Oona McCullough - Director of Investor Relations Francis J. Conforti - Chief Financial Officer, Chief Accounting Officer and Controller Margaret A. Hayne - Director and President of Free People Brand David Hayne Richard A. Hayne - Co-Founder, Chairman of the Board of Directors, Chief Executive Officer and President Tedford G. Marlow - Chief Executive Officer of Urban Outfitters Group David W. McCreight - Chief Executive Officer of Anthropologie Group

Adrienne Tennant - Janney Montgomery Scott LLC, Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Kimberly C. Greenberger - Morgan Stanley, Research Division Brian J. Tunick - JP Morgan Chase & Co, Research Division Neely J.N. Tamminga - Piper Jaffray Companies, Research Division Paul Lejuez - Wells Fargo Securities, LLC, Research Division Janet Kloppenburg John D. Morris - BMO Capital Markets U.S. Betty Y. Chen - Wedbush Securities Inc., Research Division Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division Matthew McClintock - Barclays Capital, Research Division Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Oliver Chen - Citigroup Inc, Research Division Marni Shapiro - The Retail Tracker Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division Omar Saad - ISI Group Inc., Research Division Jeff Black - Avondale Partners, LLC, Research Division Mark R. Altschwager - Robert W. Baird & Co. Incorporated, Research Division Laura A. Champine - Canaccord Genuity, Research Division

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Second Quarter Fiscal 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce Oona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN second quarter fiscal 2014 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3 and 6 months periods ending July 31, 2013. 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 second quarter. Meg Hayne, Free People Brand President; and Dave Hayne, COO of Free People, will provide a brief update on the Free People brand. Richard Hayne, our Chief Executive Officer, will then comment on our broader strategic initiatives. 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.

Thank you, Oona, and good afternoon, everyone. I will start my prepared commentary discussing our fiscal year 2014 record second quarter results versus the prior comparable quarter. Then I will share our thoughts concerning the remainder of the year. Total company sales for the quarter increased by 12% to a second quarter record of $759 million. This increase was driven by a strong Retail segment comp rate of 9%, opening 10 new stores during the quarter, a $25 million increase in noncomparable sales and a 17% jump in Wholesale segment sales. The 9% increase in Retail segment comp sales was fueled by continued robust direct-to-consumer growth and positive comp store sales. Direct-to-consumer growth resulted from an increase in visitors and improved conversion rate. Positive comp store sales were driven by increased transactions and units per transaction, which were partially offset by lower average unit selling prices. By brand, our Retail segment comp rate was 38%, 9% and 5% at Free People, Anthropologie and Urban Outfitters respectively. Free People wholesale delivered another strong quarter as sales rose 17% to $44 million. These results came from double-digit sales growth at specialty stores and department stores. Gross profit for the quarter increased by 17% to $298 million. The gross profit rate improved by 169 basis points to 39.3%. The improvement in gross profit rate was primarily due to a reduction in merchandise markdowns mainly driven by improvements at the Anthropologie brand. We also improved our initial merchandise margins and leveraged store occupancy expenses. These gains were partially offset by deleverage in delivery expense primarily related to an increase in penetration of direct-to-consumer sales. Total selling, general and administrative expenses for the quarter increased by 13% to $179 million. Total SG&A as a percentage of sales deleveraged by 14 basis points to 23.6%. The…

Thank you, Frank. When we last spoke in November, I expressed my excitement about our past performance and what lay ahead for Free People. Since then, our business has outperformed our goals, and we have just completed a record second quarter, with each of our 3 channels of distribution delivering record sales and profits. Product is at the heart of our brand, and our second quarter offering of clothing and accessories resonated deeply with our customer. It included outfits with many different looks and moods, all of which fit the Free People lifestyle. The brand, however, has become more than product. In stores and on web, it has become a community of women who share our passion for the Free People lifestyle. In addition to product, we offer information, entertainment and engagement. We inspire and inform her through our blog, catalogs, website, events, videos and social media channels. The success we've seen with women worldwide participating in and embracing our community is powerful. I would like to thank the entire Free People team for delivering a strong quarter and our many wholesale partners for their continued support. Our Free People COO, Dave Hayne, will now share some of our second quarter successes. Dave?

