Urban Outfitters Inc (URBN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc.

fourth 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 is Eric Artz, Chief Financial Officer, John Kyees, Chief Investor Relations Officer, and our senior team including the majority of our brand and shared service leads.

Earlier today the company issued a press release outlining the financial and operating results for the three and 12 month periods ending January 31, 2010.

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

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

As usual, you will be able to access the text of today's conference call on our corporate website at www.urbanoutfittersinc.com.

We are delighted to report a series of record breaking results for the quarter and for the year.

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

Net sales increased 16% to $589 million, the largest quarterly revenue performance in our history.

Income from operations grew 88% to a record $119 million, resulting in a best ever fourth quarter operating margin of 20%.

Net income increased 92% to a record $78 million or $0.45 per diluted share.

Comparable retail segment sales, which includes our direct to consumer channel, rose by 9%.

Comparable store sales increased 4%.

Comp sales at Urban Outfitters were flat and comp sales at Anthropologie, Free People, and Terrain rose by 10%, 11%, and 23% respectively.

Direct to consumer sales soared 28% despite a strategic 18% reduction in circulation with all three brands posting double digit increases.

Wholesale segment revenues declined 2% to $23 million.

Gross profit margins increased 771 basis points, driven by significant gains in initial margins and reductions in merchandise markdowns to clear seasonal product.

Comparable store inventories were 3% lower at quarter's end.

Selling, general, and administrative expenses, expressed as a percentage of sales, declined one basis point for the period despite a significant accrual of additional incentive based compensation expense related to our annual performance in earnings.

Finally, cash, cash equivalents, and marketable securities grew by $224 million to $745 million.

I'll begin this morning by providing more detail on each of our key business metrics for the quarter, starting with sales.

New and noncomparable store sales contributed $40 million including a gain of $3 million in currency translation adjustments for foreign based sales.

The Company opened eight new stores in the quarter, four each for Anthropologie and Urban Outfitters including one Urban Outfitters in Europe, bringing the total new stores opened for the year to 33.

Within the quarter, comparable store sales were positive each month but strongest in December.

By region, sales in Anthropologie were positive in all locations but strongest in the northeast and south.

In comparison, sales at Urban Outfitters were strongest in the Midwest and lagged on the west coast.

By store venue, sales in Anthropologie were uniform across all types, whereas sales at Urban Outfitters were strongest in mall locations.

The companies comp store sales performance was driven by a 4% increase in transactions and a 4% increase in average unit selling price which more than offset a 4% decrease in average units per transaction.

By brand, the number of transactions increased 8%, 25%, and 2% at Anthropologie, Free People, and Urban Outfitters respectively.

Average unit selling prices increased 14% at Anthropologie and decreased 8% and 2% at Free People and Urban Outfitters respectively.

Finally, units per transaction were flat at Urban Outfitters and down 11% and 4% at Anthropologie and Free People respectively.

Direct to consumer sales increased 28% to $112 million despite a strategic circulation decrease of 18%.

The penetration of direct to consumer sales to net sales as a whole increased nearly two percentage points to 19%, highlighting a secular shift in the way our customer is shopping.

The results was driven by more than 26 million website visits, a gain of 27% or 5.5 million additional visits.

The direct to consumer channel was double digit positive across all brands, and our strategic investments in assortment, site experience, fulfillment, and social media continue to yield high returns.

Since the direct to consumer channel is becoming such a meaningful part of each brands revenue, effective next quarter, the company will begin to report comparable retail segment sales by brand and will limit comparable retail store sales information to the total company's performance.

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

As we've communicated consistently throughout the year, there were powerful fashion cues in our business and our customers continued to discriminate by responding to newness, scarcity, and great authentic design.

Our comparable store inventories were 3% lower at quarters end.

The brand presidents are very comfortable with our inventory position and as I have mentioned before, they 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'd like to now turn your attention to our wholesale segment for the fourth quarter.

With the addition of Leifsdottir, revenue declined by 2% to $23 million due primarily to a strategic reduction in clearance sales.

Free People's wholesale revenue decreased by 5% to $21.9 million, with sales to specialty stores increasing 7%, sales to department stores decreasing 2%, and sales to clearance outlets decreasing 28%.

The brands average unit selling price increased 17% while unit sales declined 19% driven primarily by the reduction in closeout sales.

Leifsdottir's wholesale revenue increased 77% to $1.6 million and we continue to gain confidence in the brand's long term potential.

I'd like to turn your attention to gross margin, operating expense, and income.

Gross margins for the quarter increased 771 basis points to 41.7%, driven largely by gains in initial margin and a reduction in markdowns to clear seasonal product.

Let me reiterate that over the long term, we believe we have additional initial margin opportunity and opportunity to reduce markdown levels to our historic average.

The organization continued to exhibit exceptional discipline in managing expenses while simultaneously making strategic investments in design, to supply chain, technology, our direct to consumer businesses, and our European infrastructure.

Total selling, general, and administrative costs for the quarter as a percentage of sales decreased by one basis point to 21.6% despite a significant accrual of additional incentive based compensation expense related to our annual performance and earnings.

The company generated an impressive 20% operating margin, earning a record $119 million of income from operations, an increase of 88% versus the same quarter last year.

We also achieved our highest ever net income for a quarter--$78 million, an increase of 92% from the prior year with earnings per diluted share of $0.45.

The company's annual effective tax rate for the year was 36.2% versus 35.6% for the prior year.

The increase in the current year rate is primarily attributable to a lower proportion of tax free interest income due to a strategic shift to a mix of lower risk securities versus the prior year's holdings.

The company estimates that next year's annual effective tax rate will be approximately 35.8%.

The expected favorable change in next year's rate will be due in part to an increase in income generated from foreign operations.

We've just completed a year that most of us will never forget.

A year that was extraordinary in so many ways and a true test of our organization.

I think it's fair to say that our company experienced the impact of the 2008 economic reset later than many of our peers.

Given our exceptional fourth quarter results, I believe it's also accurate to say that we adjusted to the reset faster than many of our peers.

Let me remind you that our business grew 22% in 2008, that we finished the year with an 8% comparable store sales gain and 32% increase in our direct to consumer channel.

It wasn't until the fourth quarter of 2008 that our performance decelerated to a 1% comp sales decline and 20% direct to consumer sales growth.

