Urban Outfitters Inc (URBN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Urban Outfitters, Incorporated third quarter fiscal 2010 earnings call.

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

Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder, this conference call is being recorded.

The following discussions may include forward-looking statements.

Please note that actual results may differ materially from those statements.

Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the Company's filings with the Securities and Exchange Commission.

I would now like to introduce your host for today's conference, Mr.

Glen Senk, CEO.

Sir, you may begin.

Good morning.

It's my pleasure to welcome you to the URBN quarterly conference call.

Joining me today are John Kyees, our Chief Financial Officer, and our senior team including the majority of our brand and operational leads.

Earlier today the Company issued a press release outlining the financial and operating results for the three and nine month periods ending October 31, 2009.

I will begin today's call by reading prepared remarks regarding our performance.

Then the group and I will be pleased to answer any questions you may have.

The text of today's conference call can be found on our corporate web site at www.urbanoutfittersinc.com.

We are proud to report record-breaking results this quarter.

The following summarizes our third quarter fiscal 2010 performance versus the comparable quarter last year.

Net sales increased 6%, to $506 million.

Income from operations grew 6% to a record $96 million resulting in a operating margin of 19%.

Net income increased to a record $62 million, or $0.36 per diluted share.

Comparable retail segment sales which includes our Direct-to-consumer channel rose by 2%, comparable store sales declined 2%, with a gain of 3% at Anthropologie, and decreases of 13% and 5% at Free People and Urban Outfitters, respectively.

Direct-to-consumer sells surged 21% despite a strategic 11% reduction in circulation.

All three brands posted double-digit increases.

Wholesale segment revenues declined 10% to $30 million.

Gross profit margins increased 65 basis points driven by significant gains in initial margins that more than offset an increase in merchandise markdowns to clear seasonal product.

Comparable store inventories were 15% lower at quarters end.

Selling, general and administrative expenses expressed as a percentage of sales, increased 63 basis points, this increase was primarily associated with fixed expense rates that were impacted by the reduction in comparable store sales, and by the accrual of additional incentive-based bonus related to our expectation to meet targeted improvements in annual performance and earnings.

Finally cash, cash equivalence, and marketable securities grew by $228 million to $652 million.

I will begin today by providing more detail on each of our key business metrics for the quarter, starting with sales.

New and noncomparable store sales contributed $25 million including an offset of $6 million in currency translation adjustments for foreign based sales.

The Company opened ten new stores in the quarter; six Anthropologie stores, one Free People store, and three Urban Outfitters stores.

Following in Urban Outfitters footsteps, Anthropologie opened its' first European store on Regent Street in London.

The store which opened at the end of October, generated the second-best opening day sales in our history, and continues to run favorably to plan.

For those of you who weren't able to get to London for the opening, I encourage you to google "Anthropologie Regent Street London" to take a virtual tour of the store read the myriad of digital and traditional press coverage.

Within the quarter comparable store sales performance improved each month and turned positive in September and October.

By region, sales at Anthropologie and Urban Outfitters were strongest in the south, while sales at Anthropologie were less robust in the midwest and sales at Urban Outfitters lagged on the west coast.

By store venue, sales were strongest in malls for both brands, while less strong in metropolitan locations for Anthropologie and weakest in college towns for Urban Outfitters.

For stores, transaction counts were up 5% with increases of 10%, 15% and 2% at Anthropologie, Free People and Urban Outfitters, respectively.

average unit selling prices decreased by 2%, down 1%, 23% and 3% at Anthropologie, Free People and Urban Outfitters, respectively.

Units per transaction decreased 5% on average, down 5%, 2% and 4% at Anthropologie, Free People and Urban Outfitters, respectively.

Direct sales increased 21%, to $80 million despite a tragic circulation decrease of 11%.

The penetration of Direct-to-consumer sales to net sales as a whole increased 2 percentage points to 16%, highlighting a secular shift in the way our customer is shopping.

The results were driven by nearly 22 million website visits, a gain of 27%, or nearly 5 million additional visits.

The Direct-to-consumer channel was double-digit positive across all brands.

In our strategic investments in assortment, site experience, fulfillment and social media have all yielded high returns.

By merchandise category, women's accessories led the pace at Anthropologie, and men's and women's apparel were strongest at Urban Outfitters.

And as we have communicated consistently throughout the the year, there are powerful fashion queues in our business.

Analysts and shareholders have continually asked me to comment on how we were responding to the new normal and whether or not we would be strategically lowering prices.

I've responded consistently by saying that we will continue to offer an eclectic range of prices and that the customer will ultimately decide the average ticket.

While there is minimal evidence of price elasticity on compelling product, the consumer is certainly more discriminating.

She expects more value for money, which in our world doesn't necessarily equate to a lower price, it means she is looking for authenticity, scarcity, freshness, compelling differentiated product and a meaningful emotional connection that's born from a shared set of aspirations and values.

I believe this emphasis on value, end values, plays to our strength.

It is how we ran our business before the economic reset, it is why we believe our customer shops with us, and therefore, it is how we will continue to run our business in the future.

I would also like to spend a moment addressing our comparable store inventories which were 15% lower at quarter's end.

Let me be unequivocally clear, the brand Presidents and I are very comfortable with our inventory position.

Our team, employees and suppliers alike, have worked tirelessly over the last several years to improve our planning and allocation process, reduce merchandise costs, improve merchandise quality, and most importantly, add an un precedented level of speed and flexibility within our supply chain.

You are seeing the results of their considerable intellect and effort.

We will continue to focus on achieving appropriate reductions in our inventory weeks of supply because we believe it positively impacts the customer experience and ultimately results in improvement to maintain margins.

I would now like to turn your attention to our wholesale segment for the third quarter.

With the addition at Leifsdottir, revenue declined by 10%, Free People's wholesale revenue decreased by 15% in the quarter, with sales to department stores decreasing by 8% and sales to specialty stores decreasing by 26%, in large part due to changes in customer credit quality.

The brands average unit selling price decreased 12% and unit sales declined 3%.

I believe Free People outperformed most brands on the contemporary floor and we ended the quarter achieving our desired inventory plan with all of our major partners.

While holiday deliveries are modestly below last year it is likely the current trend will continue over the short-term.

Leifsdottir, the Company's new wholesale line, continued to gain momentum by generating revenue of $2.9 million.

With slightly more than a year's deliveries behind us, we have every reason to believe that in the long-term, Leifsdottir can contribute meaningfully to the Company's top and bottom line, and accordingly, we are planning for accelerated growth.

I would like to now turn your attention to gross margin, operating expense and income.

Gross margins for the quarter increased 65 basis points to 41.5%.