Thank you, Meg. Let me begin with our wholesale channel. It remains the largest of our 3 channels, and Q2 sales set a new record. Quarterly wholesale sales surpassed last year by nearly 17%, driven by strength across both our specialty and department store accounts. Our e-commerce customers showed particular strength. Following the success of our first branded shop in Nordstrom's downtown Seattle location last year, we've opened 9 additional department store shops so far this year. These shops carry extended product assortments in a branded environment and are sold by Free People-trained sales associates. We're very pleased with the productivity increases we have seen in these locations and anticipate several more openings later this year. Significant growth opportunities await us overseas, particularly in Europe where in June, we opened our first wholesale showroom in London. Set on a quaint, cobblestone street in Marylebone with designs and display showing the essence of our brand, this new showroom is the perfect way to introduce ourselves and our product to the European market. We signed several new key accounts, and we recently piloted a pop-up shop in Selfridges London flagship, where the initial customer reaction has been excellent. In Asia, our partnership with World Co., Ltd. in Japan has been progressing well. We continue to be pleased with our team's capabilities and collaboration. Following 2 strong pop-up shop tests, plans are now underway to open the first 2 permanent locations in late October: a street-level shop at the Shinjuku Station building as well as a 2,300 square foot stand-alone store in Harajuku. We believe this Harajuku space will be an excellent brand introduction for the Japanese market, complete with an impactful ground-floor for product presentations. Adjacent to the store will be a new wholesale showroom, enabling us to reach more wholesale customers.…

Thanks, Dave, and good afternoon, everyone. First, congratulations to our brand leaders and shared service heads for delivering another record-breaking quarter. This year's second quarter sales and profits were the highest in the company's history. Record sales were driven largely by a strong Retail segment comp increase. In the second quarter, both retail channels showed positive comp sales growth, with the direct-to-consumer channel continuing to grow at a much faster rate than the store channel. This pushed DTC penetration to total sales up by more than 350 basis points. Each brand posted a strong double-digit gain in direct-to-consumer sales. Total DTC traffic grew by 16%, and conversion improved by 51 basis points, driving the total number of direct orders up by 40%. The increased penetration of direct-to-consumer sales enabled us to lever store occupancy and store controllable expenses. Offsetting those savings was an increase in marketing and net delivery expenses, each of which were used to help grow the direct sales. Turning to profits. Higher sales, better initial margins, more compelling product and effective expense control all combined to create record earnings. The improvements in product led to higher full price sell-throughs and lower merchandise markdowns. In total, gross margins improved an inspiring 169 basis points over the same period last year, and operating profit jumped to just under 16% of sales. This is especially noteworthy since 9 quarters have passed since we delivered a profit rate this strong. In total, all metrics suggest that Urban's second quarter performance was very successful. At the brand level, Meg and her Free People team produced a truly outstanding quarter. In my 40-plus years in this business, I cannot remember any URBN brand delivering a more successful all around quarter. All 3 of Free People's channels of distribution achieved strong double-digit sales growth;…

[Operator Instructions] Our first question is from Adrienne Tennant of Janney Capital.

Yes, Dick, so I wanted to ask you about the strength that you saw in July. Was it across all 3 brands? And what do you think the differentiating factor was relative to the quite negative mall traffic that we saw across the rest of, kind of, the world of retail? Did it coincide with the catalog drop, new flows? If you can give us more color on that, that would be wonderful.

Well, the business we saw in July essentially mirrored what we saw for the entire quarter. So the strength of the brands that you saw in the comps that Frank gave are basically the strength that we saw in July. And I don't think there's anything that was special about July. I think we had a number of situations where our product offering was, I would say, much improved over the prior year, and I think that, that was the primary driver of the comp sales.

Our next question is from Lorraine Hutchinson of Bank of America.

Just wanted to follow up on the gross margin guidance for the back half. You've obviously gotten off to a much better start than the initial at least 50 basis point guidance implied. So what are the factors that would cause this to slow in the second half?

