Urban Outfitters, Inc. (URBN) Q4 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Urban Outfitters Incorporated Fourth Quarter Fiscal 2020 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. I would now like to introduce Oona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN fourth quarter fiscal 2020 conference call. 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, 2020. 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. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results. Please refer to our earnings release in the Investor Relations section of our website. We will begin today’s call Frank Conforti, our Chief Financial Officer, who will provide financial highlights for the fourth quarter. Richard Hayne, our Chief Executive Officer will then provide more detail by brand and comment on our broader strategic initiative. Following that, we’ll be pleased to address your questions. As usual the text of today’s conference call will be posted to our corporate website at www.urbn.com. I will now turn the call over to Frank.

Thank you, Oona, and good afternoon, everyone. Before I speak to some of our thoughts for the first quarter and full fiscal year 2021. I want to note that none of our thoughts below include any potential impacts of the Coronavirus. As of now we’re now monitoring the situation closely, planning for as many foreseeable impacts as possible and doing everything we can to support our business, our employees and our business partners, who may be impacted by the outbreak. With that said, as we kick off the first quarter and fiscal year 2021. It may be helpful for you to consider the following. Our URBN comp sales have started out the first quarter in positive territory. Based on our quarter-to-date performance we believe our URBN retail segment comp sales could register, low single to mid single-digit positive for the first quarter while we believe wholesale sales could remain high single-digit negative for the start of the year. We do believe that wholesale segment sales could begin to recapture positive sales growth in the second quarter and achieve positive sales growth for the 2021 fiscal year. We believe URBN’s gross margin rate for the first quarter could deleverage by approximately 100 basis points. The decrease in gross profit rate could be due to the subscription and wholesale segments for the quarter while the retail segment gross profit margin could be flat to positive for the quarter. Let’s talk about the several moving pieces we have in gross profit margin. First, the operations of our subscription segment business Nuuly will have a negative impact on our gross profit margin for the quarter and most likely for the year. Currently Nuuly’s gross profit margin is negative as we continue to leverage our investments and work to achieve greater operation efficiency. Next, wholesale segment gross profit margin. While it could be healthy and improved in the second half of this year it could negatively impact our first quarter gross profit margin due to higher marked down allowances given to department stores and high inventory levels. Please note, that the wholesale segment achieved a very strong 21% operating profit margin in the first quarter last year. We believe the wholesale segment could reset itself around a healthy mid-teens profitability rate going forward. If this were to occur, this would deliver a nice improvement from the back half of last year. Lastly, if current sales performance continues our retail segment margin could come in flat to positive for the quarter due to improved product performance and lower overall mark downs. Based on our current sales performance and financial plan, we believe total SG&A could grow by approximately 9% for the quarter and the year. Under this scenario, SG&A growth would primarily relate to the following; increased incentive compensation expense versus the prior year. In the prior year, the company and several brands did not achieve their planned financial performance therefore a low rate of bonus dollars were paid. Increased marketing expense to support our retail segment and subscription segment sales growth. As always, if sales plans or other items do not go as planned, we maintain a certain level of variable SG&A spending that we can adjust up or down depending on how our business is performing. Our annual effective tax rate is planned to be approximately 27.5% for the year and 34% for the first quarter. The higher rate in the first quarter is primarily due to timing. Capital expenditures for the fiscal year are planned at approximately $250 million. The spend and increase to the prior year is primarily related to investments in additional and expanded distribution facilities. We will be completing our new European distribution facility in FY 2021. We started this project in fiscal year 2020, this new facility replaces our current one where the lease is expiring and we were more than out of capacity. We believe the new and expanded facility will more efficiently support our growing European business for the foreseeable future. Additionally, we will be starting construction on an additional distribution facility in the United States. This project will take approximately two years to complete phase one. This facility will support the growth and expansion of our retail segment business in North America as well as provide more efficient logistics processing speed as well as faster and more consistent delivery times to our stores and our digital customers. Lastly, we will be opening approximately 39 new stores and closing approximately nine stores during fiscal year 2021. Our store growth number is up slightly from previous years due to favorable lease terms being obtained in North America. Currently, we’re successfully negotiating percentage rent and significant capital reimbursement on many of our new and renewal locations. As a reminder, the foregoing does not constitute a forecast but a simply reflection of our current views. The company disclaims any obligation to update forward-looking statements. Now it is my pleasure to turn the call over to Dick Hayne, our URBN, Chief Executive Officer.