The Company continued to experience significant gains in initial margin which were partially offset by an increase in markdowns to clear seasonal product.

While we are unwilling to be specific, we believe we have continued initial margin opportunity, and we also believe we have opportunity to improve our maintained margins by reducing our markdown levels to our historic average.

The organization continued to exhibit exceptional discipline in aggressively controlling expenses while simultaneously making strategic investments in design, the supply chain, technology, our Direct-to-consumer businesses and our European infrastructure.

Total selling, general and administrative costs for the quarter as a percent of sales rose by 63 basis points to 22.6%, primarily due to fixed expense rates that were impacted by the reduction in comparable store sales and by the accrual of additional incentive-based bonus related to our expectation to meet targeted improvements in annual performance and earnings.

The Company generated an impressive 19% operating margin earning a record $96 million of income from operations, an increase of 6% versus the same quarter last year.

We also achieved our highest ever net income for a quarter, $62 million, an an increase of 5% from the prior year with earnings per diluted share of $0.36.

The Company's quarterly tax rate rose 70 basis points to 36.1%, versus the prior year's comparable quarter but declined versus the second quarter rate of 38.2%.

The increase was primarily due to tax rate increases in certain municipalities where we have sizable volumes of business and the lower proportion of holdings income from tax-free securities based on a strategic shift to lower risk investments.

The Company's current annual effective tax rate is estimated at 37%, as of October 31, 2009.

What an extraordinary couple of years it's been.

Our team navigated through the first nine months of calendar 2008 posting the best results in our Company's history.

Then virtually overnight at the end of the third quarter in 2008, more than six weeks after the Lehman collapse, our business abruptly decelerated losing nearly $60 million in anticipated fourth quarter revenue.

I believe our team responded brilliantly to the unprecedented challenge, adjusting the level and content of inventory, strategically managing expenses and investments, all while dedicating a meaningful portion of mind share to get ahead of the immediate challenges and gain insight into the new normal.

So that we will ultimately grow market share, revenue and profit in the post recession post web 2.0 world.

We won't spend time today giving you our thoughts on where we are in the economic cycle.

We read many of the same reports you read and we study the same indicators, we prefer to focus on the things we can control, working hard to achieve strategic and operational excellence.

The retail landscape has always been dynamic but the pace of change continues to gain velocity.

The customer is changing, there's a new definition of luxury, a new definition of value, a new set of values and of course, there's the internet, which I call the single largest, most disruptive change of our generation.

With change comes opportunity and I believe our organization is well positioned to mind that opportunity and successfully transform our business for the next generation of consumers.

Our team has proven that they are adept at driving profit in the face of challenging fundamentals and they are similarly committed to growth with continued focus on four main strategies; increasing productivity in all of our core businesses, elevating the penetration of Direct-to-consumer sales to Company sales as a whole, driving international expansion and adding new brands to the URBN portfolio.

None of this happens without people.

Without a deep tenured aligned and committed team.

As I look back over the last year, I am profoundly grateful to Dick, to our Board and to our employees.

We were fortunate in that we entered the challenging environment with strong fundamentals, an exceptional operating model, deep cash reserves and most importantly, a world class organization.

I strongly believe that appropriately managed challenging times generate renewal and strength including heightened discipline and greater creativity.

And I believe that our third quarter results illustrate our progress in that regard.

Our Company's overarching goal has been constant and simple.

To grow revenue by at least 20%, to grow profit at a faster rate than sales and to reach a minimum of 20% operating margin.

As always the leadership team and I look forward to continuing to inspire our customers, and reward our shareholders and employees alike.

I will now open the call to questions and in the interest of time management, I ask each of you to limit yourselves to one question.

Thank you.

Thank you.

(Operator Instructions).

Patty, it's Glen.

Before we actually begin the questions, I'm just going to ask John to take care of some housekeeping issues, questions that typically come up.

So we're going to try to anticipate them.

John.

Okay.

Several figures that I think you all are interested in; selling square footage at the end of the quarter, Urban was 1,419,000,206, Anthropologie was 984,910 and Free People was 45,652.

In addition to that, depreciation for the quarter was $24 million, taking us year-to-date to $69 million and the CapEx for the quarter was $27 million, taking us to a year-to-date number of $84, with a projected year CapEx of somewhere between $120 million and $130 million.

Thanks, Glen.

Okay, Patty, thank you.

Thank you.

Thank you.

Our first question comes from Michelle Clark of Morgan Stanley.

Yes.

Good morning and congratulations on a strong quarter in a difficult environment.

John, I was hoping you could break down for us the components of gross margin and how that compares to second quarter.

Thank you.

Michelle, we continued to have strong markup performance with an offset in markdowns.

The markdowns were a little better than the second quarter and comparison and the markup was a little better.

Okay.

Then leverage on occupancy?

Occupancy delevered slightly.

And a leverage point there, John?

It looks like it - - and that's somewhat of a tricky number because of our growth of Direct.

Occupancy appears to be deleveraging at flat comps, but obviously that's very hard to do.

But it's a product of the Direct business growing as a percent of the total.

Great, thank you.

Sure.

Our next question comes from Janet Kloppenburg of JJK Research.

Good morning, everyone, and congratulations.

Thank you, Janet.

Hi.

Glen, I was wondering if you could talk a little bit about the success of new product that Urban Outfitters is developing in-house, and if the design team you think is running at full speed there or if there is more opportunity, not just in terms of raising the level of private label product or uniquely designed product by Urban, but if you think that there's an opportunity there for this product to drive comps and margins going forward?

Janet, Ted is just to my left so I will ask him to take that question.

Yes, Janet.

The one thing I would call out related to - - since you didn't really want to focus on the penetration piece related to the private branded product.

I think our creative team has done great work behind the development as it pertains to going into this next year.

We have strong brand book portfolios that have been crafted for each individual internal brand, creating really good I think visual territory for our design team to design into.

But we are in-home today with the catalog for Holiday.

There is a very nice representation of internally developed product in that book that should be at your house I would think, sometime before the end of the week.

I think the product in the book looks quite good and the mood of the product mix for Holiday as well feels appropriate to me.

We continue to pressure the design penetration in the mix and that would be no different in our plans as we go into this next year as we are now finalizing that work in regard to our budgets for 2010.

What is going on in the accessory front?

We have hired - - we have just recently and this is within the last few weeks, we have hired in two people to join us in regard to design develop and accessories.

And we are now looking to put work through the design process in that piece of our business as well.

Are you optimistic that business can start to pick up?

I think Janet - - let's try to keep the one question rule.

So let's take that offline.

Thanks.

Our next question comes from Michelle Tan of Goldman Sachs.

Great, thanks.

I noticed a lot of the improvement in your sales trend has come on the transaction side.