I'll take this one. This is Frank. We're certainly proud of the progress we've made during the first half of the year, but we are going to keep our plans consistent for the back half of the year at 50 basis points or better. The rate of improvement for the back half of the year will depend on our inventory management and most importantly, our product execution and how accurate that product offering is as we enter into the second season.

Our next question is from Kimberly Greenberger of Morgan Stanley.

Dick, you're spending a little more time, it sounds like, exploring international opportunities. I'm wondering if you can just help us understand the different ways that you're exploring opportunities outside of North America for your various businesses and just kind of high-level thinking here over the next 1, 2, 3 years, what kind of direction could we see from the company?

Well, if you think about the way we've gone about it to date, Urban sort of led the way. I think it was '96, Kimberly, when Urban opened its first store in London, and we had the concept that we would basically duplicate what we were doing here, except that we would have, essentially, a different product offering and have a set of merchants that were in -- based in London that would be better able to understand the European market and deliver the product that would be appropriate for them. You see today that we have a number of stores across Europe, and that's going very well. Free People now is entering both the European market and the Asian market, and they're leading with their wholesale offering. And I think that makes a lot of sense, and they seem to be having success at it with a couple of trials, these pop-up shop trials, that we've had in Asia and the very recent pop-up shop that we've had in Selfridges in London. So we're pretty confident that that's going to be successful. But across all 3 brands -- oh, and Anthropologie, of course, has stores in London as well, and they are doing nicely and we are encouraged and want to expand that. But with all 3 brands, I think we have enormous opportunity to grow faster and actually more efficiently with the introduction of e-commerce and m-commerce. So we intend to, over the next 3 years, even though we will continue to open stores and we will continue to grow our wholesale offering, well, I think we want to exaggerate the penetration of direct. I hope that wasn't too long-winded, but I think that's your answer.

Our next question is from Brian Tunick of JPMorgan. Brian J. Tunick - JP Morgan Chase & Co, Research Division: I guess on the Urban division, I guess in the past, you guys have talked about cutting lead times and more product testing online. So what should we be thinking about regarding the Urban division beginning to get its momentum back on the product side? Or is it really just tough comps from last year's color cycle? And then on the DTC side, what are you doing from a loyalty perspective or a mobile app perspective for the Urban division?

I'll ask Ted to take that.

Yes, Brian, in regard to the question about the lead times and the product offering within the brand, we have been pressuring the business to shorten lead time and have actually, in several of our key women's categories, carved some time out of our development calendar as we've come through the front side of this year and optimistic that, that does provide benefit for making decisions close to -- closer to time of delivery of the product into the assortment. In regard to direct -- your question on the direct side and loyalty, we do have existing app in the market that we are updating with some features that we think will make it behave a bit more loyalty-like in its go-forward life. And we are doing some testing on that as we come into the month of September and look at learnings off of that for the go-forward approach to loyalty within our business.

Our next question is from Neely Tamminga of Piper Jaffray.

I was just wondering, Dick, if you could share with us a little bit more on the mall versus non-mall stores? We're all just trying to figure out here, obviously you guys was, kind of, operating in your own solar system, and kudos to you for that. But we're still trying to figure out what's going out with the mall versus the non-mall stores. Could you help us out?

I don't think there was any consistency, Neely, across the brands at Urban. The mall stores performed slightly better than the other stores, and Anthropologie was the opposite. So I don't think that there's anything we can glean or any trend that seems aberrant to what's happened to the brands in the past. So I'm sorry I can't shed any light on that, but I really don't think there's anything that we can add.

Our next question is from Paul Lejuez of Wells Fargo.

As you think about how the business will be growing over the next several years from a channel mix, brand mix and geographic mix perspective, can you talk about the puts and pulls on EBIT margin and ROIC as that occurs over the next, call it, let's say 3 years?