We reached the nadir of this cycle the following quarter, the first quarter of 2009, with a 10% comp sales decline and direct to consumer growth of just 4%.

The organization reacted swiftly to the unprecedented challenge and as soon as the environment began to stabilize, they were able to read patterns in the business and respond accordingly.

Driven by the team's effective efforts, the trend improved in each quarter throughout 2009 culminating in our record fourth quarter performance.

I'm equally pleased to announce that our current February sales results exceeded our fourth quarter performance which gives us confidence that our strategies have taken firm hold.

These are the results of an exceptional organization, an organization characterized by passion, tenacity, intellect, agility, discipline, creativity, and alignment.

I believe these results also highlight the efficacy of our operating model and strategy, and for that I offer the organization's appreciation to Dick and the board.

Before I close the call, I'd like to spend a few minutes reviewing our priorities for the year.

We have four key initiatives, and I'll touch on each of them briefly.

Our first focus is driving continuing gains in four wall productivity.

If we can continue our historic 10 year average comp rate over the next decade, we'll drive an incremental $1.2 billion to the company's top line.

Our strategies include making continued improvements in four key area-- right product, right time, right place, right price; site selection and store design; store operations; and marketing, including the launch of our cross-channel database.

Our next priority is to continue to drive our E-commerce business resulting in a higher penetration of direct to consumer sales to total company sales.

We are unwilling to set a limit to the level of penetration and we're increasingly channel-agnostic as to how the customer reaches us.

Strategies for the year revolve around making iterative and disruptive changes to our online merchandise content.

Continuing to increase access to our brands through mobile technology, continuing to improve fulfillment operations, and continuing to mine social media.

Our third priority is international expansion.

We have every indication that the company can achieve an appropriate level of profit and productivity in Europe.

Urban Outfitters has made great strides over the last several years, including a successful entry into Germany, and a thriving launch of Ecommerce.

Anthropologie opened very successfully in London last fall and is about to open its second London location and launch its E-commerce site this month.

And Free People will begin a course of European wholesale expansion in the current year.

Andrew McQueen, the company's Chief Operating Officer for Europe, is leading many of our European infrastructure and tactical improvement initiatives, including comprehensive market research and due diligence, the design and implementation of a logistics and fulfillment strategy, upgrades to our retail and direct to consumer operating systems and so on.

We have also begun to lay the groundwork for the Company's expansion to the Far East.

It is unlikely that we will have any definitive to report in the near future, but we are targeting a calendar 2012 or 2013 launch.

Our fourth and final priority is adding new brands to the Urban portfolio.

We see our company as a group of niche brands, and because we feel so strongly that scarcity creates value, we envision the company will be comprised of a minimum of six significant brands over the next 10 years.

To that end, we are advancing efforts with Leifsdottir.

We launched a Leifsdottir website two weeks ago.

We plan to launch shoes and handbags for shipment in the beginning of 2011, and we expect to open our first retail store in 2011.

It's still too early in the brand's development to talk about long term potential but the early signs continue to be extremely positive.

We were also very pleased with the progress that Terrain made during the fourth quarter.

I have said repeatedly that Terrain reminds me of Anthropologie in the early days.

The customer loves it and our enthusiasm for the experience is now generating significant increases in comp sales, Terrain team is confident that they can maintain the positive momentum.

I'm also pleased to announce that the company will be launching its next brand on Valentine's Day 2011 -- a wedding lifestyle concept that we hope will be as innovative as our existing brands.

We plan to sell an event-based assortment of heirloom wedding gowns, bridesmaid and special occasion dresses, shoes, bags, and accessories, intimate apparel, imitation decor and gifts.

We also expect to offer a community for brides before, during, and after the wedding.

The brand will initially launch with website followed by a store opening later in the year.

Of course, none of these initiatives happen without people, and I'd like to take a moment to announce three important promotions in the Company.

I couldn't be more pleased to recognize Barbara Rosas who was just promoted to Chief Sourcing Officer, and Wendy Wurtzburger and Wendy McDevitt who were just promoted to Co-President of the Anthropologie brand.

Collectively, these three women have more than 40 years with our company, and they are each best of class at what they do.

There is not a day that goes by when Barbara, Wendy, and Wendy, don't make our organization better.

Nor is there a day that goes by when they don't teach me something or make her a better leader.

The organization and I are profoundly grateful to their commitment, and it is a joy to publicly recognize their contribution to our company.

I firmly believe we are a better company today than we were a year ago, and I hope I have conveyed the sense of optimism we are feeling.

As we have often stated, the Company's overarching goal is 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 shareholder and employees alike.

I will now open the call to questions and is our custom, I ask each of you limit yourselves to one questions.

Thank you.

(Operator Instructions) One moment please for our first question.

Our first question comes from Adrienne Tennant of Friedman, Billings.

Good morning and congratulations on a great end to the year.

My question is on the direct, it's pretty amazing what you've been able to do with the circulation reduction.

What is behind that?

What are you doing to reduce the circulation and increase the efficacy of what you're circulating?

Adrian, it goes back to the things we've been talking about on the last several conference calls.

It's the strategies we have around product, around the site itself, around fulfillment, and around social media, and also around mobile, so access to the site.

So if I talk about each of those things briefly, with product we've made iterative changes to the assortments, and by that I mean adding things like additional sizes or inseams.

Expanding assortments where we don't have the physical constraints of a brick and mortar store.

We've also begun to make disruptive changes to the assortment, by that I mean things that we believe are appropriate for each of our customers in each of our brands but things that we wouldn't normally carry in a store.

Kind of a minor example of that might be swimsuits at Anthropologie.

A more significant example might be the bicycles that Urban Outfitters offered this past season.

So that's the product offer.

Then you start to look at the websites themselves.

Each of our brands has gone through multiple site redesigns over the last several years, as you know we launched ATG two years ago which both Urban Outfitters and Anthropologie runs on.

Free People runs on a different system.

But what all the systems do is they allow the sites to be much more sticky, much more user friendly, the checkout process is simpler, the analytics that we have to drive the business are more robust and so on.

I mentioned mobile--all of our brands have some version of mobile access.

Free People right now I believe probably is leading the way but the other two brands will have mobile sites that they're very happy with in the next several months.

Social media we've done a great job with.

In North America alone, we've collected over 200,000 names on Facebook between our three brands.

I was just looking at some data yesterday.

