Urban Outfitters Inc (URBN) 2008 Q1 法說會逐字稿

Good day, ladies and gentleman, and welcome to the Urban Outfitters first quarter fiscal year 2008 earnings call.

At this time, all participants are in a listen only mode.

Later we will conduct a questions and answers session, and instructions will follow at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded.

The following 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 10K, 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.

I would now like to introduce your host for today's conference, Mr Richard Hayne, President and CEO.

Sir, you may begin.

Thank you Patty.

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

Earlier this morning the company issued a press release that outlines the financial and operating results three months ended April 30, 2007.

I will now review those results in more details and then ask our Brand Presidents Glen Senk, Ted Marlow, and [Meg Haine] as well as the rest of our executive team to join me in discussing current business trends and answering your questions.

The text of today's conference call will be available at our corporate website urbanoutfittersinc.com, thats all one word urbanoutfittersinc.com First the highlights.

For the quarter the company produced record sales of $314.5 million.

With all brands and distribution channels showing solid year over year sales gains.

Other key results for the quarter included growing total directed consumer sales by 30%, hosting a 12% increase in wholesale sales, opening six new stores, delivering an operating profit margin of 11.5%, improving the quarterly tax rate and producing record first quarter after tax earnings of $29.4 million.

Or $0.17 per diluted share.

Now, in a little more detail, first sales.

As stated earlier, total company sales for the period grew to $314.5 million.

This is a 16% gain over the sales generated during the same quarter last year.

Opening new stores and driving additional sales through the direct and wholesale channels were the means by which the company produced these record results.

In the first quarter the company opened six new stores, including four new Urban Outfitters and two new Anthropologie stores.

Sales generated by these new stores and the other 35 non comparable stores accounted for $35.7 million in additional sales during the quarter.

As of April 30, 2007, the company operated a total of 95 Anthropologie stores across the United States, 8 Free People stores all clustered in the northeastern part of the United States and 101 Urban Outfitters stores in North America plus nine in Europe.

Combined these 213 stores contain a total of 1.8 million selling square feet which is a 18% increase over the 1.5 million selling square feet in operation on the same day last year.

Year over year net sales in the direct business jumped by 30% in the first quarter.

All brands produced double digit sales growth with the Urban Direct channel leading the way with an exceptional 46% gain.

the Urban Direct increase was primarily driven by 24% more visitors to the Urban website an 8% rise in the average order value, a 3% increase increase in web conversion, and the successful launch last fall of the Urban website in europe.

And although catalog circulation at Urban Direct was down 16% during the quarter the catalog redesign proved to be an extremely and had a strong impact in helping to drive more traffic to the web and sales through all channels.

The Anthropologie direct business plan for the current year involved placing greater emphasis on promoting the web and slowing the rate of growth in catalog circulation.

Given the results, a 40% jump in website visits with log circulation up just 7% and quarterly sales registering a double digit gain, it is reasonable to conclude the plan was both well conceived and well executed.

Not to be out done, Free People direct produced the largest percentage gain in web visitors of any of the brands, up by almost 50% during the quarter.

Not only were more customers logging on but they were buying as well.

Total Free People direct sales jumped by 28%.

Overall total company catalog circulation during the quarter fell by 2%.

Web visits surged by 30% and total orders jumped by 25%.

The penetration of direct sales to total company sales on a year over year basis continued to grow in the first quarter with direct sales accounting to 13.8 of total sales this year versus 12.4 last year.

Free People wholesale sales continued to grow during the quarter advancing by 12% over the same period last year.

These gains were achieved primarily by a 26% lift in sales to specialty stores, a significant year over year improvement in the bookings fulfillment rate and slight increase in the average unit selling cost.

The additional sales generated by opening new stores and growing the direct and wholesale businesses combined to more than offset the 2% decline in total company comparable store sales.

Comp sales at the Anthropologie and Free People brands increased by 2 and 8% respectively and were down 5% at the Urban Outfitters brand.

The 2% positive comp store sales generated by the Anthropologie brand during the quarter were driven by an 8% increase in the average unit selling price at retail or AUR while both units per transaction or UPT's and the total number of transactions decreased by 2 and 3% respectively.

With Free People brand a 7% and 5% respective increase in the total number of transactions and the UTP's lifted its comps for the quarter by 8% despite a 3% drop in AUR.

And the Urban brand which produced a 1% gain in it's UPT's during the quarter, saw that increase eliminated by a 2% and 5% drop in AUR and total number of transactions respectively.

Total comp store sales were both positive and trending up during the first two months of the first quarter.

But turned negative during April.

Winter like weather in the northeast and midwest during April was by all indications the primary reason for that change in trend The fact that total comp store sales were stronger in the west and south and mall stores collectively out performed free standing stores would seem to support that conclusion In addition, as the weather has turned more normal in the month of May total comp store sales have once again turned positive.

Indeed May comps are currently trending higher than they were in the month of March.

Analyzing quarterly comp store sales by merchandise division women's apparel was the best performing division at the Anthropologie and Free People brands while the women's accessories and men's apparel areas performed best at the Urban brand.

Now operating margins.

Total operating margins for the first quarter were 11.5% of total sales versus 11.7% during the same quarter last year.

Gross profit margins were flat as improvements in both the initial mark up and the maintained mark up that resulted for the need to take fewer mark downs to clear excess inventory was essentially offset by higher store and corporate occupancy costs.

SG&A expenses rose by 20 basis points during the quarter as store operating costs deleveraged due to negative comp store sales.

Inventories.

As of April 30, total company inventories stood at $168.1 million this year, versus $140.7 million last year.

Much of the additional merchandise was acquired to help stock the new stores opened during the year, and to support the sales growth in both the direct and wholesale businesses.

Total comp store inventories grew by 3% on a dollar basis and fell by 5% on a unit basis.

Mirroring the sales trend comp store sales, comp store inventories were up at both the Anthropologie and Free People brands while down at the Urban brand.

Income taxes.

For the quarter, the company benefited from a reduced effective tax rate due to the company's participation in a number of tax incentive programs.

In all, these programs reduced the quarterly tax rate from 38.4% of income before taxes last year to 22.4% of income before taxes this year.

The majority of this benefit is tied to development of the company's new office complex in the historic district of the Philadelphia navy yard.

While most of the benefits are one time in nature, other benefits should accrue over a number of years.

The company estimates that the effective tax rate in subsequent quarters this year will range between 36 and 37% of income before taxes.

Net income.

For the three month period ending April 30, the company earned a record $29.4 million or $0.17 per diluted share this year against earnings of 20.3 million or $0.12 per diluted share last year.

Although this equates to a growth rate of 45% approximately 3 of the $0.05 per share increase is attributable to the one time tax benefit already discussed.

Without that benefit the company would have grown earnings during the quarter essentially in line with the growth of revenues.