I'm not sure who to take that. I'll try. I think we've maintained for the last several years that we expect direct-to-consumer to continue to grow fast -- the fastest of the 3 channels. And that -- in a perfect world, that should have better operating margins -- slightly better operating margins. We are seeing, of course, a little bit higher expense rate in terms of delivery expense. And so that will cut down that differential a bit. Wholesale has a different economic model. But from an operating profitability, I think that they can maintain their operating profit as we expand worldwide, and that would be very attractive for us. The retail stores, of course, while we do anticipate opening more retail stores at least in Europe, if not in Asia, are a bit more challenged in terms of the occupancy costs that we experienced both in Europe and what we anticipate we would encounter if we were to open our own store in Asia. And so that would probably cut into some of the margins. So I guess the way to answer your question is direct-to-consumer is going to grow -- hopefully will grow fastest. I would say Retail would be next and then Wholesale, but Wholesale, a close third,

Our next question is from Janet Kloppenburg of JJK Research.

Just housekeeping for Frank and a question for Ted. Frank, if you could let us know what the FX impact may have been in the quarter. And then for Ted, I know the environment's pretty competitive. Your fall assortments are highly differentiated to me, particularly in the bottoms category. But given the environment, should we be thinking that it will be hard for you guys to break out beyond where you are right now, which is pretty darn good, but I'm just wondering if Dick was delivering a message?

Janet, this is Frank. Just for everyone's information, that non-comp number that we produced for the quarterly results, it is net of translation adjustment as you would pull that out of comp. But the FX effect on the quarter was a little less than 1 full point to the top line sales.

Janet, I'll touch on -- you mentioned, specifically, the bottoms assortment being differentiated. We feel like there are a number of categories that are differentiated versus where the business performed last year. Obviously, the strength of the denim business in last year's mix, and we have a lot of concern about denim coming into the back-to-school time period. Our other bottoms categories in the women's side and have done a very good job of offsetting that volume that we were up against. We were bullish on categories other than denim. But the good news to me as we've gotten into the first part of August is that although the denim assortment has been pared back some this year, its performance is exceeding plan, and you -- we actually have seen nice performance specifically in the direct side of the business versus what we thought we would see out of denim for this time period.

Our next question is from John Morris of BMO Capital.

So Dick, I think the -- a little bit more color on the strength behind the Anthropologie margins. I'm thinking in terms -- you obviously said some things already, but I'm also thinking in terms, was AUC a contributor? And could you tell us anything that you were seeing in terms of traffic and conversion for that division? Real nice pickup.

I'm going to ask David to take that.

John, for Anthro, we had tremendous margin expansion year-on-year for the brand, and that was across both channels in the stores and in direct-to-consumer. It was led -- we had improved IMU, but the biggest contributor was better maintain margins through reduced markdowns, and that was also led primarily within our -- the turn in our apparel status, a nice improvement there.

Our next question is from Betty Chen of Wedbush Securities.

I don't know if this question is for Dick or Frank. Now that we've seen some really great success in the first half, it seems to us, though, that the overall merchandise margins for the company still may have some opportunity versus the peak levels. Is there any sort of color you can give us from where we are now versus the peak and whether it's possible to perhaps even for us to go beyond the peak levels that we had seen in the past? And any color you can give us by brand perhaps, which brand may have the most opportunity as we go into the back half or even next year?

Okay. Betty, as I sit here today, I don't know of anything that would preclude us from getting back to the margins that you're calling peak and even go beyond them. So is it possible to do? Yes. Is it difficult to do? Very difficult, and I am not going to try to predict if or when we will get there. So I don't know if this is answering your question or what you want to hear, but I just -- I can't tell you, but I don't think that it's impossible to get back to and above the peak.

And this is Frank, Betty. I think some of that difficulty just comes with not knowing the exact penetration of what our business is going to look like over the next couple of years. We continue to offer the customer any channel where she wants to shop us. So with the DTC increasing at the rate it is right now, additional investments in international as well as the growth in our domestic business, it's hard to model out exactly what each channel and geography is going to be from a percentage standpoint, which makes it difficult just to formulate exactly when and where we're going to get there. But as Dick said, there's nothing structurally in our business that leads us to believe we can't get back to where we've historically been. And our plans for the year with the 50 basis points improvement over the back half of the year, certainly would still leave us with opportunity for a continued margin improvement next year and going forward.