We're really using the blogs effectively.

Free people actually launched rating reviews about a year and a half ago.

Urban followed suit, Anthropologie launched it in the middle of last year.

That's been tremendously effective, we've gotten smarter and smarter about how to monetize all the opportunities around social media.

And then lastly, fulfillment.

We're very mindful of the fact that some of our E-tailer benchmarks have done a sensational job with full [concept] of fast and free.

That's an area that we're testing.

We'll be very methodical about it, but certainly the kind of boundaries to direct response buying are shrinking in the last several years.

And with all of those things, paper is just going away.

I don't think it's going away overnight, but I think 10 years from now, it will probably be gone.

And I think you're seeing that in the world of magazine publishing, and you're seeing that in many, many other areas.

We're just trying to stay current.

It's a very, very exciting time for us?

And what's the circulation reduction for 2010?

It's flattish.

Our next question comes from Lorraine Hutchinson of Banc of America.

Thank you.

Good morning.

Was just hoping to get a little more detail on the gross margin.

Can your just talk through some of the drivers of the IMU opportunity that you have going forward?

And then if you did get markdown levels back to historic rates, what would the impact be to margin, and then any update on the move from third party to more private label at urban and that impact on margins?

I'll ask Eric to get started with that, and since he's been with us about two and half weeks, if he needs help, John or I will jump in.

Lorraine, the comparisons in our margins I guess I'd first start by comparing it to third quarter.

Our markup is rather consistent from the third quarter into the fourth quarter, so that's one piece of information, markdowns are clearly higher from quarter to quarter just based on the seasonality of our business.

As we look into fourth quarter comparisons, the improvement driven to 771 basis point improvement was really shared by markup and markdown almost equally with a slight advantage to mark up and we leveraged occupancy with a positive comp as well.

So looking forward, the company has made great strides in IMU improvement but as you point out, we do have opportunities in the markdown compared to our historical rates and we'll continue to focus on that.

And when it comes to the mix of business driven on the private side, I think we see slight improvement but not dramatic improvement going into fiscal 2011.

I'll just add, I know you're all doing models and you want us to commit to specific numbers and all I can say is what I've heard Dick say for the 16 years I've been with the company, is that our goal is to drive our profits faster than we drive our sales.

And I'll reiterate what I said in the prepared comments.

We believe we continue to have significant IMU opportunity.

We believe we have opportunity to reduce our markdowns down to historic levels.

I don't want to get into specific details as to what that means.

But we think we have a good up side with maintained margins in the next several years.

Thank you.

Our next question comes from Betty Chen of Wedbush.

Glen, you said in our opening remarks that obviously you're quite pleased with how all the brands performed during the holiday season.

And so far I believe you said February has been trending above fourth quarter levels.

Could you give us a sense of, at least during the holiday, what sort of unique and differentiated merchandise customers really reacted to for each brand?

And then also in February, what sort of performance can you tell us by brand, have they all improved versus fourth quarter levels?

Betty, I can give general merchandise comments.

We've kind of gotten away from giving specifics on that.

As I said in the prepared comments, across the Company, the apparel business was quite strong.

And then in Anthropologie, accessories was also strong.

With apparel, at Urban, it was both men's and women's apparel.

I've said repeatedly that there's a lot of fashion.

The shows in New York in the last several weeks, the shows in Europe, everything looks terrific.

And there's great trend in all of our businesses.

And it goes back to what I've said repeatedly, people are shopping their closets if they can shop their closet.

The kind of product that's selling is the product that's fresh, that's new, that's compelling.

It's not been about price for us.

It's been about how special the product is, how novel the product is, how unique the product is.

With regard to our February trend, our trend was positive for all of our businesses relative to the fourth quarter.

That's despite the snow which we didn't talk about in the prepared commentary, but obviously, we have a lot of stores that are outside or in open centers, so I'm particularly pleased that we could report that given the record snow that we had this past month.

As a follow-up to that, can you help us quantify what the snow impact could have been to February?

And maybe how we could think about recouping that in March, especially with an earlier Easter this year?

First of all, when I was ICR a few weeks ago, everyone begged me for sticking to one question so I'm going to do that I think it keeps the call crisper.

With regard to the quantification, I'll answer this and this is the last time I'll answer a second follow-up question, I don't want to give specifics, I have a feeling that everyone is listening to this call is far better at calculating than I am.

I don't know what we'll get back in March but I can tell you I feel great about our February.

Thank you so much and good luck.

Thank you.

Our next question comes from Michelle Tan of Goldman Sachs.

Thanks.

I was wondering if you could talk a little more about some of the specific capabilities that you're thinking about in the direct business to continue to drive the penetration of that higher, and then what the impact is as you look at your leverage point on the business from a comp perspective and you're buying and occupancy as a percentage of sales going forward?

So Michelle, I'm a little confused.

Is that two separate questions?

You want to know what the impact on SG&A is as a result of the direct business improvement and penetration?

Yes.

And if you want to pick one to answer, go with the details on the development ideas.

What we plan to do is continue to build on what we've done this past year.

I've said this before, we do not benchmark ourselves against legacy, brick and mortar retailers.

We are benchmarking ourselves against E-tailers.

So when you look at an Amazon, and this is off the top of my head, but since I think they're doing about $25 billion this year, they've clearly had better growth than we've had in the last decade.

We're not an Amazon.

They're a marketplace and a technology company.

And we're a group of brands.

But I certainly want to learn from Amazon, I want to learn from the off price auction sites.

I want to learn from Facebook.

And we're really having a lot of conversations internally that talk about the fact that the E-commerce world is probably the best representation of who we are as a brand.

Historically, as you think about this, we started as a brick and mortar retailers.

We introduced wholesale.

It was only a dozen years ago that we introduced the catalog to the company.

And we jokingly recall I think it was maybe eight, nine years ago, when Michael Robinson who know runs Anthropologie direct in Europe carried the HP computer on his back into his office to run the direct to consumer systems.

We're moving, maybe not as quickly as Amazon, but relative to where we've come from, we think we're moving quickly.

So the kinds of improvements we're making are focused in the areas I talked about.

I think you'll see much more around product innovation on all of our sites and brands.

And I think you'll see us testing new categories that we believe are customer-brand appropriate that you wouldn't see in the stores.

I think you'll see a lot of interesting things in our websites.