I was wondering if you could give us any color on how you feel about traffic trends throughout the quarter.

And then remind us of how - - when and how steeply traffic fell off last year around this time?

Michelle, we don't have traffic counters in our store so we have to use transaction counts as a proxy for traffic.

So I think either that or conversion.

So, obviously, we either had positive traffic, positive conversion or some variation there of.

With regard to the comps, the comps last year we're relatively confident, that they dipped a little bit in September and they were quite strong in October last year.

This year as we said, they got progressively better month-to-month and turned positive in September and of course October.

The other comment I would make is that the transactions last year were up 8% in third quarter.

So this isn't a plus five against a bad number.

Okay.

Great.

Thanks for the color and good luck.

Thank you.

Our next comes from Connie Wong of Wedbush.

Thanks.

Congrats on a solid quarter.

Glen, I was wondering, or maybe somebody else can comment on the inventory breakdown by concept between Urban Outfitters as well as Anthropologie.

And then Glen, if you could kind of talk about what specific categories are working that had worked in the quarter for both divisions.

I think you had highlighted accessories for Anthropologie and then both women's and men's for Urban Outfitters.

Thank you.

Sure.

The inventory on a cost basis was lowest at Urban, and slightly less low at Anthropologie if that makes sense.

In units, however, it was actually - - the unit inventory, was low at Urban but lower at Anthropologie.

I want to reiterate how comfortable we are with our inventory.

I've said for call after call that we plan our inventory not based on comp run rates but weeks of supply.

We have had a very strategic goal of reducing our weeks of supply for several years.

And as I've said in my prepared remarks, we will continue to focus on reducing weeks of supply because we think it gives us - - our customers a better experience if we can get the right product in the right place at the right time.

The stores handle the merchandise less frequently and of course it also impacts maintain margins.

So that's something that happened prior to last year's economic tsunami and it's something that we will continue to focus on.

With regard to trends by category, that's not something that we generally like to go into other than to give you high level views.

As I've said in the prepared comments, at Urban, the apparel business was the strongest category both in men's and in women's.

At Anthropologie the accessory category was strongest, but women's was also quite strong at Anthropologie.

Your next question comes from Christine Chen from Needham & Company.

Thank you and good luck on - - I mean thanks.

Congratulations on a good quarter.

Wondering how do you balance planned promotions now that you have much lower sourcing costs on your own brands versus just opening - - lower opening price points?

What's more affective in converting the consumer and getting traffic into the stores into the different Urban and Anthropologie?

Thank you.

Yes.

Christine, that's a good question because it gives me an opportunity to talk about our strategy.

We do not plan promotions.

Ever.

I would say one exception is we put upholstery on sale at Anthropologie twice a year for roughly a full week period, and that's kind of an industry average.

Other than that we do not use promotions to drive business.

We use inventory newness, marketing events, social media, visual merchandising, we use all of the levers that we believe build our brand over the long time.

And those historically have been very, very positive for us.

Of course the best thing is whatever is hot at the moment and communicating to our customers in an effective way.

Okay.

Thank you.

Sure.

Our next question comes from Adrienne Tennant of FBR.

Good morning, and let me add my congratulations, well done.

Thank you.

My question is on the store count.

Since the beginning of the year to the end, the store counts actually come in for this year, I was wondering how many of those rolled over into 2010?

And is that because you are being much more aggressive about the deals that you are striking?

Adrienne, we absolutely opened or will open for the year less stores than we expected to.

And you're correct, when the economy reset, we did a very, very hard look at our occupancy, our buildout costs and so on, and we laid a line if the sand.

And where people met us we worked with them, where they didn't meet us we didn't work with them.

We really I don't think it would be accurate to say we rolled over openings into next year, but I think we all feel fairly comfortable that we will get back to our targeted number next year.

We have quite a few deals in the pipeline.

As I've said in many question-and-answer periods, I think the landlord community may be were a little bit slower to react to this economic reset than many other people whose services we buy and utilize.

But I think that there is more clarity around that at this point in the landlord community.

Is that targeted number, is that the number closer to 50?

Yes.

Okay.

Wonderful.

Thank you and good luck.

Thank you.

Our next question comes from Jeff Black of Barclays Capital.

Thanks.

Glen, can you just talk a little bit about Free People and particularly the stores which were down in line with what you said the wholesale business is down?

Are there changes you are contemplating there?

Do we need to make changes there?

Just a little bit on the store side of the business.

Thanks.

Yes.

Normally I would ask Meg to respond but she is out with the stomach flu today.

So, Meg, if you are listening, I hope you feel better.

Let's remember if we look at Free People, I don't remember the exact number, but I think they had over 20 quarters of double-digit comp increases.

I'm looking back in comp three last year, in fiscal 2009, they were four comp.

In fiscal 2008, they were 16 comp.

So they were up against tremendous business and tremendous productivity.

Nevertheless, I think what Meg would say and I would certainly support is that we from a merchandise content point of view were slightly off brand at the beginning of the year.

I think if you look at the most recent catalog, or go into the stores now, I think they look more on brand than they did three or six months ago.

The other thing I would say is that I think the wholesale group did a better job with their assortment and inventory management than the retail group did.

That's true for the Direct group as well.

So the wholesale business and the Direct business was better than the retail business.

I think because (inaudible-cough) from the assortment and they bought it better.

The real issue getting it back on brand, I think Meg was aware of earlier in the year and has appropriately adjusted.

And we are as optimistic and as enthusiastic about the prospects for Free People as we have ever been.

Great, thanks, good luck.

Thank you.

Our next question comes from Lorraine Hutchinson of Banc of America-Merrill Lynch.

Thank you.

Good morning.

How should we think about SG&A growth when comps turn positive?

And how much variable cost should we expect to come back in to this line item as things improve?

Lorraine, about 30% of our SG&A is variable.

And next year depending on comps and depending on the actual store growth, you will see SG&A grow faster than this year just because our sales will grow better, hopefully, and our store growth will be larger.

But I think at this kind of level you can expect this number of around 5% of the comps are where they've been in the SG&A or the store growth has been where it's been currently.

So you can kind of do the math on next year.

Our next question comes from Kim Greenberger of Citigroup.

Great, thanks.

Congratulations on a great quarter.

John, I just wanted to follow up on Lorraine's question and specifically, talk about the fourth quarter.

I think last year the fourth quarter was when you started cutting back on SG&A pretty aggressively.

And if I remember correctly there was even a reversal of a bonus accrual that benefited fourth quarter.

So I'm just trying to figure out how to think about fourth quarter SG&A this year.

And what the swing factor might be on incentive comps?