Our next question is from Anna Andreeva of Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: I had a follow-up on gross margins. I was hoping you can maybe dimensionalize the IMU opportunity? You're one of the few retailers out there with both markdown and IMU buckets. So maybe just give us some color on some of the initiatives there? And then just a quick follow-up. The spread between your sales and comps, this metric narrowed in the second quarter. And you guys called out foreign currency being a slight drag. Was there anything else either on the productivity side or maybe some of the store openings falling closer towards the end of the quarter? Just a quick follow-up there.

I'll take the sales and comp piece first. So our second quarter saw the lowest square footage growth that we're planning for the current year. So Q3, our Q3 plan, would actually see almost slightly more than 1 point growth than what you saw in the second quarter, and then Q4 is actually 2 full points with further square footage growth. So you're right. There's a little pressure from FX as well as -- and then square footage is what's accounting for the rest of the delta there between the comp and the total, total sales growth.

Why don't we capture the second question after this call?

Our next question is from Matthew McClintock of Barclays.

I actually was wondering, you talked a little bit about some of the internally developed brand successes that you've had. I was wondering [ph] -- it's been about a year now, and I was wondering if you could talk about Free People Movement, some of the lessons that you're learning with that specific brand and maybe talk about the opportunity for that brand?

Sure. I'm going to ask Meg to talk about that.

Meg. We are experimenting with different shapes, different fabrics and different treatments, and we've been very happy with what we've learned. So it's all about product that fits the body so the girl -- women can work out, and we think there's a lot of opportunity with Free People to be into this area of product.

Yes, and I would say, Matt, that we -- I wouldn't limit that opportunity that we see just to Free People. I think each of the brands has an opportunity in this kind of area.

Our next question is from Lindsay Drucker Mann of Goldman Sachs.

Dick, I was just hoping to follow up on your comment about potential acquisition opportunity. Just if you consider any of the number opportunities. Can you frame, perhaps, size of what you might be looking for, if there's any parameters there, whether it's important that it be immediately accretive, whether you're focusing on new capabilities from a new brand perspective or sort of back-end perspective? Any detail to help us frame what might be in store would be helpful.

Well, I would say that it -- if we could write the perfect candidate, it would be slightly smaller than larger. And I know that's sort of loose ended, but that's where I'll keep it because the larger the acquisition, then probably, the higher the risk. And we don't want to, particularly in the initial stages, go in with something that has a high risk to it. So slightly smaller than larger and something that we would see benefiting and fitting in to our portfolio. As I've said before, we wanted to complement at least one of the brands, if not more, and see it as part of that brand. And we also would like to have a management team that is capable of growth and understands that we have some, I think, pretty strong attributes to offer some of these folks in terms of helping them to achieve their growth. So those are the sorts of things that we're looking for and a candidate, as I mentioned in my prepared remarks, that we are in discussions with a couple of folks, and that's moving along nicely and hopefully, we'll have more to report.

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

Can you talk a little bit on the DTC business, update on web-exclusive merchandise and how that's trending? And also, with the technology initiatives you've put in place, pick, pack and ship, how is that working? How is that helping inventory and where do you expect inventory in the third and fourth quarter?

Hi, Dana. This is Frank. So to answer the web-ex performance, it's still absolutely contributing to our top line growth. We have continued to grow our style assortment at each of our brands and continue to feel very optimistic about future growth and opportunity within expanding our assortments at all of our brands. As it relates to pick, pack and ship, it's definitely performing nicely for all of our brands now. As we enter into the third quarter, we'll be lapping the launch of that initiative. Pick, pack and ship is certainly one of the technology advancements that is absolutely helping us to better manage our inventory. And as you look for our inventory numbers into the third and fourth quarter, you can expect to see consistent performance where our sales pace -- or sales growth should outpace our inventory growth in both the third and the fourth quarters.

Our next question is from Oliver Chen of Citigroup.

Regarding the comp drivers. What was the rationale for the ASPs being lower? Was it a mix issue versus your great merchandise margin performance? And just a quick follow-up, on any other banners -- store banners, is there going to be a major or any changes that need to happen in the good, better, best kind of pricing allocation in terms of tweaks that you may or may not be making there?