We don't have a lot of video and I'm sure you've all read the impact that video has on conversion.

I think you'll see us do a lot more with social media.

I think you'll see us testing this whole concept of fast and free.

The Merkel database which I'm sure someone is going to ask me about, will have a profound impact on our direct to consumer business.

And the other think I've talked about on earlier calls is how our E-commerce and websites can synergistically impact our brick and mortar retail business.

Remember, the only way we have to talk to our retail customers, which is still north of 80% of our business right now, is through catalogs and kind of general e-mails but they're not targeted.

So when we have Merkel up and running, which will happen at the end of the year, we'll be able to understand exactly what impact we get out of every e-mail that we've sent or every Facebook that we manage.

I hope that gives you clarity.

With regard to the SG&A, I'll wait until someone else asks the question.

Michelle, this is Eric.

I would just add on the direct business that in the fourth quarter of fiscal 2009 we had double digit increases and in the fourth quarter of 2010 we had double digit increases, and as Glen mentioned in his comments, February outpaced as well for all brands.

Thank you.

Our next question comes from Brian Tunick.

JPMorgan.

Okay.

Thanks, and congrats as well.

I guess Glen and Ted, I guess it's very impressive obviously that the apparel comps at the core Urban division have been doing so well.

Especially since it seems like a lot of the other teen and mall based retailers seem to be copying some of your trends.

My question is more on the accessory and home business.

I know you're up against much easier comparisons here in the first half, but maybe can you talk about what you're doing in that category -- accessory and home -- to get the momentum back in the business?

I'll say one brief thing and then I'll turn it over to Ted.

I want to remind everyone that on a two year basis that the Urban's two year comp was 3% for the fourth quarter and Anthropologie was 4% for the fourth quarter.

So Urban Outfitters, remember in our fiscal '09, was positive in the fourth quarter where Anthropologie was down 6%, so the performance on a two year basis between the two brands is essentially within a point of one another.

I think it's important for everyone to remember that.

Now I'll turn it over to Ted.

Yes, Brian.

On accessories and home, we did see coming through fourth quarter, we did see a nice improvement in comp performance and women's accessories and home.

With both of those businesses, as we came through last year, we began putting more emphasis into design with the proprietary design team that we've had in place and women's, we've put similar staff in place to support women's accessories and home.

And we've seen improvement in product performance in the fourth quarter in both those businesses.

I would also add that that improved performance continued as we turned the corner into the new year, and we do like the way our women's accessory business is treating us right now.

I'd add a follow-up to that as well which is we obviously never disclose the profitability of our businesses.

However, we did talk at the January release regarding sales, how markdowns were down for the Urban division as well, so when we talk in the grander scheme about profitability and $0.45 for the quarter, Urban had a great quarter.

We had a record quarter.

As long as you give me a tee-up there.

Urban business for the quarter, I took a look at the trailing five year average on an off income percentage basis, we were a number of hundred basis points north of that in the quarter.

So the team did a great job for fourth quarter.

All right.

Congrats and good luck this year.

Thank you.

Thank you.

Our next question comes from Michelle Clark Morgan Stanley.

Thank you.

Good morning and congratulations to the team.

My question is on SG&A expense and how we should be thinking about for 2010, obviously very strong expense control in 2009 with dollars up 8% versus north of 20% over the past four years on average.

Can you sustain that level?

Or how should we be thinking about the leverage point in 2010, the sensitivity around that and then SG&A dollar growth in 2010?

Thank you.

Michelle this is Eric, I think the leverage point is somewhere in the 2% to 3% range which we've talked about in the past as well.

Going back to Glen's prepared comments, he highlighted numerous initiatives in his remarks, so relative to that and similar to the levels that we saw in fourth quarter, I think we'll be trending higher relative to SG&A spend and that obviously depends on comps as well.

We've talked in the past about 30% of our base being variable.

In one of the previous calls, John quoted SG&A growth somewhere in the double digit range for fiscal 2011 and that's a number we feel comfortable with.

Great.

Thank you.

Our next question comes from Paul Lejuez of Credit Suisse.

Can you talk about inventory levels by brand and how you see that playing out throughout the year?

Thanks.

Paul, I find myself answering the same way more or less every time, we manage to weeks of supply, not to absolute inventory levels.

Right now the total comp inventories were down 3%.

They were down most at the Urban brand and least at the Anthropologie brand following the comps.

And as I said on my prepared comments, each of the brand Presidents feel very, very comfortable with where the inventories are over the long term, meaning over the next three to five years I'd like to see a continued reduction in weeks of supply as we get up and running with our Tradestone software system as we continue to make improvements in our planning and allocation systems.

And the reason why we all feel strongly about that is because we think it will, as I said in my prepared comments, improve the customer experience, the less the store has to handle the product, the more time they can spend with the customer.

The crisper and cleaner and fresher the product is and so on.

And of course the benefit of that is improved merchandise margins.

We've had a lot of help from the sourcing group over the last couple years reducing our weeks of supply and that's what you're seeing in the numbers, and I think we'll continue to see improvements there.

Thanks.

Thank you.

Our next question comes from Samantha Panella.

Your line is open.

Thank you and congratulations.

I guess going back to the direct business with this being such a growth priority.

Can you help us think about, obviously it has a higher operating margin than the store level and what the opportunities to grow that operating margin at the direct business are?

I know that we've talked about in general terms the differences between the four wall brick and mortar profitability and the wholesale profitability and the direct profitability, and we are absolutely most profitable in the direct business.

So it's a nice thing that we continue to gain penetration.

Having said that, we are making a lot of investments in the direct area.

As we developed our plans for the current year, we didn't plan to deleverage in many areas but one of the areas that we did plan to deleverage slightly is in the IT area.

Calvin is sitting to my right and I'm sure someone is going to ask about the IT initiatives at some point.

Calvin has a lot on his plate, much of which will impact the direct business.

We also remember in North America we have only one fulfillment center.

We're looking to add a second fulfillment center this year.

We're also looking to go from third party fulfillment to in-house fulfillment in Europe.

I think it's likely that we'll get to at least two fulfillment centers pretty quickly in Europe.

I think it will continue to be the most profitable channel but we're also looking to make investments because when Eric came in, one of the first things he did was look at the return on investment of every dollar we spent and obviously given the profitability, our ROI and the direct consumer business averages about two to three times better than any dollar we spend anywhere else in the company.

