it , what-- what added into that was 107 basis point increase in IMU and 153 basis point leveraging of SG&A.

And what I mentioned at the end of that discussion was, it would have been 40 basis points higher if we hadn't had to change the way we account for leases.

So of the 116 basis point improvement in the gross margin, it was virtually all related to IMU improvement.

Did I get that correctly?

No, IMU-- IMU, yes, it's almost all, that was almost the entire portion of the gross margin improvement, yes.

Holly Guthrie, Morgan Keegan.

If you could give us an update on, I know that you've taken possession of the new distribution center, if you could give us an update on how many employees have signed on to move, how recruiting's going, if you're moving some of the new systems into the DC and call center?

And then, also, if you could talk about comp store inventories how we could look at it on Q2 and Q3 versus Q1 as far as breadth of product versus depth of products, if there's seasonal things that might change that or is there anything coming out of Q1 that you've learned that you are applying for Q2 and Q3?

Well, we'll talk about the distribution center first in South Carolina.

Recruiting's going beautifully there.

They've got more than enough applicants to staff the DC and it looks like-- and they're quality applicants, so we're very excited about that.

In terms of systems, implementation's going well there as well.

I think Dick mentioned earlier, that we go live in the DC in the summer and in the fall we actually put in the warehouse management system.

For those of you who have any concerns about that situation, we will go live processing the same way we do today.

So that if the-- for some reason, and we don't expect it to happen, but if the warehouse management system didn't come up appropriately we would continue to process in fourth quarter with the existing system.

So-- so I think we've really eliminated the major risks associated with bringing up a new DC.

And do you want to talk--

Yes, with regard to the comp inventory, Holly, it's Glen, I would ask that you look at the inventory the way we look at the inventory.

And we look at it based on trend, not -- I don't focus on what my inventory looks like relative to last year.

I would focus on what my inventory looks like relative to the business that I'm currently experiencing.

And I feel comfortable in the women's area running the business somewhere between nine to 11 weeks, an average of about ten weeks on hand.

And, as I've said before, just the way you manage a portfolio is the way we manage our inventory.

Every single week we are looking at our return on investments, on inventory dollar investment and we're investing where we're getting productivity and divesting where we're not.

So, of course, there are learnings every week.

Trends change.

You know, skirts trends change.

Knits change.

Wovens change, et cetera, and we're constantly manipulating the inventory.

But at Anthropologie, and I'm sure Ted feels the same way, I feel very, very comfortable with our content right now.

I think we're clean, current and we're projecting well on the floor.

In regard to the Urban business, Holly, I would echo what Glen just served up.

The weeks of supply is-- is, obviously, our key metric to look at the total business and the individual parts.

On a -- on a raw dollar basis, if it helps, we're looking for comp inventory to be down single-digits in units as we travel through the second quarter.

That's pretty much where we've been going through the first quarter as well.

Jeff Black, Lehman Brothers.

Just wanted a higher level overview on denim.

I mean how much do you think denim prices -- how much are denim prices up and what's the opportunity to take them higher, in your opinion?

And how is the higher priced product tracking now, and I guess the question would be what's the opportunity for that to trend a little better?

And thirdly, how concerned are you when we hit back-to-school?

We've heard from some folks that are telling us they're bringing in denim early.

We hear people are reassorting toward much more denim.

What's the risk as we head into back-to-school that we run into some kinks in the current denim cycle?

I think that denim is a meaningful but reasonably small portion of what we're about, Jeff.

And I think that there's certainly a fashion component to it right now, it's quite clear, not only by the amount of that we're selling but the price points that we're selling.

I think that that's going to probably stay with us through, I would-- my guess is, and this is just a guess, through third and fourth quarter; and then I would be very concerned about it being first quarter of next year.

So that's just, as you say a top level summary of where we are.

And how much earlier can people bring in denim?

I mean it's been creeping back into-- into June for the last, I guess five to seven years.

And I would expect there to be an abundance of denim for the consumers to choose from.

And that's why we won't--I doubt that we will significantly increase our penetration of that class.

What is the penetration this year versus last year, if I can ask?

Well, we'll get back to you on that, that's not something we have in front of us right now.