Well, as to the average selling price, that's a call that's made by the merchants in each brand, and I don't think that there was necessarily a strategic initiative around that. I think that in the case of Urban, the average selling price probably came down just a tad greater than we wanted it to, and I think that, that is in the process of being corrected. So I don't think that there's any change of philosophy or any change of strategy around average selling price.

Our next question is from Marni Shapiro of The Retail Tracker.

Can you talk a little bit on the DTC side? Two questions. Clearly, we know that the store customer goes online. I'm curious if you're almost -- if you're seeing a reverse because your online -- your sites are truly amazing and very differentiated than a lot of the others and offer a lot of product that's not in the stores. I'm curious if you're getting people on to the sites that are then coming into the store after? And I'm also curious on your Free People global as you expand into Japan. You're already shipping to Japan, but I'm curious if you're seeing interest other where -- other places in that region. Even though they can't -- you can't ship to China or places like that yet, are you seeing interest in any of the other regions?

Marni, we have always seen the reverse effect, even going back to the days of catalog. It was not unusual back in the day in the late '90s for Anthropologie to experience women coming into the Anthropologie store with certain pages turned down of product that they wanted and say, "I want this. Do you have this in my size?" So we have seen that happen consistently, and then the same exact thing is happening with the website. So the answer to your question is yes. But I think there is much more of a flow the other way where they're going into stores and then going to web as opposed to the other way around. And in -- yes, and... [Audio Gap]

China and Hong Kong.

But obviously, Marni, this is an area that as I mentioned in my prepared remarks, that it's just in its infancy, and we think that there's enormous growth potential in the Asian market.

Our next question is from Richard Jaffe of Stifel, Nicolaus. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: Just to follow on, Dick, you talked about plans and reinvestment acquisitions, and I'm wondering how these plans balance with some of your buyback activities? And if you could just clarify, the acquisitions both external versus internal developments again and how that might be -- as uses of funds?

Well, every board meeting, Richard, we have a discussion around buybacks, and the board meeting that's coming up a week from now, I don't expect will be any different. It's on the agenda, and I don't think it will be tabled. I think we'll have that discussion. What the board will decide is not known to me at this point. So I can't fill you in with that, but we always consider it. In terms of acquisitions, of course, we have an opportunity to make one or more acquisitions. I've already sort of outlined some of the ideas that we have. They would be acquisitions that would complement and add either product expertise in areas that we don't currently have it, or would add whole new adjacent businesses that would still resonate within the lifestyle of the particular brand that we're talking about. So we're taking a look at a couple. Again, we're very hopeful that this will bear fruit, and we'd hope to have some discussion later.

Our next question is from Barbara Wyckoff of CLSA. Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: Can you talk about how you balance the inventory control goals with the need to drive sales? How much over and above the plans are you funding? And then can you talk about the results of some of the initiatives that you have to sell more products like shoes in the stores without having a lot of extra inventory in the store using central pooled stocks and things like that?

Okay. I think that we have a reasonable amount of opportunity to reduce our inventory, and I don't think it will negatively affect sales. I actually think it will positively affect sales. So our goal that I talked about last quarter is to bring our inventories in terms of weeks of supply down, and we are working very hard. David has made great strides in that area, as has Meg in Free People. So we will continue to do that, and we will, by the end of this year, accomplish our goal of reducing weeks of supply.

Barbara, this is Frank, and a lot of that inventory reduction comes from the fulfillment capabilities that we've advanced within the organization. So the fact that you can now come in to a website and have your order fulfilled directly from a store, pulling from that inventory that's sitting in a store that may previously not have been there in the past because it was out of stock in the fulfillment center is an area where there's opportunity for sales growth. And conversely, when you [ph] -- a customer can now come in to a store and if the inventory is not in that store, literally from a handheld there in the store, we can fulfill from another store or any fulfillment center within each of our brand and have that product shipped directly to our customer. So it's really about the fulfillment capabilities adding to the efficiency of our inventory and satisfying the customer with improved sales.