I think you're correct in your assumptions last year, there was a bonus reversal as we had accrued to a stretch bonus throughout the first nine months and then the fourth quarter fell apart on us, and we weren't able to pay that bonus.

This year I would expect SG&A to grow somewhere in that - - depending on comps again.

If the comps are up, we would expect SG&A to grow more than it has any quarter this year and this quarter grew 8.8.

So you would probably assume somewhere in the double-digit SG&A growth in fourth quarter and probably into next year as well.

Great, thanks, and good luck for Holiday.

Thank you.

Our next question comes from Edward Yruma of KeyBank.

Thanks very much for taking my question.

Cash balance continues to build and I know that certainly your flexibility has served you well in this environment.

But given that the environment looks to be stabilizing, how should we expect you to think about uses of cash going forward?

Thank you.

Ed, I don't think we talked about the possibility of an acquisition.

We've said that it's a possibility not a probability.

If we were to do an acquisition it would likely be relatively small.

And but again I don't want anyone to assume that we are doing anything or have any plans to do anything.

Other than that, we are authorized to do a stock buyback, that's always something that the board looks at every quarter.

And other than that, we are just glad we have cash in the bank right now.

I think that when I look at how many of my peers have managed their business over the last nice months, they've been very, very defensive.

And at what I tried to make clear in my prepared remarks, is that we have invested large amounts of money in our business in very strategic ways and we are realizing the benefits of those strategic investments.

Andrew McLean, James Bidwell and Hugh Walla have been firmly ensconced in Europe since the beginning of the year, two of them without any revenue to leverage their expense base, their staff as well.

We have new offices there.

We are in the process of bringing logistics in-house.

We have invested deeply in systems, some of which are yet to come on line.

We've made investments in our websites, we have made investments in design, many of which have yet to hit the stores.

So this is I think when I think about what this economy and environment has done for us, it's really given us an opportunity to utilize our cash in ways that many of our peer groups weren't able to do.

That was a very positive thing.

So I'm very thankful that we had that money.

All right.

Thank you.

Our next question comes from Brian Tunick of JPMorgan.

Thanks, congrats as well.

Maybe, Glen, just trying to take some of your comments earlier about disruptive on line business of our generation, just trying to understand from your perspective maybe, how big ultimately do you think that can be for Urban Outfitters as a Company?

And would the returns that you are getting that are - - seem to be so much better than the returns of stores, does it change your view of the ultimate number you or anyone in retail should be operating?

Brian, I think the great question.

And I think for those of us who pay attention to what is going on, it's quite staggering.

I looked at some statistics this morning, as of the beginning of February there were 175 million Facebook users, there is 3 billion minutes spent on Facebook every day.

There are 850 million photos posted to Facebook each month.

We have relatively young Facebook pages for each of our brands and in just a few months we have over 208,000 fans on our Facebook accounts that communicate with us daily.

Facebook, remember, I hope they're here a few years from now, but who knows, because this is moving at warp speed.

Whatever happened yesterday may not even be there tomorrow.

And it's very, very exciting.

I mean another way to think about this is word of mouth on steroids.

I happened to be in the London store, the London Anthropologie, on the day it opened and there was a well known blogger who blogged it out at 2:00 in the afternoon and by that evening she had over 5,500 hits on the website.

Think about how long it would have typically taken that information to get out.

And there is a tremendous opportunity for retailers, for not just retailers, for anyone who has a brand or a service to use this mechanism to their advantage.

But it does I think profoundly impact the way you do business.

Now we do get a higher ROI on our Direct-to-consumer business and our brick and mortar business.

But our brick and mortar business is very, very profitable.

I don't think we would stop growing one to the exclusion of the other.

Although I think that - - I don't want to necessarily narrow myself down with a Direct-to-consumer penetration number, but I think it's likely we will grow Direct-to-consumer far faster than we grow our brick and mortar business.

Anyway, I think John, you want to add anything.

It probably reinforces the whole concept, Brian, that we want to limit the number of Anthropologie stores in North America to 250, the number of Urban stores in North America to 250.

I think that all plays into this Direct business and the strategy that we've developed.

All right, sounds good.

Good luck for Holiday.

Thank you.

Our next question comes from Stacy Pak of SP Research.

Hi.

Actually my question was partially on Direct as well.

The momentum that you are seeing in that Direct business, does that have any parallel at all to what you saw in the retail business?

In other words does Anthropologie outperform?

Or does it mean that maybe some of the Urban customer is shopping more on line and could that mean something for comps?

And could both of you kind of talk about how you feel about the momentum in your business heading in to Q4.

And then Glen, just touching on your inventory comment.

Given the speed now that with which you are operating, could you if the business were there, do double-digit comps with the kind of inventory investment you're talking about?

Okay.

That sounds like more than one question but I will try to answer what I can.

With regard to the Direct business, surprisingly, it doesn't always correlate to the retail business.

Sometimes it does.

Sometimes it doesn't.

We don't traditionally give color on our Direct business by brand so I won't do so today.

But let me remind everyone that I said the Direct business was double-digit comp in all of our businesses.

So - - also let me remind you of the numbers, a 21% increase in fiscal 2010, for the third quarter, against the 41% increase in fiscal 2009 for the Q3, against the 30% increase in fiscal 2008 for the third quarter.

So that's a 21%, on top of a 41%, on top of a 30%.

So that sounds good to me.

With regard to momentum, Glen Bodzy, our Chief Counsel, is sitting to my left, and I think would put his arms around my neck if I made any comments regarding forward-looking statements.

So I won't answer that.

I'm not asking that, Glen, I'm asking about how you feel about your assortment momentum, going in.

I'm not asking for your comp.

Because I know - -

I think, I don't want to degrade the assortments, I know I have done that a couple of calls ago and I said last time that I'm not going to do that.

I regretted doing it.

I always say go into our stores, if it's on the floor at regular price it probably means it's selling, we love it.

And if it's not, if not it means it was a mistake.

So, Stacy, you in particular are a fantastic read of the store, so you can probably tell me how the stores look.

With regard to inventory, I don't want a make a forward-looking comment regarding business.

I will reiterate that Ted, Wendy and Meg and I are very, very comfortable with our inventory position.

Okay.

Our next question comes from Neely Tamminga of Piper Jaffray.

Great.

Good morning.

Just two quick questions here.

Out the door AUR for Q4, conceptually, that (inaudible) running - - implying that you are going to see upside in Q4.

Just wondering if you could comment on if that's how you're planning out the door AUR's, Glen?

And then, John, how are the final CapEx plans coming in for this year?

And then any sort of early thoughts as to what CapEx for next year could look like?

Thanks.

I'm being nice to you guys, I'm letting you ask two questions here, please.