So we're going to be spending money there.

Thank you and good luck.

Thanks, Sam.

Our next question comes from Edward Yruma of KeyBank.

Thanks very much for taking my question and congratulations on a great quarter.

Thanks.

Your cash continues to build and I know that you continue to review on a periodic basis.

Can you give us some of your thought process behind the deployment of cash to new growth vehicles or the potential of turning back to shareholders?

I'll ask Eric to take that.

Our cash position was rather consistent with our peer group through most of fiscal 2010.

Obviously, with the performance of our business in the fourth quarter and the seasonality, that balance has grown considerably.

I would just say we've had numerous conversations about that situation here over the last couple of weeks and we'll continue to look at it and come back to you when we have more definitive direction in what we're going to do.

We just finished a board meeting, Ed, and this was definitely a topic of conversation and we'll continue to look at it.

Thank you very much.

Thank you.

Our next question comes from Christine Chen of Needham & Company, LLC.

Thank you and congratulations on yet another good quarter.

Thanks, Christine.

I was wondering for the direct business within the brands, do you see the same trends at the store level?

I'm wondering given that the Urban customer is younger, do they shop online more and maybe that's hurting the stores a little bit?

Yes, Christine, as I said in the prepared comments, we feel so strongly that customers are shopping across channels regularly that we're going to start to report our comps including direct for the new year that we just started.

Having said that, based on the analysis that we've done and based on anecdotal information and my gut, I think it's pretty similar across all our brands.

Of course, the direct business at Free People is much more important to the total Free People retail segment than it is at Urban and Anthropologie because Free People has far fewer stores.

The way that customers toggle between a store one day, a website another day, a mobile experience the third day is very, very consistent.

And it's counterintuitive because like you, I would have thought that the Urban customer would have been the earliest adopter, but things are moving very, very quickly for the 30 to 45 group.

I'm sure you know at Facebook, the fastest growing component of Facebook users is that 30 to 45-year-old customer.

Actually, the fastest growing segment of online games is women aged 30 to 45.

So it's pretty surprising how quickly this is all taking hold.

Great, thank you and good luck for spring.

Thanks, Christine.

Our next question comes from Richard Jaffe of Stifel Nicolaus.

Well done.

We're all laughing, Richard.

I appreciate you laughing with me.

Always.

It seems that the resources, the creative forces within your organization are unstoppable now that new idea for next February.

Do the wheels keep turns, are more ideas being granulated within Anthropologie, within Urban?

Are there more creative forces being brought to bear on what are now the very, well the old citizens within your portfolio, Anthropologie and Urban?

Absolutely, Richard.

When we talk about the year that we've just finished.

I've said repeatedly that the company did an amazing job at dividing and conquering.

There was a group of us looked at the budgets, looked at the expenses in the business and did an amazing job with fiscal discipline and control.

There was another group of us who said how is this economic environment impacting what the customer is going to want to experience and going to want to buy?

And I think that the improvement that you saw from quarter to quarter and the tremendous fourth quarter is really a result of the use of creativity to reconnect with the customer.

The creative manifestation doesn't just happen with new brands, it happens with rebirth of each of our brands, quite frankly, almost every day.

We have many things in this organization.

One is that the only thing that's constant is change.

Another thing, if you look in the rear view mirror more than once ever seven seconds, you get into a car accident.

Nothing is more boring than last year's best seller.

We are an organization who constantly moves forward and redefines ourselves.

We're true to Dick's vision, from decades ago, it's the concept vision.

It's not the execution vision.

That has to change.

We drive our business with newness, not with price.

And just to build on what you said, there are so many fun things about working for this company but probably the most fun thing is working with the creative folks in this organization because they are absolute best of class and if we kind of manage the creative process properly, they just drive tremendous value for the organization, and that's what we're seeing.

Thank you.

Thank you.

Our next question comes from Liz Dunn of Thomas Weisel Partners.

Hello.

Let me add my congratulations.

Thanks, Liz.

My question is can you address your long term top line growth specifically in light of slowing domestic store growth?

And what specific impact is expected from direct?

How does Europe fit into your 45 openings for 2010?

And then how should Europe ramp post 2010?

Liz, we've talked about this publicly, so I'll kind of reiterate what we've said.

We have four key objectives.

The first objective is continuing to drive four wall productivity, and as I said in the prepared remarks, it's pretty staggering.

But if we can average the 7% comp for the next 10 years like we've averaged for the last 10 years, we'll drive $1.2 billion of incremental revenue to the top line.

And you all listening to this call understand the profitability of that $1.2 billion of revenue.

We have many strategics for doing that.

The strategies revolving around getting the right product at the right place at the right time and at the right price.

And that relates to sourcing strategies, planning and allocation strategies, and so on.

Our second kind of area with driving retail productivity relates to store design and site selection.

Our third is store operations.

And the fourth and probably the most impactful is the database that will allow us to manage our retail business with a much higher level of optics than we have today.

That's number one.

Number two is E-commerce.

I don't want to limit how much of our business E-commerce can be.

If you'd asked me five or eight years ago if it could be more than 20% of the business, I probably would have said no.

Last year internally, we were saying it would be somewhere between 20% to 30% in all likelihood.

Today, we're not going to limit it to 30%.

It could be more than 30%.

We're going to keep doing everything we can do to drive the business.

We have internal goals that are very, very aggressive.

International, as I said in my prepared comments, we have every indication based on the success of Urban Outfitters and the launch of Anthropologie, that we can be as profitable as we need to be in Europe.

Also based on the research we've done in the Far East, we think the same holds true for there.

We are going as quickly as we can in Europe.

Andrew has done a great job laying the infrastructure which we need to have in place before we put the pedal to the metal so to speak.

But I think you'll start to see us open stores more quickly there, and you'll certainly see us ramp up our E-commerce business very aggressively in Europe and other parts of the world.

And lastly, new brands.

As I said in the prepared comments, something that Dick and the board and I and the senior team here feel unbelievably passionate about is this idea that scarcity creates value.

We never want any of our brands to become so big that they lose their specialness in the customers' minds.

And as a result, we absolutely need additional brands to achieve our URBN objectives.

With wedding, that's our sixth brand so as I said, I think we need a 10 year plan.

We need six to eight meaningful brands.

I don't know, I'll give a range on what meaningful means.