To summarize our accomplishments in the first quarter the company grew sales by 16% to a first quarter record of $314.5 million produced positive comp store sales at its Anthropologie and Free People brands, opened six new stores, grew sales at the direct to consumer business by 30%, increased wholesale sales by 12%, significantly decreased the effective tax rate, and grew earnings by 45% to a first quarter record of $29.4 million.

Our goals going forward are straightforward.

Grow total annual revenues by 20% or more, deliver positive comparable store sales and grow earnings at a faster rate than revenues.

We have a number of initiatives designed to help us maintain our historic annual rate of growth, which over 37 years in business stands at 24%.

They include one, continuing to open new stores at a moderate pace.

We believe our current three brands can operate approximately 600 stores in North America and at least another 200 stores overseas.

In the current fiscal year we expect to open approximately 38 new stores.

15 or 16 new Anthropologie and Urban stores and 6 to 8 new Free People stores.

Number two.

Delivering positive comp store sales.

While we seem to be currently on track to deliver this objective, all three brands continue to make additional investments in the area of product design This should allow each brand to offer its customer a more unique and compelling product assortment.

Another initiative that should boost sales productivity is a brand appropriate customer relationship management program.

The Anthropologie brand will launch such a program later this year.

We expect it will be a powerful tool to improve the customer experience and help drive additional sales through all channels.

Number three, continue to grow sales at the direct channel faster than sales from the retail stores channel.

We will continue to execute strategies that promote E-commerce while tightly controlling the growth of catalog circulation.

The soft launch of our new more functional web platform took place in April.

We are currently test and making adjustments that system and hope to execute a hard launch in the next few months.

Number four, with the success of the new line at Free People wholesale that business group is developing additional lines to be launched in future seasons.

Free People has tested a line of washed and worn knit tops that complement the existing Free People offering in its own stores and based on the positive customer response, next spring we'll offer this new brand to existing wholesale accounts.

And number five.

Lastly, we expect to launch concept four early next year and expect to announce more details concerning that concept in the next few months.

In conclusion, we have built three of the strongest, best recognized brands in the retail business.

Each one has significant opportunities to expand through continued multi-channel growth and through extensions to the brand.

Concept four gives us yet another platform for growth.

We believe we have developed sound strategies to realize these many growth opportunities and are confident we can execute them in ways that will continue to inspire our customers, motivate our employees and reward both our employees and our stake holders.

And that concludes my prepared remarks, and I'll take your questions at this time.

(OPERATOR INSTRUCTIONS) Our first call comes form Betty Chen of Wedbush Morgan Securities.

Good morning, everyone.

Good morning, Betty.

I was wondering if you can give us a quick update on I guess where you think the Urban Outfitters merchandise repositioning is and how it's progressing.

And if you still remain comfortable I think that before you had said before you thought the the June book or that floor set was going to reflect some dramatic improvements.

I guess if you could give us a report card on where it is now versus what you are expecting in June that would be helpful.

Okay Betty.

I'm not sure we said dramatic.

But we did say that it would improve.

And I'll let Ted take that question.

Yes, Betty.

Again, I'll relate it to your question tied to June book.

If I just would reflect some of Dick's commentary regarding the direct business.

Our direct business has been performing exceptionally well as we came out of fiscal 07 and into this year with the dollar book performance on the early spring book over 50% to LY and the dollar per book performance on the mid spring book up over 35% to LY.

So the content that we're affecting in the book is as well the content we are carrying in our stores.

The main challenge we have had in our business really has been on the retail side really has been the mix of main stream inventory to what I would call more fashion-forward inventory.

And that has been something that we've been challenged by as we've come through the quarter we do not have as high penetration and main stream inventory as we feel that we should.

We've made adjustments to that along those lines.

The real area that we are looking for, for performance improvement in our business is by in large just the women's apparel business.

Our margin performance in men's accessories and home for the first quarter this year to last was improved.

It was flat in women's due to mark downs and that really is tied to the mix issue I am speaking of.

The one thing I would tell you is that, as we came through the month of April, end of April and into the first part of May, the first week of May, this last week, we had very high receipt numbers in the women's area on fresh product in line with this call out.

Actually, I think our women's receipt for the week last week is probably the largest I've seen in my time at Urban.

So I think that we have taken steps to move in the direction that I'm discussing, and we expect improved performance in that regard as we go through the second quarter.

That's very helpful.

Can you also help us, I guess better understand why it -- how much is there a difference or, between the online merchandise versus what's in the stores?

I know sometimes you do offer some on line only products.

But you know, how should we think about the robust, you know, response that you have seen online, versus the retail channel?

Well, the assortment is by in large the same.

There is some exclusive product online that will not be in the stores.

And vice-versa.

And in regard to the robust response I think that is very much driven by steps that we took coming through last year with some changes in creative for both the website of the business as well as direct.

And I think that that is a very big piece of the positive improvement we've seen in sales performance in our direct business.

One thing I would tell you that is you know when I'm discussing this main stream product versus fashion product, if we are not as deeply penetrated on main stream product in the stores and a customer comes to looking for that type of thing or needing that type of thing, to complete a wardrobe selection, if we don't have it, we'll walk the sale.

On the other hand, on the direct business, it is easier to stock.

You're essentially stocking one inventory.

If you don't have it, often you can, because of the replenishment involved you can take a back order and fulfill the back order in a reasonable time frame.

So from that standpoint we're not hurt as dramatically in direct as we are in retail when that occurs.

And that's a piece of the equation.

And then just lastly Ted, how should we think about your inventory plans then for Q2?

We have the inventory planned for the second quarter.

High single digit negative.

But we expect the business to perform low single digit positive.

Great.

Thank you and good luck.

Thank you.

Our next question comes from Jeff Black of Lehman Brothers.

Hello Jeff

Hey.

Good afternoon guys.

I guess I had a similar question for Glen and looking at transaction and UPT's down and AUR's up, you know high single.

How do you feel about the business, especially the transaction and UPT side going to the second quarter and what are the chances we don't see the kind of AUR benefit in Q2 given that we're up against the significant increase last year in AUR?

Jeff, the average ticket on the selling is strictly related to the reduction in mark downs, so actually, I'm you know, very, very happy with where it shaped up for Q-1.

and as Dick said, the May business is more positive than the March business was and we certainly felt very good about our business in March.

Does that answer your question?

Yes it does.

Thanks.

Okay.

Our next question is from Barbara Wyckoff of Buckingham Research.

Hi, everyone.

Hello Barbara.

A couple--Ted said something that got me very interested.

Do you have any plans to link the stores to direct business at any point in time so you don't walk that sale?

And what would have to happen to make that occur?

And then I have a follow-up?

Would you be envisioning terminals in the store tied to direct?

I mean I guess that would be a way that would work, yes.

We've tested that and we did that coming through late 05 and into 06.

You know whether it was the creative at the time or the execution of the idea, we really didn't find it you know to be that much of a productive enhancement.