On the AUR it was kind of flat, and I would just assume it's going to be kind of flat.

It's unusual if you look at our AUR over the last several years.

It's unusual for it to move more than a point in total at any one time and I would just assume that.

John, I will give you the - -

The CapEx number that I gave at the beginning was it would be somewhere between 120 and 130.

And next year probably closer to 140 if we open 50 stores.

Thank you, good luck.

Thank you.

Our next question comes from Paul [Lasuese] of Credit Suisse.

Thanks, guys.

Paul Lasuese.

Just wondering how much of your Direct business increase was driven by a pick-up in international orders?

And I guess, specifically, wondering if you saw a pick-up around the Anthropologie opening in the UK.

Paul, again we don't breakout business by region but I would say just in general, we are very early stage with international.

There is an Anthropologie dot UK website but it's not free commerce yet it's just for information of a go live early next year.

There has been - - as I said in my prepared remarks, there is a tremendous amount of chatter in the blog-o-sphere both on Urban Outfitters and Anthropologie in Europe.

But in terms of the actual business itself it's relatively insignificant now, but it's certainly something that we believe has a lot of potential.

Thanks.

Good luck.

Thank you.

Our next question comes from Samantha Panella of Raymond James.

Good morning, let me add my congratulations.

With respect to store growth, can you give us the opening by division for the fourth quarter?

And in thinking about the 50 potential for next year, will you still continue to be maybe a little bit more conservative with Free People openings?

Thank you.

John, do you want to - -

The openings for fourth quarter will be three Urban-North America, one in Europe, four Anthropologie in North America.

So total of eight in fourth quarter.

And next year the breakdown by brand is going to be kind of consistent.

We'll see Urban, Anthropologie and Free People all in that range of 15 to 20 stores.

Okay.

Thank you.

Good luck.

Thank you.

Our next question comes from David Burman of Burman Capital.

Hi, guys, not much left to ask.

I just wanted to ask you about the balance sheet.

You've got about $600 million in cash roughly, 400 of that in marketable securities.

Have you talked about where are the marketable securities?

What you mean by that?

Also what are the chance of getting dividend of something like $0.40, $0.50 a year which would be about a 1.5% yield, paying dividend given the consistency of your business?

I will let John answer the first part of the question.

We've pretty much left all the investments in very secure investment structures like money markets that are maybe tarp guaranteed, pre-refunded bonds and treasuries.

Those aren't drawing great interest rates but they're very secure.

That's the way we we'll leave them at least for the time being.

It does have a negative impact on our tax rate by about a 100 basis points because it's taxable rather than being nontaxable historically.

In terms of dividends, we never really - - we always discuss the use of cash in every board meeting.

We've never come to a conclusion that a dividend was a bright thing for us to to at this point.

But you've now got almost $4 a share in cash, and the cash is growing really fast.

So you got to start thinking about what to do with it.

We definitely are thinking about it.

David, I answered that question a few questions ago.

I mean - - there are, I've said consistently that we see ourselves as a portfolio of companies.

And we will be investing in new businesses, either through acquisition, or through internal development.

As John said, this is something the board talks about every quarter.

I think it's unlikely that a dividend is in our future at least at this point.

We like to think of ourselves as a growth Company.

We certainly have been a growth Company.

We like the protection that the cash balance affords us as growth Company.

Okay.

And the inventories come down dramatically to 70 days from 80, which is very impressive.

Is it something specific that you've done the quarter that's resulted in - - internally what have you been doing to get the inventory days so well controlled?

David, I think that since that's a follow-up question, I'll ask John to follow-up with you offline.

Thanks.

Okay.

Thank you.

Our next question comes from Barbara Wycoff of Jesup & Lamont Securities.

Everyone, good job.

I guess this question is for Ted.

Can you talk about sort of the results, qualitatively in Europe, the European stores which are little newer than the UK stores.

Are there big differences in what you are selling there versus the US?

And I guess could you comment on the profitability of the European channel?

Sure, Barbara.

The European business overall for the year as well for the quarter has been treating us pretty well.

If I back up to when things got difficult at the end of last year, there were a few countries that were experiencing some really bumpy water in regard to their sales performance.

As its baked out coming through this year essentially there is one market, that being Ireland that is the biggest challenge.

The other markets have been performing well, so that's not only UK but as well the business we are operating in Denmark, Sweden, Germany and Belgium.

All those stores are meeting their plan for the year and contributing nicely.

In regard to the trends in the business over there, they do evolve a bit differently both in the women's as well as the men's business.

The apparel business is, however, in that market are the strongest businesses as they have been in the United States.

The women's business as well as the men's business are both in a healthy place.

Lastly, the profitability of the business, the team that we have operating in Europe has done a very good job.

We weathered the retirement of a managing director last year, posted a very nice bottom line in the business and it looks like we are headed to the same place on this year's results as well.

Great, thank you.

Our next question comes from Margaret Whitfield of Sterne, Agee.

Good morning and I will add my congratulations.

I wanted to talk about the newer concepts, if you could give us an update on Terraine in terms of how it's going and the bottom line impact for Q3 and the year?

And you indicated you planned to accelerate the growth, I wondered if that was within wholesale or through perhaps a stand-alone store?

And I saw children's apparel in the latest Anthropologie catalog, should I read anything in to that?

Thank you.

Okay.

I will give the qualitative color and then I will let John talk about some of the math.

With regard to Terrain's, what I have said consistently, is that it feels like to me, it feels like Anthropologie did, early stage.

You go there, you watch customers walk onto the site and they just smile and their shoulders drop and they don't want to leave.

Having said that, it's not doing the kind of business that we would like it to do and we are working on that.

When I joined the Company almost 16 years ago, you could say the exact same thing for Anthropologie.

And it took us three years of very constant and [intertiff] change to get the store productive and profitable.

So I would say that the jury is still out on Terrain, although anecdotally, the customers love it.

With regard to Terrain, with regard to Leifsdottir, it's quite frankly, it's in an area that we that's a little bit more of our comfort zone, women's apparel and wholesale.

So I think it was a little bit easier for us to understand how to be productive quickly.

It has been productive quickly.

I think it's one of the better resources on the floor in the hundred doors that it's in.

I think there is a good chance we are not ready to make an announcement yet but I think it's likely that we will begin a retail expansion for the concept.

I think it's likely that we will introduce new categories.

We've always seen it as a tightly distributed line, so as I've said, we are in about 100 doors now.

I think we're in roughly 31 Neiman Marcus, we're in the Bergdorf Goodman door, we're in seven to nine Bloomingdales stores, maybe 30 or so Nordstrom doors and then a bunch of specialty accounts.

Hopefully that adds up to hundred.