Not less than $500 million and probably more than $1 billion dollars, and that's potential, not actual results in 10 years.

We're very, very committed to launching these brands that all share a URBN sensibility DNA business approach and so on.

So these four overall growth objectives are something that we've talked about continually.

There's probably not a person, an employee in the organization who doesn't know about these.

I blog about them.

We have brown bag lunches about them.

And people are very, very excited about them.

Can you tell us specifically the European openings for 2010?

No, what I would say, and again I'm cheating, I'm answering a second question which I promised not to do.

What we said in the release is that the general Urban and Anthropologie will open in the teens and Free People slightly less than that.

And those teen openings are on a global basis; not a North American basis.

Thanks, good luck.

Thank you.

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

Good afternoon and congratulations.

Thanks, Dana.

The growth initiatives are exciting, whether it's the new wedding concept, Europe, how do you see the financial impact of that on the business whether in capital spending or management talent that you need to add and sales potential?

And Terrain, how did that do this year as one of the growth initiatives?

Thanks.

I'll lobby that over to Eric.

I think I would just refer back to the comments where John highlighted that we thought the investment in new initiatives cost us in fiscal 2010 about $0.03 a share.

As we look to fiscal 2011, obviously some of those initiatives as they build up some steam are doing better and then we're coming behind it with things like wedding and investing there.

So on an ongoing basis, the $0.03 number is directionally correct for fiscal 2011.

And then Terrain, as I said in the prepared comments, we were really pleased with the comp performance in the fourth quarter and it got better and better in the fourth quarter.

There's a lot of momentum in the business.

I think the group is still in the heavy learning phase when I say that it reminds me of Anthropologie.

I'll remind everyone on the call, Anthropologie didn't break even for the three years.

And the way Anthropologie looks today is nothing like Anthropologie looked when it started.

And that was a very iterative process of testing, learning, responding.

And that's what the Terrain group is doing right now.

We're very, very pleased with the way the customer is reacting to the store.

Thank you.

Thanks.

Our next question comes from Stacy Pak of SP Research.

Hi, guys.

Thanks.

Can you talk some more about just the whole systems side of things and how that should unfold in 2010 and 2011?

Specifically, right product to the right place at the right price at the right time.

The allocation, the database, the site selection, that kind of stuff.

Thanks.

So I'll ask Calvin to answer that question.

This is Calvin.

A couple of things.

The right product right place, we've just deployed an assault and planning system.

Anthropologie, with the exception of home, category has rolled it out.

Urban is now piloting rolling that out as well.

We expect to see some results from the assault and planning system.

Glen mentioned Tradestone, our PLM system, that's in the rollout phase.

We have domestic vendors on that.

And in two weeks we're traveling to Asia to get all of our own brand manufacturers on Tradestone as well.

That will give us some increased visibility on the logistics side.

We expect to have all of our vendors on that buy-back third quarter, fourth quarter or great portion of that, to get help with the weeks of supply.

The customer cross channel database as Glen mentioned, get a cross channel view of the customer.

We're on track to roll it out towards the end of the year.

I'm hopeful we'll get it out at the late part of third quarter.

I'm not sure if it will have a significant or any impact on fourth quarter, it would be doubtful.

Rolling it out as well.

Single SKU, between our retail and our direct channel.

That is on track.

We are hoping to get our first brand, Leifsdottir, up in single SKU in the second quarter followed by Free People and have all brands on single SKU by next year.

What that gives us is the ability to fulfill demand, go to stock in a store, to fulfill that demand from a different store or from the online channel, and conversely, if we have a demand online that we can order online, pick it up in the store or fulfill from a different fulfillment center.

So again, huge capabilities.

We hope to begin seeing that impact sometime next year.

And just so I understand, the assortment planning you said, it's rolled to Anthropologie now and where are you with Urban and how does that impact that you talked about, how does that unfold to 2010 in terms of the numbers?

[So at this point roll it out] with the exception of the home category, Urban I expect will have all [cards] rolled out in the next couple of months.

I think it's too early to discuss what the impact will have.

It will provide us with better assortment planning and buying decision across the brands.

This is something that I'm happy to talk about with people off line.

It's one of my favorite subjects.

And I think having been a buyer a million years ago and a divisional manager and so on, I'm very passionate about how this new system is going to be able to help us make much better decisions.

I'm happy to talk about this with any of your off line.

That's great.

Thank you.

Thanks, Stacy.

Our next question comes from Barbara Wyckoff Jesup & Lamont Securities.

Hi, everyone.

Great job.

You know, you've been so strong in footwear accessories, across all brands, I'm wondering if there's an opportunity to open small box stores in select locations where these classifications are highlighted without apparel or whatever, it was the thought I had.

And if you could talk a little bit about real estate strategy and Free People -- where do the Free People stores do best the productivity is very, very high.

Is there much of a difference where you have the wholesale in the same mall?

In a Bloomingdales or Nordstrom or someone like that.

Could you talk a little bit about crossover business?

Barbara, that sounds like two questions.

I tried to make it with one period at the end.

Thanks, sorry.

I used to do that in English class and I always got a bad grade when I did that.

So we're looking at many new concept ideas and we do have a wonderful accessory business in all of our brands.

We've dabbled with the idea of pulling that out and doing something different with it.

What I can say is what I publicly said, we're very excited about going after the shoe and handbag business at Leifsdottir and I think that will be our first entree into a serious shoe and handbag business.

With regard to Free People, I don't want to give too much detail.

I think the productivity of the Free People stores is great.

Like our other brands, we have great stores and not so great stores.

There's absolutely no relationship between our wholesale distribution and our retail performance.

If anything, I'd say there's a positive relationship and that's what other people talk about.

And as we said on the last call, given the momentum in the business, we have every intention of getting back to a regular opening cycle with Free People.

Great, thanks.

Good luck.

Thank you.

Our next question comes from Karen Zackfia of William Blair.

It's actually Sharon Zackfia.

I wanted to follow low up on the Anthroe program - I think it's been around now for close to 18 months.

Feels like there's still some opportunity there to optimize that further.

Can you talk about how successfully you think it's been and where it goes from here?

The frustration, and we've talked about this on prior calls, is that the third party service provider that we're using to help manage the database isn't able to give us the kind of accessibility and maneuverability that we want.

So I think it's fair to say we've had a fantastic sign up.