So we didn't go forward with the exercise.

We really felt that we had better work to do just on the creative side.

So that really became the focus.

At the present time we do have quite a few initiatives going on in direct that are tied to the success that we have had there.

But it's not along the lines of linking retail and direct in some kind of combined experience in the store.

Barbara, I'll jump in.

It's Glen.

On our docket, is our initiative to have a shared SKU across our retail and direct businesses.

And I don't think we are ready to talk about when we'll deliver that yet, but it's definitely on our docket.

Once we have a shared common SKU across our businesses, we'll be able to do item inquiries across both channels at the store level and be able to kind of satisfy the customer demand wherever it makes the most sense to satisfy that demand.

So you know, while it may not have the form that you and Ted just talked about in terms of having terminals in the store, it'll be something that the sales staff will be able to easily do.

And I don't envision that being, happening too far out in the future.

I mean I think from a customer service point of view it is an important priority.

Okay.

Great.

And then last question is just could you comment on where you see leg openings going for say second and third quarter?

Oh.

I don't think-- Sorry.

I didn't understand the question of for a minute.

I think I'll speak for all three brands when I say we, you know, we generally as you know, don't speak to fashion on these calls.

Okay.

Our next question comes from Richard Jaffe of Stifel Nicholas.

Thank you very much.

We say Stifel Just a quick question on Dick's comments at the start of the call ask your modest outlook for second quarter.

Could you give us a better sense of modest?

Was this quarter modest results?

Will next quarter be as modest or perhaps less modest?

Well, Richard, as you know, we always plan in low single digits positive.

And that's what I was referring to when I said modest.

But you referred not so much to comps but to financial results.

But that would be driven by the low single digits positive comp?

Yes.

So that would imply, obviously, an improvement sequentially, is that fair to say?

It would imply we believe an improvement over what we delivered Q1.

Perfect.

Thank you very much.

Our next question comes from Gabrielle Kivitz of Deutsche Bank.

Good Morning.

Hi Gabrielle.

HI.

Question on the profitability of the catalog business and also the international business where is that tracking relative to the retail business if you could comment on that and how does that end up shaping up on an annual basis?

And if you could talk about the profitability for those two businesses versus last year, that would be very helpful.

And then I have one follow-up question for Ted.

Okay, I can just--We don't give profitability by that kind of information.

But I can tell you that the websites are highly profitable and are adding a great deal to the bottom line.

And they are increasing over time.

So I think that this is one of the reasons that we feel very strongly that we should be promoting as much as we can E commerce across all of our brands.

The European business when we launched it a number of years ago, we believed that it would take us to about seven or eight stores until we would show profitability and that's what happened.

We were profitable last year, and we continued to be profitable this year.

And we expect that rate of profitability to grow.

And I'm not certain it will ever be as much as it is here in the states, but I believe we will be solid.

Okay but year over year it's improving and helping your overall profitability I guess?

European?

Yes.

Yes.

Okay.

And then Ted, if I could ask a follow-up question.

You have mentioned you started to bring in new fresh product for women's in early May.

Have you actually had an opportunity to see impact from that delivery?

I heard Dick's comments about seeing the total company comp rebound but I'm just curious if you've been able to see any traction with that better product?

We usually don't get this specific.

But we were double digit comp positive yesterday.

So we've seen improvement in comps as we have come through the month of May with the receipt flow I've been discussing.

Again, it's not so much newness of product as it is penetration of product that we feel has been missing for some of our more main stream locations versus a higher penetration of fashion.

So we are really trying to get that more in balance, is the main exercise.

Okay.

Great.

Thanks very much and good luck in the second quarter.

Thank you.

Our next question comes from Kim Greenberger of Citigroup

Great.

Thank you, good morning.

Hi, Kimberly.

How are you?

Good.

Thank you.

I was hoping Glen, you could talk a little bit more about product direction.

Clearly you've got to be pleased with the positive comp here in 1Q.

Are there any categories you are still working on the Anthropologie side that you feel like you'll gain increasing traction in throughout the second half of the year?

And then, Ted, if you could, I think you said that your men's business has turned positive?

Or at least had a positive merchandise margin in Q1 and home as well.

Are you seeing improving margin trends in your women's business here over the last week or two?

And then just two margin questions if I could.

Dick, I think you said occupancy cost delevered and that hurt your gross margin.

Gross margin was flat in the quarter.

Does that imply merchandise margin was up in the quarter?

And if you could give us any sort of quantification on that, that would be really helpful.

Thanks.

Well, I can't give you the quantification.

But yes, IMU was up slightly, and MMU, as I said, was up due to a decrease year over year in mark downs.

There wasn't as much merchandise to clear, which is a very positive thing.

But both of those positive events were offset by higher occupancy costs, which resulted from the deleveraging, as you pointed out, of store occupancy costs due to lower comps.

Now let's see if we can remember all your questions.

I'll go back to Glen, and Glen, you--

Yes, Kimberly, I, as I have spoken with several of you earlier, I felt very comfortable with the way the store looked for the bulk of Q1.

And you know, certainly as we intimated in our report our release this morning and Dick's comments, you know, the first two months were really in the quarter were excellent.

And April, as evidenced by I think a lot of the news this morning, was just a really challenging month.

But I kept you know looking at the store, thinking it looked great.

And you know, I say that.

I believe the store looks like Anthropologie should look again.

I think the customer reaction to it's been terrific.

I think by in large I'm very, very happy with the women's apparel area and as Dick indicated, it led the way.

You know, if we look at our business even in the weather zone there was a dramatic shift in the performance of the warm weather stores versus the stores that were challenged by the weather nuances.

So I feel very good with the progress we have made in the women's area.

We have stated publicly we are in a tough cycle and that continues to be true.

The accessory business went from challenging to kind of neutral and I think there is some traction there that we can look forward to in Q2 and beyond.

And the home business in sales has been roughly flat.

I would be happier if it was up but I think it's, from an aesthetics point of view assortment point of view it's doing everything it needs to do in the store and in terms of a penetration point of view we are going to make it or break it in the women's area and that's where I'm most happy with our progress.

Kimberly, I think it is reasonable to point out one other thing so there is no confusion.

That unlike some of the other folks who reported today, when we talked about our March sales being positive, March, to us is a calendar month March, not the retail calendar March The retail calendar march this year included Easter, we did not include Easter sales in our March sales.

It's just the calendar March.

And our sales were very strong in March.

And we were very pleased with it.

April really was a bad and a poor month for us.

And I, as you know, we really rarely talk about weather.

But I just really don't have anything else to attribute it to.

Because we saw so many indications that weather was the culprit.

So we believe that, as the weather has changed back to what I called more normal, and have witnessed the comps return and actually get stronger than they were in March, we feel pretty confident about a lot of our assortments.

Ted?