Our next question is from Omar Saad of ISI Group.

Question on the supply chain side, if you don't mind. What are you seeing on the -- a, what are you seeing on the cost side as labor rates continue to rise in the Far East and how you've kind of configured the supply chain? And looking out, you built this kind of scaled omnichannel, front-end approach that's really differentiated. How do you think about using your supply chain, especially given the breadth and depth of your product offerings across the brands? How do you think about using your supply chain more and more as the kind of competitive advantage, if you will?

The supply chain is becoming more efficient. Now there are challenges to it, and those challenges are the increase, as you mentioned, in the breadth of the product that we're adding to the direct channel. But we believe that it will continue to be more efficient. Our goal, as we've stated over and over, is to reduce the time from design to delivery. And we think that, that allows us to be -- to reduce inventories and to have more efficiency. So we're working hard to do this. We have a number of initiatives with our supply chain group. And again, I -- what I said, I think last quarter was that we have a report on how we are progressing at the end of the year, and I would be happy to give that to you at the end of the year.

Our next question is from Jeff Black of Avondale Partners.

Dick, where are we along the spectrum of absorbing shipping costs, and how significant or maybe how -- maybe not is this? And are we using the omnichannel initiative to offset some of the shipping costs headwinds?

Well, shipping costs now outstrip shipping income. So delivery expense is greater than delivery income. And certainly, we go back 5 years, that wasn't the case, and the trend is pretty clear. Fast and free, I think, is the expression that's been used a lot. And I think that, that is the trend and probably, we will realize that trend sooner than later. But when you think about the differential between direct-to-consumer and bricks and mortar and you consider the occupancy cost of bricks and mortar, you can afford to have quite a bit of shipping baked into every order and still come out ahead. And I think that's where we are on the scale. So we intend to continue to press for at least fast, if not totally free. And we're pretty convinced that in the next 3 to 5 years, it will be both fast and free. And we will absorb that cost as part of doing business, just like we've absorbed rent as part of doing business.

Our next question is from Mark Altschwager of Robert W. Baird. Mark R. Altschwager - Robert W. Baird & Co. Incorporated, Research Division: Just a follow-up on the pack and ship. Any sense for how much that's helping your sales and gross margin performance at this point? And then as the allocation system gets better and inventory gets leaner overall, just wondering what that inventory level looks like at the store level and how that balance affects pack and ship going forward.

Well, we think that the effect on pack -- and as a matter of fact, we know the effect on pack and ship is very positive in terms of the amount of inventory we need. So just pack and ship alone should reduce the number of weeks of supply that we have. In terms of the overall benefit, Frank, do you have that?

Yes. The number -- it's roughly 1% of sales conservatively that we believe is incremental to the P&L as it relates to pack and ship. And again, that's sales where products wouldn't have been historically fulfilled, but now we have visibility across the entire store base as well as all of our fulfillment centers to meet the customers' needs.

Our final question is from Laura Champine of Canaccord.

It's really for Dick and/or Dave. So obviously, the Anthropologie customer is responding to stronger fashion. How long in your experience do you think that those fashion trends that are driving that business will last and are there any structural changes to the way you're developing new fashions, or its personnel changes that make this a sustainable trend?

I'm going to let David take that. We are laughing around the table, Laura, because those trends often last for about, oh, 4 weeks, roughly [ph] . But in seriousness, I think that there's been a lot of changes that David has done, positive changes that allow, structurally and personnel-wise, for us to more accurately predict what the fashion is going to be. And without being too flip about it, we absolutely want the fashion to change. If the fashion were not to change, we would be in big trouble. Dave, do you have any color on that?

No. Just that we continue to focus on who she is and ways that we can continue to outfit her and understand her better, and we've made tremendous progress, both structurally our approach. And we believe, actually, we have a long way still to go to maximize, but a tremendous progress from the team to date.

This ends the Q&A portion of today's conference. I'd like to turn the call over to Mr. Richard Hayne for any closing remarks.

I'd just say thank you very much, and Frank and Oona, as usual, will be here to answer your questions after the call. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.