URBN

Urban Outfitters, Inc. (URBN)

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Urban Outfitters (URBN)

Q4 2011 Earnings Call

March 07, 2011 5:00 pm ET

Executives

Eric Artz - Chief Financial Officer

Barbara Rozsas -

Glen Senk - Chief Executive Officer and Director

Analysts

Dana Telsey - Telsey Advisory Group

Jeff Black - Citigroup Inc

Randal Konik - Jefferies & Company, Inc.

Christine Chen - Needham & Company, LLC

Eric Beder - Brean Murray, Carret & Co., LLC

Betty Chen - Wedbush Securities Inc.

Paul Lejuez - Credit Suisse

Adrienne Tennant - Janney Montgomery Scott LLC

Michelle Tan - UBS

Brian Tunick - JP Morgan Chase & Co

Stacy W. Pak

Howard Tubin - RBC Capital Markets, LLC

Marni Shapiro - The Retail Tracker

Roxanne Meyer - UBS Investment Bank

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Robin Murchison - SunTrust Robinson Humphrey, Inc.

Kimberly Greenberger - Morgan Stanley

Janet Kloppenburg - JJK Research

Lorraine Hutchinson - BofA Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. Fourth Quarter Fiscal 2011 Earnings Call. [Operator Instructions] 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.

Glen Senk

Good afternoon, and welcome to the URBN Quarterly Conference Call. With me today is Eric Artz, Chief Financial Officer; Oona McCullough, Director of Investor Relations, and the majority of our executive management team.

Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three- and 12-month periods ending January 31, 2011. We were pleased to report record sales and operating earnings for the quarter, as well as the company's second highest operating margin for both the fourth quarter and full year, 18% and 18.2%, respectively.

Eric will begin today's call by providing details on our performance. I will continue the prepared commentary with closing remarks, then the group and I will be pleased to answer any questions you may have. 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 Eric.

Eric Artz

Thank you, Glen. The following summarizes our fourth quarter fiscal 2011 performance versus the comparable quarter last year. Net sales increased 14% to $668 million. Income from operations grew 1% to $120 million, resulting in an operating margin of 18%. Net income decreased 3% to $75 million or $0.45 per diluted share. Comparable Retail segment sales, which include our Direct-to-consumer channel, rose 4%, with increases of 1%, 28%, and 5% in Anthropologie, Free People and Urban Outfitters, respectively.

Total company comparable store net sales decreased 2%. Direct-to-consumer comparable sales rose 28%, with all three brands posting double-digit increases. Wholesale revenue increased 31% to $31 million. Gross profit grew 8% to $265 million, while gross profit margins decreased 208 basis points to 39.7%.

Selling, general and administrative expense, expressed as a percentage of sales, increased seven basis points to 21.7%. Comparable Retail segment inventories, which include our Direct-to-consumer channel, were 10% higher at quarters end, while comparable store inventories increased 4%. Finally, cash, cash equivalents and marketable securities grew by $63 million on a year-over-year basis to $808 million.

Turning to our key business metrics, I'll begin by providing detail on sales for the quarter. New and noncomparable store sales contributed $63 million to the consolidated net sales increase. The company opened 17 new stores in the quarter, three Anthropologie stores, four Free People stores, and 10 Urban Outfitters stores, including three in Europe, bringing the global store count to 372.

Within the quarter, total company comparable store sales were strongest in November, followed by December, then January. Within North America, sales at Anthropologie and Free People were strongest in the West and weakest in the Northeast. And sales at Urban Outfitters were strongest in the Southeast and weakest in the West and Northeast.

In Europe, sales at Urban Outfitters were strongest in Continental Europe and weakest in Ireland and our non-London locations in the United Kingdom. By store type, sales at Anthropologie and Urban Outfitters were strongest in malls and lifestyle centers and weakest in street locations, and sales at Free People were strong cross all venues.

For stores, the average number of units per transaction increased 2%, while average unit selling prices and transaction counts decreased 3% and 1%, respectively. Direct-to-consumer revenue increased 29% to $145 million. The penetration of Direct-to-consumer net sales to total company net sales increased 270 basis points to 21.7%, with results largely driven by a 34% increase in website traffic to over 35 million visits.

For Retail segment sales, footwear and accessories and home were strongest at Urban Outfitters, home was strongest at Anthropologie and while all categories were strong at Free People, accessories led the trend.

Wholesale segment sales for the quarter increased 31% to $31 million, driven by a 32% increase at Free People and an 18% increase at Leifsdottir.

I'd now like to turn your attention to gross margin, operating expense and income. Gross profit in the quarter grew 8% to $265 million, but the gross margin rate decreased 208 basis points to 39.7%. This decline was due to increased markdowns to clear seasonal product associated with changing women's apparel fashion trends, along with higher shipping costs related to an increased penetration of International Direct-to-consumer business.

Total company inventories increased 23%, due in part to a record 17 new stores opened in the quarter and robust growth in our Direct-to-consumer channel. Comparable Retail segment inventories, which include our Direct-to-consumer channel, were 10% higher at quarter's end while comparable store inventories increased 4%.

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