It's-- it's relatively small.

And, in terms of pricing, have you found any kind of resistance to the raised prices that lead you to believe we've got a couple of quarters and then we're-- we're in a tougher part?

I think what we find is if we have what the customer wants, in terms of either style, name, wash, whatever the-- whatever that element is that she wants, that they're willing to pay for it.

We haven't found a lot of price resistance.

Liz Pierce, Sanders Morris Harris.

Glen, in terms of Free People, and I realize the second Free People store has just opened recently; but given the fact that it is in a different location, anything to call out about what you're seeing in terms of customers, in terms of sell-throughs, price points?

And then, secondarily, on Free People, in terms of bookings, that was a pretty big increase in bookings.

Is that across-- if you had to dissect it by customer, is it just a couple big customers or is it a lot of customers?

I mean first just let me say I'm so incredibly proud of the Free People group and what they've been able to accomplish.

I think the line just looks incredible and the reaction's been fantastic.

The second store that we opened is on a run rate equal to Garden State last year, which I'm thrilled about.

The best news is that it's in a, as Dick said, it's in a life style center.

There's much less retail density.

I would call it kind of a B location.

So I'm really, really pleased with its performance.

In terms what they sell, there are nuances to what they sell versus Garden State, but that would be true with any of our retail concepts.

In terms of the bookings, the bookings that Dick alluded to are the fall bookings which is 6/30, 7/30 and 8/30.

And the increases are pretty consistent across the department store group and the specialty store group.

It-- we don't have all of our data in, but the size differential with some of our specialty stores is pretty extraordinary.

People that were placing 1 or $2,000 last year are buying 10 or $12,000.

And our department stores businesses, across the board, are up consistent with current trends.

I think one of the-- on of the differences we see in the Free People store, Liz, is that because it's in a lifestyle center that it is more weather affected.

So with an enclosed mall at Garden State, which is the first store; obviously if it's raining out it's much less affected than a lifestyle center which is outdoors.

Christine Chen, Pacific Growth Equities.

Can you just talk a little bit about the product flows, the timing of the product flows for the rest of Q2 and also going into back-to-school at Urban and at Anthropologie, and if it's any different than what you guys did last year?

No, I don't think it is, Christine.

The product flows at Urban would be, back-to-school starts to flow in very, very late May and through the month of June and then crescendos in July.

Anthropologie's just a touch later than that, although, they get their July catalog drop-- is the first week of July and that's a very, very important milestone for the Anthropologie group.

So I don't anticipate anything differently than last year in terms of the flow.

Janet Kloppenburg, JJK Research.

I just had a couple of questions.

First on the success of the direct business, would that at all prompt you to increase circulation in the back half of the year, Dick?

And what about the store opening program, any chance of you opening more stores than expected as we enter the back half?

And then on the inventory levels, I know they're in very good shape, but I was wondering how your clearance inventories looked this year versus last?

And lastly, with the success of the accessory catalog, I was wondering if Ted at Urban was thinking about doing any special subcatalogs going forward as well?

Janet, I'll take care of the last question first, Ted, I think, already answered that, you may not have been on the line.

We do not have any plans right now for a-- an Urban specialized catalog.

When we look at the circulation of the catalogs, yes, we are building at Urban and at Anthropologie.

In total we plan to have circulation up about 15% on a year-over-year basis.

Urban was not quite flat, up a little bit in the first quarter.

So we've got some higher circulation increases to happen in the second half.

Anthropologie circulation was up about 17% in the first quarter.

It's going to be somewhere around that throughout the entire year.

So that would be much more flat.

Let's see.

What else did you ask about.

Store openings?

Store openings, right.

Thirty to 32 is really what we're planning on.

I doubt very much if we'll get above that.

We probably will not even do it even if we could we're very happy with the 30 to 32 number, that fits right in with our plans.

And, in that, three to four new Free People stores is included.

Okay.

And the markdown inventories by brand versus last year at the end of the quarter?

Okay.

I need some help here.

At Anthropologie, the markdown inventory is relatively flat.

We-- last week I think we turned markdowns at about-- a little faster than five weeks on hand.

So very liquid and flat.