Other than adding specialty doors and international distribution, I don't see growing it in many more doors in America.

But we do think, I think, that it can be a very meaningful business to the Company.

I'm very, very excited by how quickly it's gotten off to a start.

I happened to - - I just googled it this morning.

And I didn't check all 86,000 entries.

But when you type in Leifsdottir on google, I think roughly 86,000 entries come up.

So it's staggering to me how quickly it's become a brand.

With regard to kids, that's something that Anthropologie has done every fall Holiday for what, Wendy, ten years,.

Yes.

So I wouldn't read anything into it.

We are however as a Company, we are working on new businesses to incubate.

If you think about what our Company is going to look like five to eight years from now, I think it's likely we will be comprised of a minimum of six to eight brands.

With regard to the financial impact.

We won't give too much color but I will let John give some highlights.

I would just point out that as Glen mentioned earlier, we have a number of concept tests underway, Anthropologie-Europe was an investment this year, which we didn't expect to make money given the fact that we didn't open the fist store until the end of October.

You have Leifsdottir which is turning the corner very nicely, but in the early stages of the year it was still unprofitable.

And we have Terrain, all of those will probably contribute less than $0.03 to a negative P&L impact on a bottom line.

So it's a kind of scenario that I think is very smart for a business like ours that has a growth objective to be continually out there.

$0.03 on an annualized basis.

Glen, could you comment on the new categories you are thinking of for Leifsdottir?

I would rather not talk about it now.

I think that it's likely you will hear about it in the next six weeks.

Thank you.

Thank you.

Our next question comes from Roxanne Meyer of UBS.

Great, thanks.

Let me add my congratulations.

My question is on the web.

It's clear you're investing in talent and technology to take your web to the next level.

I notice that you announced a new platform earlier this week.

And it looks like, you can definitely please correct me, but trying to implement virtual technology, virtual inventory, which very few of your peers currently have.

So I'm just wondering when you look to put this in?

How you think about the risks of this implementation?

And what do you think have been the lost sales opportunity from running out of key styles both in the web and in the stores, up until now?

Yes.

I will ask Calvin Hollinger to answer the first part of that question.

And I think I'll ask God to answer the second part of the question.

Because I have no idea.

But I'll ask Calvin to answer the first part of the question.

Hi, this is Calvin.

I think the announcement we saw this week was the (inaudible) announcement.

What that is is a single skew initiative.

As you may know we run wholesale, retail, and Direct with three different skew numbers.

We want to combine to single skew.

To inventory with across the enterprise so we can better fulfill the cross channel of customer more consistently.

Those are the announcements you saw, you saw this week.

We just kicked it off I expect it will be 18 months before we can deliver that solution.

Great.

And do you have to - - are you running two different systems simultaneously?

I guess, how does that impact the way that you manage your inventory?

Roxanne, right now we run three disparate systems; one for wholesale, one for our Direct-to-consumer and one for our retail business.

It's likely we will continue to run disparate systems, but we will have a new system, an overlay, that allows the merchant team and the inventory management team to look at a single skew across all businesses and manage it that way and move inventory back and forth more easily.

It will also allow the customer to look at it across multiple channels so that if you are in a store and you want something, and it's not in stock, you will be able to instantly understand whether or not another store or the Direct-to-consumer business has it and be able to place the order right then and there.

Same holds true if you want to buy something on the web and it's not on the web.

So it's really - - one of the things that we talk about all the time is to not have the same experience across our retail store and the web because they are different channels with different functionalities, but to have the same brand experience and to have consistency.

So if a product is called something, it should be called something across all channels.

If it's priced a certain way, it should be priced constantly across all channels and so on.

Great, thanks, best of luck going forward.

Thank you.

Our next question comes from Erika Maschmeyer of Robert W.

Baird & Company.

Thanks, congratulations.

Can you talk about the profitability for your international business as a whole, the expected trajectory for the goals and then your expected growth internationally next year, kind of the number of stores that might make up to 50-60?

Yes.

We've never broken out profitability by region.

What we have said is that we started making money internationally, John, four years ago?

And that we achieved an ROS north of 10% a couple of years ago.

We've also said that it's not as profitable as the business in North America but that we think we have clarity around what we need to do to get it there.

I will remind everyone that virtually every shared service function is third party service provided now.

Logistics, some of our construction, maintenance, things like that, so as we make investments and bring those things in-house, I think we will be able to improve our quality of execution and significantly reduce our costs.

I think, generally, if we look at the 17 stores in the Urban portfolio, I think it's fair to say that a probably two-thirds of them are in retrospect larger than we would like.

I think also we probably spent more money to build those stores than we would spend today.

If you look at the Regent Street store, you look at the new Urban stores that have opened this year, I think they're sized right and they're construction costs are more in line with total Company.

I think the economic model is not going to look the same as North America but I think long-term it can be new to the bottom line, can be neutral to North America.

Great, thank you.

Sure.

Our next question comes from Eric Beder of Brean Murray.

Good afternoon.

Congratulations.

Thank you.

You've talked before about M&A and acquisition, you have a number of decent concepts or good concepts already and fledgling ones.

What are you looking for in M&A to add to the mix that you don't have now or to drive the business that you don't have now?

That's a tricky question so I'm going to answer it carefully.

I think regardless of whether or not we acquire a business or develop a business internally it has to hit certain requirements.

It has to be something that the executive group is passionate about.

Because we have a very personal connection to everything that we do.

It has to be something that appeals to a similar customer profile.

So we see our core competency with regards to a certain demographic and cycographic.

If you think of the beginnings of this Company, it started - - the Company started on the University of Pennsylvania campus.

The next store was at Harvard, early stores were at NYU, University of Michigan, it tends to be kind of an anti-mall, anti-chain customer, very highly sophisticated, understands nuance, subtleties.

It's a customer with a strong sense of individuality.

And quite frankly, I've said this over and over again, it's a customer we love and is largely underserved.

So whatever we do we will target that customer.

It could be targeting him or her at a different life stage than what we currently do now or it could be targeting a different category than what we currently offer.

So - - we're obviously also consider size of business, level of profitability, and as I said going back to the first point, it's got to be something that we are proud to be associated with.

I would say that those requirements are no different for external acquisition or internal acquisitions.

We are always, we are - - we are always looking for something that's going to be accretive to the business.

Anyway, that's it.

Thank you.

Sure.

Our next question comes from Marni Shapiro of Shapiro Partners.

Hi, guys.

Shapiro Partners that's a new one.

Congratulations.

I don't mean to obsess about this but the market has changed out there, you talked about credit getting tighter, we saw what happened with CIT.

So it feels to me that your Company has an interesting position and a desire to grow and incubate ideas.