Kimberly, your question was regarding margin performance within Urban.

For the quarter, we had nice margin improvement in both our women's and men's accessory business.

We had nice margin improvement in our home business.

We were double digit comp positive in renewal and thus had nice margin improvement there.

Men's was kind of this line with LY.

And women's was really, to use Dick's word the culprit That was tied really to markdown.

The thing that I guess should be said, I think we've done a good job of managing our inventory on a [Inaudible] supply basis.

We are operating with less inventory this year than last year, obviously tied to the sales expectation in the business.

But when we are operating with less inventory and we are out of balance on mix of fashion to base, we are going to be running the risk of taking more mark downs and that did hurt us in the quarter.

That's very helpful, Ted.

Could you just give us some clarification on you I know you said that the Urban Outfitters was down at the end of the quarter and Anthro was up with total comp or inventory up 3.

Could you give us some numbers around that?

I believe that we have two groups of comps right now because we've taken some stores out of comp.

I think the conservative number is down by 8.9.

Yes, that was down 4 at the end of the month without the early May delivery.

Yes.

And for Anthro?

Anthropologie was up 11 at the end of the quarter on a comp store basis.

Great.

Thanks, John and good luck here in the second quarter.

Thank you.

Sure.

Next question from Nora [Kahn] of HSBC

Hi, I have two questions on the EBIT margins.

My first is related to gross margin.

And it sounds like, you said your IMU and your--was up and your mark downs were fewer based on less inventory.

I'm surprised that, given the fact that comps were lower in Q1 last year, the higher occupancy costs.

And the second question is related to catalog distribution.

I believed that you had expected lower catalog distribution related expenses in Q1, and did that benefit come through?

Is there any going forward?

Just kind of what happened there?

Well, Nora, in terms of the results on the margin, we would deleverage with a negative 2 comp because the thing that we are always impacted by is the pre opening rents on our stores.

As a business that's growing aggressively and up expensing somewhere between three and four months of every store, even though we're not paying that rent we have to book it as pre opening rent.

So we need to some comps in order to not deleverage occupancy.

Okay.

I'm sorry, Nora.

What did you want to know about catalog circulation?

I was under the impression that was going to be an SG&A to sales benefit in Q1 I think you had a 3.5 million increase in catalog circulation last years that didn't come through as strongly in the sales line and the pull back of that this year would generate some upside potential.

It did.

It did.

The direct businesses threw up much more profit than they did the prior year.

And SG&A in total grew only 17.5% year to year.

So much different than a year ago where SG&A grew 23% in the first quarter.

Okay, and then could you just give us the square footage of the individual brands?

Sure.

Urban, this is selling square feet, Urban is 1, 064, 495, Anthropologie 718, 765.

Free People 11,638.

For a total of 1,794,898

Okay.

And just one quick question, you mentioned additional investment in product design.

Could you clarify that a bit in terms of the investment?

Is that additional personnel or --

Yes.

It is additional personnel.

And restructuring of the personnel.

Okay.

Thank you.

And our next question comes from Roxanne Meyer with CIBC World Markets

Great good morning.

Hi Roxanne, how are you?

Great, hoe are you?

Just wanted to follow up actually on Nora's questions, in terms of the gross margin and occupancy deleverage, can you break out what the benefit was to the IMU?

And what the offset was to the deleverage?

I do not believe we have that information.

Okay.

And further on the in terms of investing in design, and increasing the talent of your teams, can you speak more specifically to some of the areas that you'll be hiring for?

The number of people you're looking for?

And any other openings that you think you will be leveraging your new talent officer with?

Well, why don't I let the Brand Presidents speak to that?

Because they are closer to it.

Roxanne, we have spoken earlier about the kind of renewal project we went through in the middle of last year.

And a lot of those structure and process work that we did during that renewal, after it started to take effect in really Q3 and Q4 of last year, I think if we look at the home office, at Anthropologie, we added some 18 positions.

I think we're probably maybe 12 -- we've hired 12 of the 18 spots that we identified.

And it's everywhere from senior designers.

We actually hired a Design Director to manage the staff on a day-to-day basis.

We added another Divisional Merchandise Manager and so on.

I could get quite specific but I don't think this is the venue knew to do that.

We can certainly talk online after if you'd like.

And in the Urban business, I guess to mirror a bit of where Glen's comments were, the investment is both in buying as well as in design.

And at this point I think we've made very good headway on the buy side.

We have a -- we've put a new Women's Merchandise Manager in place.

Overseeing the women's buy team, as well as I think we've got a bit more support in place, which we sorely needed with the growth the business has experienced and those roles have been filled.

On the design side, we hired in new Design Director for the women's business in the fall of last year, and we've done some work on org chart and there too we've got the lower level roles at this point.

We are pretty well up to staff and it is the mid level roles where we are currently looking for appropriate candidates.

This is like a half dozen roles we are looking to fill in that regard.

Okay.

Great.

Thanks and good luck in the second quarter.

Thank you.

Our next question comes from Christine Chen of Needham and Company.

Thank you.

Good morning, everybody.

Good morning.

Ted, wondering if you could talk a little bit about the Urban renewal product.

I know last year ir struggled a little bit, it seems to be doing better.

And just wondering what changes may have been in place there and how you feel about the outlook of that very important part of the business.

Sure.

The renewal business this year to last, I think last year we went through a pretty big transformation on that business.

We had a strong base business in vintage and graphic tees that we have pared back on and done more remade product and the remade product is tied to specific opportunities either on silhouette or concept.

And I think we're much more controlled in the development process in renewal and as a result, less exposure in regard to markdown.

We have some really good item in the area right now that we're flowing receipts into.

And I think that the business is in a very good place for us right now.

Okay.

Great.

Thank you.

And Glen, can you talk a little bit about the accessories business at Anthropologie.

Are price points finally somewhere, where you feel it's a little more accessible for the more average consumer?

Yes.

Absolutely, Christine.

That was an important part of the strategy there.

I don't have the number off the top of my head.

But they're where we want them to be now.

I'm guessing they are down in the mid to high teens.

Okay.

Great.

Thank you.

Good luck.

Thank you.

Our next question comes from Lyn Walther of Wachovia Securities.

Couple questions, can you just give us an update on private label at both brands and if you see any opportunity there and Ted are you seeing any difference in performance between the two?

Lyn, it's Glen.

At Anthropologie the private label penetration is pretty consistent with a year ago.

It's about 50% in the women's apparel area.

What we are very excited about is really continuing to kind of raise the level of execution and that's what Dick was referring to earlier.

We've learned a lot from the wonderful success we have had of Free People and we are trying to take what we learned there and really apply it to our private label at both Anthropologie and Urban Outfitters.

so I'll turn it over to Ted.

Yes, Lynn.

Within the Urban business on a total basis, private product is right at about 60% of the mix.

If I go into the individual divisions and the one you are probably most curious about would be women's.