Thank you and good afternoon, everyone. Today I’ll speak briefly about our fourth quarter results and then provide some commentary on current business trends. The macro environment and growth initiatives before turning the call over to your questions. I begin with URBN’s fourth quarter performance while Q4’s 4% retail segment comp beat our forecast additional mark downs were needed to achieve those sales and clear excess inventory. All three brands entered the quarter with elevated retail segment inventory levels. All were successful in lowering them by quarter’s end and thus entered the New Year with reduced weeks of supply and cleaner stock levels. This should benefit Q1 performance but the effect of additional mark downs in Q4 was to drive margins and profitability lower. Off our three brands, Urban had the most challenging holiday season posting a flat comp on higher mark downs and lower margins. Sales of women’s apparel did perform slightly better than total, but we’re also largely driven by higher mark downs. By contrast, reaction to the spring women’s apparel assortment has been more favorable in both North America and Europe. And Urban’s comp sales have improved. We’re encouraged by this trend although it’s still early to make predictions for the entire quarter. Moving to the Anthropologie brand, comps in Q4 were up an impressive 6% driven by positive results in stores and digital. Product execution and marketing improved in the fall, driving that fiercely loyal Anthropologie customer back into stores during the holiday season. The brand did not disappoint and the provided the customer with what I believe is a best-in-class store experience. This drove positive comp store traffic and sales. The brands holiday promotional calendar match last year in terms of number of events, depth of discounts and event duration, even so, sales generated this year by those promotions came in significantly higher than last year and led to higher mark down rate and lower margins. Anthro’s inventory in Q4 started out high, but were gradually reduced during the quarter and ended up in excellent shape. As for Q1, comp sales to-date have maintained the fourth quarter trend. The leadership team is especially pleased with customer reaction to the new optimistic and colourful spring apparel assortment. Once again, the Outlier during the fourth quarter was the Free People brand. Retail segment comps are plus 9% blew away plan. Sales were paced by full price apparel and robust digital growth. A stand out was FP Movement. Free People’s activewear brand. Sales of movement product almost doubled during the quarter and the number of new customers grew by over 120%. In addition to strong comp sales the Free People retail segment also achieved better margins and profits. The customer showed us, she’s very willing to spend at regular price when offered must have products. The sales momentum created in the fourth quarter has continued into the first and we believe Free People could be poised to deliver another outstanding retail quarter in Q1. Unfortunately, the brand did not produce the same excellent results in the wholesale channel where after many years of solid growth revenues declined by 12%. Lower profits were driven by weakness in and charge backs from the North American department store customer segment. All other customer segments specialty stores, digital businesses and international partners showed healthy year-over-year revenue gains. The whole team readjusted allocations to department stores during the quarter and the brand now believes that while Q1 will most likely see softer sales, the channel should return to solid profitability. After that wholesales revenues and profits are planned to stabilize and then start growing again. This short-term blip is no way changes our enthusiasm for the channel or our commitment to our wholesale partners. Now let me turn your attention to the macro environment. The US consumer is in excellent shape. The economy is strong, jobs are plentiful and the consumer sentiment remains high. She’s optimistic and willing to spend when offered compelling products. As we think about the current year, we see plenty of fashion newness in women’s apparel more than enough to drive nicely positive comps. Women’s fashion is currently leading the comp gains at all three brands. Traffic is up on a year-over-year basis in both stores and online and she’s not just looking, she’s buying. There is however one large caveat to this optimism and that’s COVID-19 virus. The risk to our company is two-fold. The first is to our supply chain. Fortunately, we significantly reduced our sourcing penetration in China over the past two years. Moving from over 40% to less than 15% for production of our internally designed product, getting accurate and reliable information from China is currently difficult. But we believe most Chinese factories and mills have reopened with output running approximately 50% capacity. The expectation is output will grow steadily over the next two weeks, as workers clear the virus incubation period and return to work. In case that doesn’t happen or happens more slowly our teams are working diligently to secure alternative sources in other regions. We are aware that some delivery delays in the April, May timeframe are likely. This would impact production flow and could increase landing cost as well, as we form new factory relationships and use expedited shipping. The second risk is disruption to the communities where we have stores, offices and fulfilment centers. We have no store exposure in Asia and our office in China is small. However, there is the potential for flare ups to disrupt communities in Europe and North America. At this time, we have no way to quantify this risk. The bottom line as COVID-19 creates supply chain uncertainty and could create demand uncertainty as well. We are aware of these risks and have taken actions and made plans to mitigate their effects to the best of our abilities, keeping our associate safe is obviously our highest priority. Now allow me to talk briefly about three exciting growth initiatives at URBN. The first is Nuuly, our subscription rental and resale business. Six months after launch customer acquisition is ahead of plan and today it stands above 27,000 active subscribers. Feedback remains overwhelmingly positive and back office [ph] operations are functioning smoothly even areas like laundry where we had no experience prior to launch. It is still early and we have much to learn about this business model, but the reaction so far had excited us for the future. We will share more detailed operating metrics later in the year. Another bright spot is FP Movement that I spoke about previously. Movement offers highly differentiated product and is gaining market share in a rapidly growing women’s fitness and wellness space. The brand currently operates across all three distribution channels including their landing page on the Free People website more than 250 wholesale accounts and over 50 dedicated Movement shops within existing Free People stores. This year the brand will open three standalone FP Movement stores and plans to significantly increase that number in the next two years. Over the longer term, I believe Movement has the opportunity to rival the other URBN brands in terms of revenue size and profitability. Our third growth initiative is opening 30 new stores in North America this year. Over the past five years we exploded the [indiscernible] store openings to trickle because occupancy costs were too high especially in the primary markets. The leasing environment has now changed radically and is once again economically favorable. We have negotiated advantageous leases many of which are presenting trend only with substantial build out contributions. Furthermore, most of the leases are in non-redundant secondary markets which tend to be our most profitable locations on a rate basis. An additional benefit is that opening a store in a new metro area typically drives additional digital sales too. Finally, one of our goals for FY 2021 is to stem the gross margin erosion at our two larger brands. To do this, we plan to increase the penetration of internally designed product. This means investing more in design and creativity. More and better internal product should increase IMU and lower mark down rate. In addition, we plan to invest more in marketing and gently increase AUR. So as we think about the current year, we believe the customer is optimistic, consumer sentiment is strong and our brands are resonating well. She’s currently pleased with our fashion offering and our marketing messages. We realize there’s elevated risks to our business and to global economic activity due to the new virus, but believe any panic like reaction will likely be reasonably short lived. Finally, we excited by our growth in business initiatives and the investments we’re making in our new and existing brands. In closing, I thank all brands and shared service leaders. Their teams and our 24,000 associates worldwide for their hard work, dedication and creativity. I also recognize and thank our many partners around the world and finally, I thank our shareholders for their continue support. That concludes my prepared remarks. Thank you and now for your questions.