What do we have now?

How many names?

It's well over a million.

I can get to your off line, but it's around 1.3 million at this point.

We have great I.D.

What we do, the customers love, but we're not able to do a lot which is why we're so anxious to get our cross channel database up and running which Calvin continues to assure me will be some time in the end of third quarter of this year.

So we're just a few months away, and I think once we have it, we'll be able to do the kind of things that we always envisioned doing.

And let me remind everyone it's not a loyalty program.

The way we think about it is the more we know about our customers, the more we can do for our customers.

Personalization is one of the biggest trends in technology right now, and what this database will allow us to do is personalize the experience, the offer, the communication on a customer by customer basis.

And that's the big win with the Anthroe program and when the other brands roll out similar programs.

Thank you.

Thanks.

Our next question comes from Erika Maschmeyer of Robert W.

Baird & Company.

Thanks and congrats on a great quarter.

Thank you.

Could you talk about your management structure and remind us of your most pressing near term hires?

Obviously, Eric is on the call and we've issued an announcement about Eric six or eight weeks ago and I think what we've said is that we've suspended the COO search.

So Eric is serving as CFO, Freeman Zausner, who's in the room with us, is serving as Chief Administrative Officer, and reporting into Freeman is real estate, technology, and talent.

And John is handling all Investor Relations, Glen Bodzy, has been our counsel and has been with us for over a decade and does a superb job.

Underneath Freeman, we have Calvin Hollinger handling all technology, David Ziel handling all development, Bill Cody handling talent.

All three of them do an absolutely exceptional job.

In the brands we have Andrew McLean in Europe.

Freeman's looking at me.

Who am I forgetting?

In the brands I just announced that we promoted Wendy and Wendy to be Co-President of Anthropologie.

We also have James Bidwell as Managing Director of Anthropologie Europe.

For Urban Outfitters we have Ted, reporting to Ted we have Hugh Walla who runs Urban Europe, Meg Hayne runs Free People, Clare Schultheis runs Leifsdottir, we're about to announce someone who will head for the wedding concept.

Terrain, John Kinsella, who am I missing?

Barbara Rosas who is not in the room, I think you're on the call somewhere, our Chief Sourcing Director who's been with us 13 years.

So we have a really a very, very complete team.

You know Jim Brett left us midway through last year.

Jim was our chief merchandising officer.

We have Sun Choe who is our head merchant for the Urban brand and is doing a terrific job, but we are planning on filling Jim's job and I expect we'll have an announcement in the near future.

Other than that, I think we have including planned redundancy, something like 400 people that we have to get hired this year but I wouldn't say there's anything pressing.

And this gives me an opportunity to thank the organization, many of whom are listening to the call.

This company is amazing.

These people in this company are amazing.

I don't do this.

This organization delivered this result.

And it's an amazing group.

We have a broad and deep bench strength in this company.

Thanks, good luck for first quarter.

Thank you.

Our next question comes from Roxanne Meyer of UBS.

Let me add my congratulations.

Thanks, Roxanne.

I was wondering if you could share your insights on your consumer and her ability, and more so her appetite to spend.

She's seeking special and that's what you're all about, but I'm also wondering to what extent you think there's pent up demand versus your view of the opportunity for sustainable spending.

And as part of that are you able to give us a progression of monthly average transaction size or metrics that would show as we moved from the fall through the holidays to February that her appetite is really coming back?

by and large, I don't think we've returned to 2007.

And everyone who is listening to that call know more about that than I do.

I don't think we're out of the woods.

I think the difference between today and a year ago is that there's much more stability.

None of us knew what was going to happen a year ago.

Those of us who have any kind of savings saw our savings accounts go down by 50%.

We had property, many of us had real estate issues where we were under water.

And I think that has quieted down a bit so I think people have more of a sense of certainty.

But I don't think that spending is going to return to 2007 levels.

I tend to think about things simply, because I think it's easier to get things done when you simplify.

I keep saying that if a customer spent an average of $100 on an average outing in 2007, she's spending $90 today.

So we have to be 10% or 11% better than we were in 2007 to be flat.

And I think we have to be 15% or 20% better to be comp positive.

And that's how we think about it internally, we, as a company, we don't talk about weather, the economy, we have just a culture of constant growth, and we will grow or we will endeavor to grow however we need to and we've just had to be better.

I spoke on the last earnings call or the one before that, about the customer is more discriminating.

She is.

She has more off price merchandise available to her.

I think a lot of the off price retailers have done a great job.

She has more information available than ever and she's using the internet to make brick and mortar decisions now so she can shop price easily.

We just have to be better - we have to offer better product and a better experience.

And I think that's what we did and that's why we had a good fourth quarter.

And I don't think that's going to change any time soon.

I think we'll be years before we get back to the confidence levels we had in 2006, 2007.

Okay.

Great.

Thanks for that insight and best of luck.

Thank you.

Our next question comes from Laura Champine of Cowen Group.

Hi, Glen.

I wondered if you could talk just a little bit more about the wedding concept, who thought about it?

Who is running it.

What you think the opportunity is there, why now?

A lot of our ideas, I'll remind everyone, Free People wholesale was given birth by the Urban Outfitters group.

And then Anthropologie was given birth by Free People.

So Leifsdottir was given birth by Anthropologie, Terrain was given birth by Dick.

We have a flurry of ideas in this organization all the time.

And we talk about things all the time.

And we listen to each other.

And there's quite frankly a lot of internal enthusiasm where there initially was a lot of internal enthusiasm around the idea of weddings.

It just so happens that especially at Free People and Anthropologie, a lot of bridesmaids or people going to weddings shop those brands for wedding dresses, accessories, and so on.

So not only we hear about it internally, we hear about it from our customers, so that was stage one.

Stage two we begin to do due diligence.

And most of you know something about the wedding industry.

And I'm doing this from memory so Wendy, tell me yes or no if I get this wrong, but I think it's roughly about a $60 billion business.

I think the average spend in North America on a wedding is about $45,000.

I think the average bride spends about $4,500 all in, including her clothing.

That's the average.

That's not the kind of customer that we reach.

So we've done a lot of research and spoken to a lot of people about it.

And like everything we do, we try to marry art and gut.

We think this is going to be a meaningful business.

Anyone we talk to about this says wow, that sounds exciting.