Private product in women's is a little over 70 percent.

However, less than a third of that have we developed through our design staff.

The majority of that we developed through the buyer with the buyer through the market.

We are looking to increase the penetration of in house design product, and that's part of the initiative that we are underway on.

The your other piece was profitability.

The product that we developed in the market through the buyer is -- has been very profitable product for us.

Okay.

And then for John, can you go through the store opening plans for 2007.

I have one quick follow-up.

Well our total is to open at least 38 stores.

15 to 16 Urban and Anthro and 16 to 8 Free People.

The majority largest quarter will be third quarter.

And given that, how should we be thinking of the impact of the additional expenses with significantly more openings in Q3 relative to last year?

You know, what kind of comp mate you need to leverage?

Thanks.

I think we'd still be on a 3.5 to 4% comp would give us leverage.

I think the openings are about the same.

Our openings skewing was similar last year.

Okay.Thanks and good luck.

Our next question comes from Robin Murchison of SunTrust Robinson.

Thanks, very much.

All this conversation about in-house design and the amplification of the teams, and Richard, this is for you.

I trust that this is- the Chief Talent Officer that you brought in during the quarter, that is to take that off of the divisional presidents?

Well, that, in part, I think that that's correct.

We have determined and then I'll let Bill speak for himself because he is sitting right here.

Okay.

We have determined that one of the chief strategic initiatives that we have as a company is talent.

And probably the most scarce commodity that there is.

So we wand to demonstrate not just, you know, externally but internally as well, our commitment to this area by elevating it to a C-level position.

So with that I'll introduce Bill Cody who is sitting here with us today who is the new Chief Talent Officer and let him talk about that.

Thanks, Dick.

I'll echo Dick's comments on that.

If we are looking both internally and externally for our talent and we are putting a huge premium as we go forward on making sure we are properly aligned internally to find right candidates to fill the roles as they progress through their careers within the company.

And our initial focus is going to be focusing externally on filling some of the positions that are open as well as looking at talent within our organization to take the positions, for example as Ted talked about within design.

In the short run that is our main focus and then over time we are looking how do we augment our training and development to make sure in the next two and three years we are taking high potential leaders and putting them in good positions to assume greater responsibility within the existing positions and as they progressed within the brands.

That's good.

A lot of companies, certainly are complaining about it.

So proactive measures are good.

Secondly, if I could just ask about when you talk about May being better than April, and May being better than March, even, is this traffic driven?

Are you seeing a pick up in traffic?

Or is it just can you comment on that?

We don't have traffic counters.

So we really can't tell you whether it's traffic-driven.

Okay.

And then lastly, for Ted, if you could just comment.

I want to be clear.

When you talk about the fashion versus basic, are you shifting the percentage allocated to fashion or allocated to basics from fashion or is this just trying to get the assortment right?

Well, I hesitate to use the word basic.

First off, it's a bit more main stream what may be more main stream to us may be fashion to others.

And we, as we've increased our store count and operate in a broader diversity of markets, with the change in fashion that went on in the first part of last year, we got into a situation where we have decreased the penetration of our more main stream product in the interest of the fashion ship and getting that back to where it needs to be has been the exercise we've been involved in.

I don't want to give the wrong impression in regard to basic.

You know it really is product that we know we can sell.

In 101 stores on the North American side of the business.

Great.

Thank you very much.

Good luck.

Thank you

Our next question comes from Janet Kloppenburg of JJK Research

Good morning, everybody.

Good morning, Janet.

How are you.

I'm good thanks, how are you?

Excellent.

Great.

I was wondering a couple of questions.

If you could talk-first of all John, inventory numbers seem to come in a little higher than expected.

Were they down double digit at Tan and up at Anthro?

I don't have those numbers.

And if you could talk about the markdown levels going into the second quarter, versus last year.

Markdown inventory levels going into the second quarter?

And also, I was wondering did the month of April end on Monday, April 30th?

And therefore the comp information we're getting is for I guess the first nine days of the month?

I just want to be clear on that.

And lastly, Dick, did you say that you are you are or Ted did you say that you are you're comps were currently running positive?

Thanks so much.

Okay, I'll take the last one first.

I believe Ted said I don't know that it's a direct quote.

But Ted said I don't know that it's a direct quote.

But I'll try the best I can.

Okay.

That Urban Outfitters yesterday--

Just womens.

The question was about women's.

And yes we were double digit comp positive on women's yesterday.

We have been running comp positive as the weather has gotten better as we've come into th month of May.

So you are comp positive thus far on the month?

Yes.

Okay.

Good.

John are we talking about nine days of business right now?

Absolutely are.

April ended on the 30th.

And Dick if you could comment on that.

You know what the calendar looks like from May 06.

You know what the comparisons looks like.

Is there any reason why this shouldn't be sustained?

Or you know, what could happen to cause a slow down here?

I hate going into the litany, the legal litany of all the things that could happen.

I'm not looking for that.

It kind of looks like a disclaimer.

But is there any Mother's Day shifts or anything like that?

Let me address that.

Last year, when you look at the comp of the second quarter, May was the strongest comp in the quarter.

So if you look at it just as what do we need to beat from last year, it gets easier in the second quarter.

Yes.

And so, now that's just one way of looking at it, of course.

Yes.

And I'm not suggesting that that means definitely that we will continue this.

But when we last talked to you in March, I think we came across as pretty confident and then April happened.

Right.

So I, I just, I'm out of the business of predicting where comps are going to be.

All I can tell you is what we know.

Which is that right now, we are pretty happy with you know where the comps are.

Yes.

We're not completely satisfied, of course, but we're pleased.

Yes.

Okay.

I don't see anything out there that I know of right now that would dramatically change that.

But I didn't see it in March or April, either.

Okay.

Great.

So you know we are all humble in this job.

That's for sure.

It always does that to you.

And John, on the markdown invein tri levels and the breakdown of inventory by brand.

I don't have markdown inventory levels in front of me.

But on the total inventory we had projected Urban to be down close to double digits.

Without early May deliveries they were down 9 so they were close and Anthro was up 6.

And is Anthro on plan Glen?

Is that where you wanted it to be?

You know I'm a little closer to the market on inventory than John is.

The markdown inventory ran anywhere from 20 to 45% below the prior year and we ended, at Anthro, yes.

And we ended the quarter well below the prior year.

Yes.

And you know, the markdown sell throughs have been excellent.

In terms of the inventory, as we said, you know, many, many times while we always- while we are certainly mindful of our comp inventory, we always manage the inventory based on weeks of supply and current trend and I'm very comfortable with where the inventory is.

And Glen, if you could comment on the profitability of the brand in the first quarter.

I'm assuming your contribution margins were up in the quarter versus last year?

Yes, they were I mean, directionally, we'll make a comment directionally but we don't get into specifics.

But they were directionally positive?

Yes.

Okay, great.