So can you talk a little bit about with credit being tighter to start businesses which makes it more difficult to not only start it but with credit being tighter for specialty stores and boutiques as you've talked about over the last several quarters.

Is your thought process more on the retail side or should we think about it in the way you thought about Leifsdottir, launch in just department stores, keep minimum distribution.

Or is everything on the table because really the playing field in the environment is right for you guys to do this thing right now for the first time in a long time.

Well, Marni, I would say the latter.

So I would say we look at all possibilities retail, wholesale, Direct-to-consumer, anything that provides the customer an experience or a product.

That's how we kind of - - as you know we categorize ourselves really as purveyors of experiences and lifestyles.

So I wouldn't want to link ourselves to any one channel.

That's exciting.

And if you could touch on Free People, you talked about Leifsdottir going into other categories.

Free People to me feels like there is an opportunity at the department store still and other categories.

And anything on your project in LA if you guys have been having fun with that?

Okay.

Free People has expanded into categories, as you know - - they introduced the subbrand We the Free, which in wholesale has done very well.

They introduced - - they've expanded their accessories offering.

They have expanded their intimates apparel offering which has done very well.

And I think we will continue to play in new categories.

It's something that Meg and the team are very passionate about.

With regard to 1520, it's something we are very proud of, we think it's beautiful.

Ted is continuing to play with the tenant mix and - - much like Terrain the customers love it.

We've got to find a way to make it increasingly productive.

But it's something we are very happy we have done.

Very exciting.

Good luck for Holiday, you guys.

Congratulations.

Our next question comes from Jennifer Black of Jennifer Black & Associates.

Let me add my congratulations as well.

I wondered if you plan on expanding any of your partnerships with exclusive product to you.

You've done an amazing job for example with AG and denim and cords.

Thank you.

Yes, Jennifer, this really, I've got to credit Dick with the idea of having a balance between market product and own design product.

And it's - - I think the concept for our Company is if not as valid probably more valid than its ever been.

There is so much talent in the market.

There is so much expertise.

We have zero tolerance for arrogance in the organization.

We would never think that we know everything when it comes to design, manufacturing, pricing, you name it, AG happens, is a great example.

They're just extraordinary at fit, at fabric, at wash and at making pants that customers love.

So we love working with them.

The good news in the market is that there are very few companies now that have the kind of store base buying power we have.

So it's a win-win really for everyone and it's something that Ted and Meg and Wendy and I are all very excited about and we plan to continue to emphasize it.

Great.

Then as a follow-up I wondered if there was anything new with your CRM initiatives?

Thanks.

The CRM initiative, and again, it's good for me to talk about this.

So I'll answer the second question.

But the CRM initiative, we're really in the beginnings of phase 2 on our data base.

And I will turn it over to Calvin to talk about the technical side of that and then I will touch on the marketing side of it.

Hi, guys.

This is Calvin.

So for everyone's benefit, CRM initiative is the marketing data base where we can get a holistic view of the customer across all channels.

As you know we have about 20% of transactions on line so we only have a limited view of our customer base today.

We just completed the requirements for the design stage.

We will begin developing in next couple of weeks, and I think it will take us until Q3 to Q4 before we can deliver a customer marketing data base.

Okay.

I want to re-emphasize, or emphasize what Calvin said, CRM is a subset of the data base, what the data base will do is give us a single view of every customer who chooses to sign up with us a across all channels.

Right now the only information we really have is on our Direct-to-consumer customers .

So roughly 80% of the transactions kind of go unmeasured right now.

When we have this data base it will give us a view on potentially 100% of the transactions if everyone choose to sign up with us.

And my instinct says a large majority of our customers will sign up with us.

CRM is a - - you need the data base to enable CRM.

CRM literally stands for Customer Relationship Management, so it's one part of how you use the data base.

I will use this again as an opportunity to say that it will not be a loyalty program.

It will be a program that allows us to do a better job for our customer.

The data base will give us insight into what our customer wants, when she wants it, how she wants to be communicated with.

And through the data base, CRM and other marketing elements we will be able to micro manage our relationships with our customers so that we give each segment, each discreet segment, exactly, hopefully exactly, what she wants or

Great, thank you and good luck.

Thank you.

Our next question comes from Robin Murchison of SunTrust Robinson & Humphrey.

Thanks very much.

Just real quickly, Anthropologie of London, I know it's new, probably not a lot of data that you want to share at this point.

But wondering if there is anything you can share with us in terms of the traffic, UK versus the Continent?

I believe you are thinking that it eventually it will sort of settle into a 50-50 particularly, for that tourist location.

Are you seeing anything yet that you can share with us?

Robin, I'm not clear what you mean.

Do you mean 50-50 local-tourist?

Or - -

Yes.

Yes, that's too soon for us to know.

I will reiterate what I said in my prepared remarks.

It was second largest opening in the Company's history - - unbelievable kudos to James Bidwell, Andrew McLean, Wendy Worksburger, Wendy Brown-McDebit, Brendan Lynch, Denese Albright, James Smith, Christian Norris, there are so many people who worked on that store.

And I was there on opening day and it's always easy to focus on the things that you can do better.

I caught myself and I said," Oh, my God".

This is like watching Lance Armstrong and thinking that I can get on a bicycle and do the same thing.

There are so many layers of complexity that went into making this store open the way it did and it seemed so seemless and so easy and so beautifully executed.

So, my God, kudos to that team.

And we are thrilled, we are all sitting on pins and needles and it's absolutely to early too draw any finite conclusion.

But we were all sitting on pins and needles to see how the customer would respond to the store.

And she obviously responded well to it.

The other thing, and I talked about this to those of you who were able to visit.

So I'll talk about it now is the store opened with about 80% common assortment with our American stores.

And it sold the way it was bought.

For - - the exciting thing for me with that information is it will allow us to move more quickly in Europe than we originally anticipated we could move because there is less European-specific product or it appears as if we need less European-specific product.

So - - I'm very, very excited.

The other thing, Ted was kind of nudging we earlier to talk about when we talked about profitability in Europe, is the size of the internet business or what we believe the potential size of the internet business is there.

Remember the European, the size of the European apparel market is actually larger than the size of the American apparel market, but it's a much more fragmented geography.

So we don't believe that we can have as many stores in Europe as we can have in America.

But we are hopeful that we can mine a lot more Direct-to-consumer business through a really effective commerce strategy.

We are working fast and furious on that.

A gentleman named Michael Robinson who actually started URBN in the directive.

That's 11 years ago and ran Anthropologie Direct in North America until recently just moved to London and he is starting AnthropologieEurope.com and he's working with Hugh and Hugh's team, to make sure that we are doing everything that we have done so successfully in America in Europe.