At Urban, weeks is flat on markdowns in the quarter five weeks, last year, 8.5.

Great.

And then just, Dick, did you comment at all on any adverse affects from weather in the quarter, looking at your geographic markets or any sort of variable?

Do you feel there was any affect from weather in the business?

My feelings are that, yes, there were, but I don't ever talk about it because you guys yell at me.

Well, I'm not yelling at you right now.

Did you see some dispersion by market?

I get so sick of hearing the same thing you get sick of hearing, which is that this happened because of weather or not because of weather.

Suffice it to say that the weather across the country was not as positive a factor this year as it was last year.

The northeast, particularly.

What about California?

Some of our other companies were seeing a bit of a slow down in the California market.

Can you guys comment on that for your businesses?

Well, I think that we had good solid comp sales across all geographic regions.

And we have not witnessed that.

Marie Driscoll, Standard & Poor's.

I was hoping that you could elaborate on your opportunities internationally?

And also if you could just give me a sense of the merchandising proportions at Free People?

And if you could talk about accessory business at all the brands.

Okay.

I guess I'm not quite sure what you mean by proportions, did you mean sizes?

No.

No.

I mean by category.

Oh, okay.

Why don't we start with that, Glen.

Marie, as you know, Free People is-- is virtually 100% vertical of the we care a little bit of branded denim and we carry some branded accessories, but the clothing component is largely vertical.

And in terms of the percentage business it varies, dependent upon the time of the year, but we're roughly 80% apparel, 20% accessories.

And there's a few-- in holiday time, a few gift type items that's sprinkled in there; but it's relatively meaningless.

As to international, we currently have five stores in Europe, four of them are in the U.K. and one in Dublin, Ireland.

We anticipate opening one or two stores this year and two or three the year after.

We -- next year we'll probably venture out into the continent and hope to open a store or two in the continent.

The product mix is relatively similar across all the stores in the U.K., but it differs reasonably from the product mix that Urban carries in the States.

There's probably on the women's side about a 60% cross over and on the men's side probably no more than a ten or 20% across over.

Does that answer that question?

Yes.

And could you tell me, do you know what percent of your Internet business is international?

Almost zero unless you count Canada.

And that's one of the initiatives we have for either this year late or early next year, which is to launch an Interest site, commerce-enabled sight in the U.K. Thanks.

Kimberly Greenberger, Smith Barney.

I had one quick follow up.

This is probably for John, I'm guessing.

I'm just looking at our calculation of non-comp store productivity, or new store productivity.

And there was a very small, I guess, downtick here in Q1, I'm wondering if, as you look at more detailed information that you've got internally, are you seeing any sort of deceleration in your-- in your new store productivity?

And would-- could that have something to do with the type and location of new stores that you're opening right now?

I think the key issue there, Kimberly, a couple of people have asked me that in the last two weeks, and I really think the issue is that Urban's new stores for the quarter opened almost the last day of the quarter, so when you see a total number of new stores, it really isn't reflective of what we had operating for the quarter.

So that's probably the biggest issue.

We have not really seen a downtick on new store openings or results in the new stores as well.

Kimberly, I just-- this is Ted, I'll jump in on the Urban business.

We obviously pay close attention on an each store basis.

I would just tell you that in regard to what we expect to get out of new stores, which that was coming out of last year, 13 stores where those stores exceeded their plan in the quarter by high single-digits.

So what we were expecting to get out of them we exceeded.

Kimberly I would direct you to, if you haven't already, taking a trip up 59th Street and Third Avenue where the new Urban store opened about three weeks ago, and it was one of the most successful openings in the Company's history.

So I don't think there's any issue there.

[Operator Instructions].

Liz Pierce, Sanders Morris Harris.

A question for John, I didn't see it in the press release, but do you have ending square footage for each brand?

Ending square footage?

Oh, sure.

I do have it.

Hang on just a second.

For Urban we ended the quarter at 749,894 in selling, and for Anthro 518,889.

It would appear at this time that we have no further questions, so at this time I would like to turn the call back over to your moderators for any closing remarks.

Go ahead.

Thank you, operator, and thank you everyone for being on the call.

This concludes today's teleconference.

You may now disconnect.