And maybe Ted, you could comment on your markdown inventories, please?

Markdown inventory, as of the end of last week was on I think 7 and a half weeks of supply.

Our largest markdowns last year really were taken in the second quarter not the first.

Yes.

So I feel we have opportunity in the quarter.

And do you think there is an opportunity for the margins of your brand to improve in the second quarter, Ted?

Yes, I do.

Versus last year?

Yes, I do.

Okay.

Good.

Gut good luck to all of you.

Thanks so much.

Thanks, Janet.

Our next question comes from Liz Pierce of Roth Capital Partners.

Good morning, everyone.

I just have a quick question.

Dick, on Free People, with all these products that you're talking about, perhaps adding, does the size of the box need to go up?

No.

I think the concept is, if they were to launch some of these new products on a retail basis that that would be maybe adjacencies, side by side stores or separate stores.

But not bigger stores.

Not bigger stores.

Okay.

And then perhaps just an update on the concept to market initiative?

Anything that material that took place in Q1 or in Q2 that's kind of on the docket?

I don't think a lot of material things have happened there.

I mean, we've continue to work on that.

But we hope to make, you know, more announcements about that next quarter.

Okay.

And then finally, on the catalog.

I guess philosophically, are what you -- is it just a matter of managing the catalog?

You still want to have a catalog business, but trying to, you know, from a cost effectiveness make sure you're not --

Yes.

I will let Glen talk about it because he is a little closer.

But I want to say I don't want to give the misimpression that we are getting out of the catalog business.

We are very, very committed to catalog.

But we think that catalog really is a method now of marketing.

As opposed to what we believed before, which is a method of selling.

We feel that both the retail store format and the web format are much more conducive to the actual selling process.

Are and we can generate more sales and more profitable sales through that method.

Catalog is becoming more of a marketing tool for both.

Glen do you want to add to that?

I don't know I could say it any better than Dick just said it, we really try to lack at each of our brands the way the customer looks at them.

And she doesn't look at a catalog business web business or store business.

She looks at it as a brand.

And sometimes she chooses to buy in the store.

Sometimes she chooses to go online.

And very rarely, she chooses to make a phone call.

So as Dick said, the catalog is really one of a variety of marketing vehicles for the brands.

I mean we did circulate 10 million books in Q1.

So it is not a small number.

But the website now I think across all brands comprises close to 90% of the direct business.

So it's really become largely a website business in terms of the revenue.

That makes total sense.

And Glen on that note because you did change your strategy a bit in terms of dropping books that have different product, different cover, how do you feel about it?

Liz, what we did was we, again we took a very customercentric approach.

So we stopped doing what traditionally is known in the catalog industry as remails.

Where we would historically we would have dropped a book in one month and dropped the same book with an outside wrap the second month.

And from a business point of view, we knew it drove kind of revenue and it was an inexpensive way to drive revenue But we also knew by speaking to our customers that they didn't like it when we did it.

So we stopped doing it at the beginning of the year and every book at Anthropologie every month is a new book.

So it is almost like a magazine.

So it is still early to tell the efficacy of that but we believe we made the right decision.

I would agree.

Alright great.

Good luck.

Thanks.

Thank you

Our next question comes from R.J.

[Hatabi] of Next Generation.

Good morning, everyone.

Hello

Just had two quick questions with regard to new stores.

First of all, if I'm doing my math correctly here, looks like new store productivity has been trending up at least over the past two quarters and I was wondering if Glen and Ted could both comment on that?

What really is driving that?

And then secondly, I seem to recall that last year, that new store costs had been up and largely as a result of the efforts you were putting into the new headquarters.

And just wanted to get a sense as to the six stores that you opened up during the quarter, where those new store costs were trending.

Thank you.

Good question, RJ John, up to take that?

The new store productivity continues to be plan.

So we are very comfortable with that.

We think new stores are performing well from a sales perspective.

From a cost perspective-Freeman do you you want to talk about that?

Yes, R.

J.

this is Freeman.

Construction costs are now on plan for the year.

And we have aggressive plans from place to make sure those plans are met.

And we did plan down.

That's the important thing.

We have tightened up our budgets.

We expected to go down and what Dave and Freeman have delivered is indeed a better, better cost.

You can't help us out with any numbers there?

Or just magnitude maybe for year over year?

We believe, I think we talked about a 20% reduction.

That's what our goals have been.

Yes.

And I don't have the number right in front of me.

But we believe we will get there by the end of the year.

Okay.

Thank you.

Yes.

Our next question comes from Adrienne Tennant of FBR

Good morning.

I just have a couple of quick ones.

Did I miss the inventory plans at the end of the second quarter for Anthropologie?

And then secondly, are you willing to give the MMU by division for Q1?

And then my last question is, you know, we've heard some talk from some other retailers about kind of postal rate hikes starting in May.

And just how we should think about that.

Thank you.

In terms of the inventory plans, Adrienne, what I said was we always you know, plan our inventory based on weeks of supply and current trends.

And you know, as I've said in numerous conference calls, we always try to be around the 10-week number in the women's area, between nine to 11 weeks depending upon the category and that is what we planned.

Okay.

Great.

We have not really heard anything about postal rates.

Well, we're aware of some increases but we don't believe that they're going to effect us in any meaningful way.

I mean we haven't heard from our customers is what I meant.

Right.

And then can you give us the MMU by division?

No.

No we don't give that.

Okay.

Okay Great.

Good luck.

Thanks

Our next question comes from Neely Tamminga of Piper Jeffray.

Great.

Good morning.

I just wanted to ask you guys a little bit on the strategy shift subtle I think totally right for the catalog.

Just wondering though are you kind of built on the back end to really fully effect that?

Said another way, do you have a unique customer ID that can go across all channels at this point?

Or is the customer who shops in your retail maybe a little bit, could also be shopping no your cataloging you don't know between the two?

And is that an opportunity going forward?

I just have one follow-up.

Neely, one of the most exciting things about the CRM initiative that Dick spoke about earlier .

is the ability that we will gain to track our customer across all channels if distribution So right now, we only have recency, frequency, monetary and type for our direct customers.

We were kind of flying blind with the retail business, which is the lion's share of the business.

So that absolutely is one of the biggest paybacks of the CRM

Great.

In terms of fashion, Glen, I'm not asking you to call out what's working and not working.

But are both you and Ted and Meg, for that matter, pleased with some opportunities for non denim bottoms as we go through into fall?

You know, as I've said, I mean, I think that what we learned last year was to have a very balanced approach to our assortment.

To be very true to our customer and our brand and I think that at Anthropologie we got there in early spring.

And you know, so our business has never been about a single category or item.

It's always been about taking care of the customer from head to toe in a variety of looks.

I think Free People has always had,you know, not always but certainly in the last 24 months just a wonderful balanced assortment which has driven their productivity and I think Ted kind of addressed his opportunities about 15 minutes ago.