We think it's going to be meaningful but the customer is going to tell us.

So we're going to be very careful and methodical and conservative in how we launch it and the customer is going to show us the way just as with Terrain and Leifsdottir right now.

And back to Barbara Wyckoff's question, we have a lot of ideas in this company.

There are a lot of creative people and there are a lot of things people have to say.

And I'm sure you'll see more good ideas come out of this company.

Patty, did we lose you?

I'm still here.

Our next question comes from Holly Guthrie of Boenning & Scattergood.

Hi, Glen.

Hi John and Eric.

Thank you so much for all the information and just a great quarter.

Just one quick clarification on Merkel.

I think you said that you're going to roll it out in third quarter.

Does that mean that all the data mining will be done and you'll be rolling out to use it in third quarter for fourth quarter?

I'll give that to Calvin.

By the end of third quarter we'll have the database built and loaded with all the customer information and from there going forward, all transactions online and retail flow into the database.

(Inaudible) customer database and have all the data mining tools so we can do the analysis and all the campaign management.

So at the end of third quarter, we'll have all the data and tools in place to begin mining, running campaigns, and measuring the effectiveness of those campaigns.

So we'll begin starting at the end in third quarter.

Thank you.

Our next question comes from Marni Shapiro of Retail Tracker.

Hey guys, congratulations.

And for all those people that ask more than one question, I'm going to take mine off line and just say congratulations, and Glen, I'd like to know who can throw a wedding for $4500, because I think that's the average cost of a dress these days.

That's the clothing.

The wedding cost is $45,000, but these are national averages.

There's nothing average about you.

Nothing average about you.

There's nothing average about New York and the East Coast.

Thank you and congrats.

Take care.

Thanks.

Our next question comes from Randy Konik of Jefferies.

Thanks a lot.

Just want to go back to your comments on IMU, you think they can move higher.

Can you talk about what areas you're going to try and do to move that higher.

Looking to consolidate the vendor base or what have you?

Can you give a little more color and detail on that?

It's a lot of the work that Barbara and design teams have been doing.

But we expect to see continued up side.

So it's all of the above.

It's being smarter about how we buy fabric, the number of fabrics that we use.

It's being smarter about our vendor base.

Smarter about the way we develop product.

It's being smarter about the way we move product.

How much we air, how much we ship.

It's being smarter about how we communicate to our factories.

So really all of the above.

Every part of the product development process impacts product cost.

The other new thing we're doing this year is adding engineers to Barbara's group so that we can have a much more robust database as to what we paid for things in the past.

And really kind of engineer the cost right down to the fractions of a cent.

Those of you who negotiate know that an educated negotiator is a good negotiator.

So the more information that the product group has at their fingertips, the better they'll be able to do.

Long term, what you want to do is negotiate a margin agreement with your suppliers.

You don't want to negotiate, you just want the cost to be the cost and agree on what the markup is going to be.

I'm sure we'll get there at some point.

Can I ask if we're moving the gross margins up, do you think it would come more from the IMU moving up or the markdown moving lower?

I think much like this past quarter, probably roughly equal opportunity.

Okay, thanks.

Thanks.

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

Thanks, guys.

Just a question on international.

Do you have an idea of how large you want that business to be as a percent of total eventually over time?

Howard, I have an idea, and that idea is somewhere between 25% to 35%, and that's worldwide, but I think that it's too early for us to tell.

We know, and I said this on prior calls, that the size of market in Europe is actually slightly larger than the size of the market in America.

It's just much more fragmented.

We don't expect to have a business in Europe that equal to our American business.

But it is absolutely going to be a meaningful number.

It's not going to be 5% or 10%.

Thank you very much.

Thank you.

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

The question was answered.

Thank you.

Thanks, Dana.

(Operator Instructions) We'll pause one moment to see if there are any further questions.

Patty, we're having technology difficulties, so we're relying on you.

Does that mean we're done?

Thank you.

We do have two more questions.

Maggie Gilliam of Gilliam & Company.

Your line is open.

Thank you.

You mentioned worldwide internet.

I was wondering to what extent you are really trying to develop it.

It seems to me you've got first mover advantage or will have very quickly in social media and mobile technology, are you planning on reaching parts of the world where you don't have a physical presence and may never have a physical presence?

Yes, Maggie.

So for example, the brands have done an amazing job in Australia in the last couple of months and we've done quite a bit of business there.

I don't want to give percentages out, but I would say the amount of Free People did a great job in driving international direct business and David who runs the business really pushed on this.

And it was not a small part of their business the last year.

So I think that there is opportunity for us to sell our goods around the world.

Another initiative for Calvin which he didn't talk about is getting Europe on the same operating platform, same web platforms that we are on in America.

And I guess Calvin, we're about a year and a half away from that?

One and a half to two years.

One and a half to two years, so we definitely have a global view on this, and hopefully, there's not a part of the world that we won't be able to access virtually in the next couple of years.

Thanks.

Our final question comes from David Weiner of Deutsche Bank.

Thanks for taking my call.

Just a question on the foreign businesses.

Kind of longer term as you start to invest and open up new stores and develop a web presence.

Is there anything structurally about the foreign business, again, longer term, that would preclude you from getting comparable operating margins to the domestic business here in the US?

All I can say at this point, I know what we've experienced internally and I speak to a lot of people who have internal businesses, internally, we're not on par yet although Hugh has made a lot of improvement in the last couple of years and the Anthropologie business started at a profit, literally, in the first month it opened.

We've made a lot of progress there.

But what I can tell you is the people that I speak with who have international experience, Eric who just joined us, his predecessor company was 25% international.

More people are more profitable internationally than in North America.

That's not true for us, but we're motivated by that knowledge and working hard to uncover all the opportunities.

As Eric said earlier, the next couple of years is absolutely going to be about investments.

Let me remind everyone that virtually everything we do in Europe is done through third party service providers.

And that's typically more expensive and not as good as when you do it yourself.

We are very methodically bringing all the things we do in-house in America, like logistics and systems, in-house in Europe over the next couple of years, so it will be a phrase of investment.

But we believe we'll have good returns on those investments.

Great color, thank you.

Thank you.

So again we've had a little bit of technology challenges here so we can see who is still on the call.

But I just want to thank everyone for being with us.

Great questions today, and as always, thanks for the you support.

We look forward to seeing you all.

Have a great day.

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.