URBN

Urban Outfitters, Inc. (URBN)

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Urban Outfitters (URBN)

Q3 2013 Earnings Call

November 19, 2012 5:00 pm ET

Executives

Oona McCullough - Director of Investor Relations

Francis J. Conforti - Chief Financial Officer, Chief Accounting Officer and Controller

Margaret Hayne - President of Free People Brand

Richard A. Hayne - Co-Founder, Chairman of the Board of Directors, Chief Executive Officer and President

David Hayne

Calvin Hollinger

Tedford G. Marlow - Chief Executive Officer of Urban Outfitters Group

David W. McCreight - Chief Executive Officer of Anthropologie Group

Analysts

Kimberly C. Greenberger - Morgan Stanley, Research Division

Adrienne Tennant - Janney Montgomery Scott LLC, Research Division

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

Janet Kloppenburg

Anna A. Andreeva - FBR Capital Markets & Co., Research Division

Brian J. Tunick - JP Morgan Chase & Co, Research Division

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

Marni Shapiro - The Retail Tracker

Paul Lejuez - Nomura Securities Co. Ltd., Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Betty Y. Chen - Wedbush Securities Inc., Research Division

Oliver Chen - Citigroup Inc, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

Jeff Black - Avondale Partners, LLC, Research Division

Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division

Lizabeth Dunn - Macquarie Research

Laura A. Champine - Canaccord Genuity, Research Division

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Urban Outfitters Third Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Oona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Oona McCullough

Good afternoon, and welcome to the URBN Third Quarter Fiscal 2013 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3-month period ending October 31, 2012.

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.

We will begin today's call with Frank Conforti, our Chief Financial Officer, who will provide financial highlights for the third quarter. Meg Hayne, President, Free People brand, will provide a brief bit on the Free People brand. Richard Hayne, our Chief Executive Officer, will then comment on our broader strategic initiative. Following that, we will be pleased to address your questions.

As usual, the text of today's conference call along with detailed management commentary will be posted to our corporate website at www.urbanoutfittersinc.com. I'll now turn the call over to Frank.

Francis J. Conforti

Thank you, Oona, and good afternoon, everyone. We are pleased to announce another quarter of record results for Urban Outfitters. We are proud of these results and especially happy with the progress we've made year-to-date. We entered the year with a clear plan, and now we are seeing the benefits of executing that plan. Each quarter, we have delivered an acceleration of the sales growth rate versus the prior comparable quarter. In addition, we delivered significant improvement in gross profit margin and operating profit margin rate versus the prior comparable quarter.

Before I discuss the specific financial results in detail, let me remind you that URBN quarterly financial periods are based on calendar months, not a 4-5-4 retail calendar. This means that Hurricane Sandy, which hit the northeastern United States on October 28, impacted the last 4 days of the third quarter. In total, 106 of our stores were affected by Sandy. And while we suffered little permanent damage to our stores, there were many store closures. These ranged from a few hours to more than a week.

Additionally, we believe our direct-to-consumer channel was negatively impacted by customer power outages in the northeast, including a portion of New York City. We believe the effects of Sandy reduced our retail segment comparable net sales growth rate by approximately 1 percentage point in the third quarter and will have a measurable, but lesser impact on our fourth quarter results. URBN carries business interruption insurance, which should cover a portion of these losses. However, the third quarter results does not include a provision for an insurance reimbursement.

Turning now to the financial results. Total company net sales for the quarter increased by 14% to a third quarter record of $693 million. This increase was driven by a strong direct-to-consumer growth rate of 36% and an $18 million increase in non-comparable net store sales, which includes 11 new stores opened during the quarter. Total company comparable retail segment net sales, which includes net sales from our stores and direct-to-consumer channel, increased by 8%. This includes increases at Free People, Urban Outfitters and Anthropologie of 24%, 7% and 6%, respectively.

Total company comparable store net sales declined by 1%, driven by a 2% decrease in the average unit selling price and a 3% decrease in units per transaction, each of which was partially offset by a 4% increase in transactions. I believe it is important to note, that if it were not for direct-to-consumer returns at the stores, which we currently charge against store sales, our comparable store net sales would have been low-single-digit positive. I will address this further toward the end of my comments.

Free People wholesale net sales increased 9%, to a quarterly record of $41 million. This increase was partially offset by a small amount of net sales related to Leifsdottir, which was transitioned to the Anthropologie brand in the previous year.

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