I think what we can say, Neely is, is that given the fact we weren't feeling at all confident about bottoms last year, that on a year over year basis we are a little bit more confident this year.

Great.

You guys, fantastic and good luck.

Thank you.

Our next question comes from Samantha [Pinella] of Raymond James.

Good afternoon, on the wholesale side, the growth of 12%.

Was that a little bit softer than expected?

And if so, you know, what do you see causing this and how do you see this trending throughout the rest of the year?

Thank you.

That was actually slightly higher than we expected.

We're pleased with it.

We're you know, we have a much larger base than we had several years ago when we were, you know, experiencing much higher rates of return.

We're doing that in existing store base as Dick mentioned.

The specialty store business was excellent, which excites us.

Because that's really kind of a positive thing for future and our bookings are very, very healthy going forward.

Okay.

Great.

Thank you.

Our next questions comes from Holly Guthrie of Janney Montgomery Scott.

Thank you.

Three questions.

First the tax benefits realized in the first quarter.

Does that mean that everything was sort of settled in the first quarter?

And what was anticipated to be realized in the second and third and potentially fourth quarter all occurred in the first quarter?

And/or what can we expect for the upcoming quarters?

Yes.

The, you are absolutely right on the tax issue.

What really happened is that we did receive approval for this federal rehab credit at the end of the quarter.

The IRS requires that credit to be taken in the year that it's placed in service.

So with that in place, it makes it a prior period adjustment, which had to be reported immediately.

Total impact was 5.4 million.

The total credit is 8.1 but the balance of the 2.7 gets spread over 39 years.

So it will have absolutely no meaning going forward.

But there will be no more of that tax credit going forward this year.

Okay.

Any other tax credits this year that you are waiting to hear on?

Well, we may have, we have -- we may have minor adjustments to the tax credit upward.

But we don't think it's going to be that significant.

Okay..

Great.

On and then just a quick question on the store costs the build out costs the opening costs.

I know you were targeting to get your costs down.

Did you see any of those cost reductions in the first quarter?

And then I know you said, by the end of the year you think you'll get to the lower than 20%.

If you could talk about do you think you'll see that in the second third quarter do you think it will be a fourth quarter phenomenon.

We'll let Dave Zeal, who's our Chief Development Officer answer that.

We have a mix on the first quarters stores.

We received substantial unders on a few of those stores both brands.

But we also were dealing with stores that were designed and in inception for a much longer time period that we didn't reap those benefits from.

Most of the benefits at 20% you are going to realize both third and quart quarter pretty much inclusively of all the third and fourth quarter are affected by our mission to lower that overall costs.

That is encouraging for the leverage.

How about your rents this year?

Have your rents increased at a greater rate than they have in the past?

Or have they been about the same percentage change change?

I'm not sure we've tracked rents as a percentage increase because there are so many variables, Holly.

Okay have.

But my sense of it is without doing the hard analysis is rents have gone up over the last few years but may be leveling off somewhat right now.

Okay.

Great.

Then just back to your wholesale business.

With some of the big guys having problems like Liz and Jones, I know you are in a different part of your growth cycle, but could you talk about any commentary from the big guys?

As far as how they're viewing your specialty business for them?

Yes, Holly, basically as you know we sell three majors.

We are in 33 Bloomingdale's doors, 99 Nordstom doors, and 56 Macy's West doors we have 28 Bell's doors which used to be [Inaudible].

So we have a very limited distribution in the majors.

The majors, our purchases with the majors in Q1 were relatively flat to the year before.

So I think some of the commentary that you heard from other people in terms of them targeting increased turns was true.

What I will tell you is our business in the majors has been excellent..

We had great margins a year ago and we're going to have better margins this year.

And I think they are continuing to chase our business.

But the specialty store business is a whole other animal and you know, it's just been-we've had a wonderful Q1 and we expect to have a great year at the specialty store level.

Great.

Thank you and good luck.

Our next question comes from Dana Telsey of Telsey Advisory Group

Good afternoon, everyone.

I hopped off for a second so I hope there was no questions about the new CRS system the implementation of that the benefits you expect to gain that from that and also on direct sourcing have you hired a Chief Sourcing Officer and how is the development of the direct sourcing going?

Thank you.

Thanks Dana

Dana, it's Glen.

On the CRM I don't know that we are ready to publicly talk about it in as much detail as you'd like.

What I would say is you know, as Dick mentioned earlier, we plan on launching Phase I in the second half of this year.

And I think that you know, what we've said publicly before is it's not going to be a promotionally based program.

The way we think about the program is kind of the more that we know about the customer the better job we can do servicing them.

And we think, probably the single most profound benefit is that we will have a much greater understanding of our customer behavior.

I always you know, use the analogy that I'm kind of the most direction impaired person I think in America.

And it would be like me getting in a car and driving from here to California without a map to think that we are's doing some 87% of our company's business without really any information on recency, frequency, monetary and type is kind of startling.

And to think about the profound benefit of having that information, it's just to it's a very, very exciting thing to me.

I mean we certainly intend to use the database to you know, communicate, it incent may be the wrong word but to try to drive business.

But I think that's a secondary benefit.

I think learning more about the customer is the principal benefit And, you know as Dick said, it will start at Anthropologie.

But I'm pretty certain that Free People and Urban will maybe not follow the exact model, but follow you know some kind of similar path because there is so much opportunity across all other brands.

And about the sourcing officer.

We are planning to make some additions to that area.

But we are not ready to announce that right now.

Thank you.

Our next question comes from Crystal [Calick] of GA Davidson

Good afternoon everyone I just have a couple of quick questions.

John, I noticed you didn't call out the Q1 inventory reserve.

You typically reserve was that meaningful?

Or how do we look at your Q-1 inventory reserve?

It actually went up versus the prior quarter.

Okay.

Do you care to give us any more granularity on that?

No we don't normally provide the specific numbers on that.

Okay.

That's helpful.

Thank you.

And does it sound like concept four is delayed slightly as far as the debut?

I think you were originally talking about some time in Q3?

Is it now sometime in early 08?

No.

I think what we said we would make an announcement some time in Q3.

We're actually probably advancing it and will make the announcement I believe right now, before the end of Q3.

But the actual launch of it will not be until early next year.

Okay.

Great.

That's helpful.

And then just finally, any comments as far as any change in the direct business now with the new web platform that just launched I think it was last week or about a week and a half ago?

Well the web platform as I said in my prepared remarks, went through a soft launch in April.

And there are a number of adjustments that are being made to it as we speak.

We hope to make the hard launch on that new platform in the next few months we are not in any rush.

We want to get it correct.

We want to get it so the customer will not experience any pain.

So when that's ready to go, we will do it.

We expect it to be the next few months.

Thanks and good luck.

Yes.

Thank you.

Our next question comes from [Marnie Shapiro] of Retail Tracker.