And we are very, very excited that the prospect is there.

Thank you, Glen.

Thank you.

Our next question comes from Dana Telsey of Telsey Advisory Group.

Good afternoon, everyone.

Could you just talk a little about as we think about beyond the top line, the margin drivers.

I know you've talked about the new store opening cost construction, that's gone down.

What are the other levers that you are looking to that you learned from this past year as you look in to 2010 and beyond that gets you to hit higher operating margin targets?

Thank you.

Yes, Dana, - - the Company has four areas of focus.

I touched on this briefly in the prepared remarks.

The first, and I think most meaningful area, is productivity.

Productivity for us means top line and bottom line.

And so let me talk about the elements of productivity.

The first element is the product itself.

We have a saying it's not a new saying, right product, right place, right time, right cost.

So what goes in to that?

And what is the difference between today and where we want to be two years, three years, five years from now.

There are a lot of systemic improvements we're making with regard to planning and allocation that will allow us to localize the assortment in a very productive way.

We have had - - we've made tremendous progress with our supply chain.

When you think about supply chain there are several components to the supply chain.

There is the product development component, there is the manufacturing component, and then there is the logistics component.

We have made good progress on all sides of that , but there is continued opportunity for us to be faster, better quality and less expensive.

Other areas of productivity; site selection, store design and store operations.

We - - I'm very, very proud of the fact that our new stores this year are as productive as our base.

I think that's a big win for us.

And that's happened because we've gotten more methodical and more careful with our site selection.

It's also has happened because Dave [Zeo], Freeman [Sauzer] and each of the brand leads have done an exceptional job of reducing construction costs while quite frankly, raising the bar on design and the quality of construction.

And it has also happened by us stabilizing our comps.

So I think - - if I think - - if we can achieve, we have achieved 7% comps over the last ten years, an average of 7% comps over the last ten years.

If we can achieve 7% comps over the next ten years, that alone will drive $1.2 billion of top line revenue, a disproportionate amount of bottom line revenue.

I don't have a ceiling on where I think we can get our productivity.

I know our productivity ranks either at the top or amongst the top of our peer group in terms of sales per square feet.

But I think it can grow still.

And I think that based on how we do in certain locations.

I think we can make our website more productive.

More productive means that you do generate more sales and margin with an SG&A rate that is lower than the revenue rate.

So it means more profit.

I think we can generate more Direct-to-consumer revenue by continuing to expand our product offering, by continuing to mind the social media opportunities, by continuing to enhance our website, by continuing to look at the way we fulfill our orders, and so son.

So I quite frankly couldn't be more excited about both the top line and the bottom line opportunities for the Company.

The one other thing I will touch on that was embedded in your question is, is this last year has been a learning experience for the Company and for me.

And I want to thank people like Bob Ross, our Executive Director of Finance, who really put the screws to the organization.

And I mean that in a positive way, to make sure that we were not over paying.

I will talk about one category, I won't name the category, but there's a single category of supply it's not merchandise, that the Company has been a user of for the last several years.

And Bob and his group, I also have to thank Mack (inaudible), saved north of $3 million on an annualized basis with the existing supplier base this year.

That's a very high percentage to the total buy.

And that's one example.

As I've said on prior earnings calls there is not an area of our business that we have not looked at.

Whether or not it's a wives tale or not, I am very inspired by the WalMart story, that they installed magnetic door mats in their jewelry repair rooms and they collected gold dust, or - - flecks from the jewelry repairs and annualized saved $6 million.

I don't know if that's true or not but I have heard it repeatedly.

But the point is it motivates me.

There are all kind of opportunities embedded in the business that are transparent to the customer for us to save money.

And I think one of the really positive things in what we've gone through in the last year is it's just made us focus on those things.

And there has been a part of the organization that has just done an extraordinary job and I think we will reap benefits in those regards for years

Congratulations, I look forward to next year.

Thank you.

Our next question comes from Laura Champine of Cowen and Company.

Hi, guys.

I think I'm 24 so I'll just ask housekeeping.

If Anthropologie-Regent Street was your second best store opening.

What was your best store opening in history and when was that?

That was Rockefeller Center.

And, John, that was three, or 2.5 years ago.

Thank you.

On an hourly basis Regent Street actually outperformed Rockefeller Center.

The Brits have this crazy rule of closing stores early on Friday night.

So anyway, on an hourly basis for that, and certainly on a square foot basis, it exceeded it.

Our next question comes from Howard Tubin of RBC Capital Markets.

Thanks, just very quickly on gross margin.

If you look at gross margin - - how are you looking at the gross margin opportunity in the fourth quarter this year?

How are you thinking about, how should we think about it?

Howard, we certainly think a lot about gross margin in the fourth quarter.

But I'm not going to make a public statement about that.

What I will say, I will reiterate the fact that we feel comfortable both with the composition and level of our inventory.

I will reiterate again that September was better than August and October was better than September, and that's really what I can say right now.

We never control gross margin, the customer controls it.

Hopefully, she will control it to our advantage in the fourth quarter.

I think the one thing, Howard, that we should say or remind you of is that last year's gross margin was badly hammered by the circumstances of a dramatic change in the sales trend.

We went in to the quarter as Glen said, planning $60 million more in volume than what we actually delivered because the momentum changed so dramatically and into a plus three comp inventory and came out of a minus 13.

I think all those issues do not look like they are being repeated this year.

Thank you very much.

Thank you.

Our final question comes from Maggie Gilliam of Gilliam and Company.

Okay.

I will be quick.

I was wondering if you could talk a little bit about the non apparel portion of the business.

I assume it becomes more important during the Holidays, and it also looks to me like a tremendous opportunity for you going forward.

And I just wonder if you could elaborate a little bit?

Yes, Maggie, the home business in both of our brands does have a higher penetration in the fourth quarter than the rest of the year, more so at Anthropologie than at Urban, which I think - - based on demographic, makes sense.

I think the home business at Anthropologie is healthy, at Urban it could be better.

I think from a margin point of view what I've consistently said is you shouldn't model anything into your margin models because to maintain margins in home and apparel are roughly equal.

The [gem roids] are different but the maintaining margins are the same.

Having said everything that I have just said, if you look at the total home business, to total business, it doesn't move the needle that much.

I think it's a business we love.

It's a business that we believe does a lot for the store.

But in terms of the financial performance of the business, we live and succeed by apparel and women's accessories.

Okay, thank you.

Thank you.

Okay.

I thank you for a wonderful call.

Thank you for all your kind thoughts and comments.

And I look forward to speaking with you all over the next few months.

Have a great holiday if I don't speak with you.

Bye-bye.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program, you may all disconnect.

Everyone have a great day.