Hi, guys, how are you?

Hi.

How are you doing?

Good.

A couple of follow-up on the Anthropologie product if you don't mind.

You were talking about the I guess non fashion non basic product.

Is that what I'm seeing in the stores the Joe Jeans the [Inaudible] brands Michael Stars- that are I guess more basic than fashion for you guys but still very in the vein of who the Anthropologie customer is the staple of her wardrobe?

I don't know that I would call it non fashion.

In fact I would probably call it fashion.

I would just say it's very kind of customercentric fashion.

So what we like to say about the Anthropologie customer, she's fashion aware She's not necessarily a fashion victim.

I think when a woman hits 30 she is very aware of what looks good on her body and what doesn't look good on her body and if the fashion is flattering she'll go there and if it's not flattering by in large she won't go there.

But you know, there are ways to, I think when we are on our game, there are ways to interpret, you know, all types of fashion in a way that's right for the Anthropologie customer.

And I think that by in large, the group did that this season.

Alright, great.

At Urban, could you give us any color as to what's driving the accessory sales?

I wasn't sure if swim and intimates were considered part of accessories.

Or were those in apparel And if you could give any color as to handbags, shoes, jewelry, what's really pushing the sales there?

We don't provide a lot of color on that.

But I would tell you the shoe business is not treating us too poorly.

Good to hear.

And then one final follow-up on the private to private market versus private in-house brand.

Ideally, whether its in a year or five years, what should be the right mix between private to non private brand in the overall assortment, and then within that private mix what should the breakdown be between private market brands versus private in-house brands?

Well, I don't know what that is.

But I will tell you one of my goals over the next five years is to eliminate the word private label from the [Inaudible] of our company.

I think we make a big mistake when we think of things in terms of private label.

I think we should think in terms of brands and we should be creating brands private label to me is like someone else's warmed over fashion.

And so what I really want to get to is what I just talked about, which is how do we create brands and what is the correct penetration of those brands.

So if I'm to think of the mix of your stores, in say a number of years from now and think of products in your stores today, Lux is a real brand you have created versus [Inaudible] for Anthropologie a brand you've done in conjunction with them for Anthropologie.

If I'm to look at the mix of those kinds of products, should it be split 50-50 between brands you have created?

Or more heavily weighted to brands like Lux versus brands like Anna Suisse and Anthropologie?

I think you know, I can certainly answer for Anthropologie.

And I think Dick's vision when I joined the company 13 years ago at Anthropologie was that it would always be 50% owned brands and 50% market brands and I actually think that that is at least today a really sound strategy.

Right.

So I think that in terms of the mix right now, Anthropologie is in a good place Ted, you want to answer for Urban ?

We have no intention to move in the direction of being a vertical business and there will be times that brands out of the market, in given categories, may SKU the overall branded mix a little more heavier than other times.

But I'm totally in line with Dick's challenge to the business and that's the way we are approaching our internal development.

Right.

Great thanks, guys.

Good luck with the second quarter.

Thank you.

Our next question is a follow-up from Barbara Wyckoff of Buckingham Research.

Hi everyone.

Sorry to keep you so long.

That's okay.

Nobody has asked.

This is a question I'm curious about.

What functionality will the new web platform give you?

What will you be able to achieve assuming all the glitches in that are out and everything?

I'm going to ask Calvin [Inaudible] who's our Chief Information Officer to talk to you about that.

Hi Barbara, this is Calvin.

Is it will help us be more flexible in adjusting to the customer need and adapting more flexibility in terms of presentation Also has other benefits I can show us better in stock position and show us better assortments without having to click through the site.

As often as you click through the site you get the last page and find out that we don't have an item, don't have the color, don't have the size.

[Inaudible] It will show you much more a better customer experience in the short-term as mentioned much more scalability going forward so we can grow as the brand increases.

Okay.

I also think the checkout procedure will be much more custody mer friendly.

Okay, thank you.

Our next question comes from Brian Tunick of JPMorgan

Hi guys, sorry, we got on a little late.

Hi Brian

I guess, congrats on the tax rate, continue to keep [Inaudible] I have to get the name of your tax attorney But I guess our two questions, we still don't understand how on six new stores in the quarter there was so much occupancy deleveraging and how that's going to continue going on and secondly if Ted can maybe just talk about, you know everything it sounded like was good at Urban, so where did the negative 5 come from?

What category?

And finally, Dick, in the press release you mentioned your modest financial plan for the second quarter.

And the street's carrying 40% earnings growth, does that reconcile?

So those are just my three questions, thank you.

Well, Ill start, I don't ever respond to what the street's carrying.

I stick with I know what our plans are internally.

I've always told everyone and I think everybody in our company has told everyone that we have, in terms of top line, modest single digits growth aspirations.

We've maintained that we believe we can get to those modest growth aspirations and we think that the financial leverage that goes with it will occur.

As to what the street is projecting, that's for the individual people on the street to calculate and to expound upon.

We only built six new stores this year, but we obviously had 35 other stores last year built in the second, third and fourth quarters and that was part of our issue with the construction cost issue last year.

Some of that related to the deleveraging.

And Brian, the question relating to occupancy, you're right we only build six new stores this year, but we obviously had 35 other stores last year that were build in the second, third, and fourth quarters.

And that was part of our issue with the construction cost issue last year.

Some of that related to the deleveraging.

And Brian, this is Ted.

Just to backtrack a little on the question regarding the Urban comp in the quarter, I've tried to be very clear that really, we feel the challenge is in our women's mix and the balance of main stream product of fashion in getting that correct and quantified appropriately.

We've driven significant volume and profitability through that formula in my time at Urban.

I think we are a little out of balance on that right now and I'm confident that that is something we can easily course correct.

Yes, I am in a very upbeat and positive mood about the business, because although a high percentage of our business is really affected by our performance in women's, there are a lot of very good things going on in the business.

Dick touched on the successes and direct.

Our overall volume for the quarter was up I believe around 12%.

Yes our goal is 20 plus.

So you know, we're short of where we want to be but we think we know why we are and we are working to repair that.

Okay.

Terrific.

Good luck, guys.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question is a follow up from Kim Greenberger of Citigroup.

Hi, it's Meg for Kimberly.

We were just wondering what the impact was on the first quarter comp from losing a Saturday and when do you expect to get this back?

Thanks.

Actually we lost a Saturday in April.

We picked one up in March.

So the net quarter impact was nothing.

We go through the same thing in second quarter, with picking up one in June and losing one in July.

But that should have negligible impact, too.

Meg, that's one of the reasons we report quarterly.

Thank you.

I'm not showing any further questions at this time, would you like to continue with any closing remarks

No.

I just want to thank everybody for attending and we'll see you in a few months.

Thank you.

Ladies and gentlemen thank you for participating in todays conference.

This concludes the program.

You may all disconnect.

Everyone have a great day.