[Operator Instructions] your first question comes from Kimberly Greenberger of Morgan Stanley. Please go ahead your line is open.

Dick, the commentary you made about the kick offs here to Q1 sounds pretty encouraging. Obviously it’s [indiscernible] so it’s not two months in. But it seems like you’ve turned the corner perhaps at the Urban division, Free People Movement remains and Anthropologie obviously had a really nice fourth quarter. I’m wondering if you could maybe help us understand – if you think that the new trends are sustainable, if you think there’s a real noticeable improvement and products and execution or if there maybe something else strategy the improvement that we’ve seen thus far. Thanks so much.

Okay, Kimberly. Let me tackle that. Before I answer your question, I just want to remind people once again that when we answer these questions it’s based on our current business and it does not have or include any potential impact from the new Coronavirus. So in answer to your question Kimberly we are very excited about most of the categories that we are dealing with here in Q1 particularly I think women’s apparel seems to be doing very well at all three brands and is comping nicely. Currently the sales are in high single-digit positive territory and when I say that, I want you to remember that we’re on a monthly calendar not 4-5-4 and so that includes an extra day in February. But even when we adjust the comps to remove the distortion of that leap year day, current comp sale trend line is in mid single-digit positive territory. Now Free People as you would imagine as you called out had an incredible fourth quarter and they continue to post the strongest comps, but all three brands are nicely positive so we’re happy about that. February is our easiest month on a comparison basis. But we’re pleased with these trends [ph] and we believe that each brands is likely to call positive in Q1 and collectively we’re planning for retail segment comps to be anywhere between low single and mid single-digit positive.

Your next question comes from Lorraine Hutchinson of Bank of America. Please go ahead your line is open.

I was surprised that a 9% SG&A dollar growth guidance for the quarter in the year. Frank, can you just talk through some of those buckets and then also are there any areas of expense reduction that might offset some of that growth. Thank you.

Hi Lorraine, sure, happy to. I guess, first I would keep in mind that the 9% is actually not that far off from the sales growth opportunity that we have for the upcoming year. I think if we were to achieve mid single-digit retail segment comp for the year in addition to potential non-comp growth from new stores wholesale segment growth and subscription segment growth, our annual sales growth rate could be mid to actually high single-digit. So I would just keep in mind that it’s not that far off from what our sales opportunity is and obviously all those growth rates are dependent on many things including our execution and the macro environment right now. With that said, the main drivers of the increase are first, marketing expense and this is being driven in part by our retail segment as we continue to use marketing to differentiate our brands. Look at our owned brand product and that initiative as well as drive digital sales. As well as marketing to support a subscription business which was only operating for half a year last year so it has an outsized impact on SG&A for this year as it will be fully operational for 12 months. Next is incentive compensation, as I’m sure you’re aware and I’ve assumed we did not hit our overall financial target last year. Therefore the lower intensive compensation payout year for us. The current plan assumes that we will hit our targets and we set that incentive compensation which contributes to the growth rate versus last year. Lastly, please keep in mind. We always had a certain amount of SG&A spent that is variable and can be adjusted up as sales exceed our plans or can be adjusted down as sales do not hit our plans.

Your next question comes from Adrian Yee of Barclays. Please go ahead. Your line is open. Q –Adrian Yee: Dick, I was wondering if you can talk about sort of the branded penetration at Urban Outfitters as we enter this year. Do you think fiscal 2019 there was a lack of a brand trend and we’re now seeing that resurfacing? And then along the same lines, where there any learning’s from Anthro and Free People that you took and then for [indiscernible] Outfitters. And Frank, I’m sorry if I missed it. What was the e-con [ph] penetration and the growth rate during the quarter? Thank you.

Adrian, both larger brands Urban and Anthro have as one of the goals this year to increase the owned brand penetration. Or currently it’s around 50%, 55% as we came into Q1 and we’re working very hard to move that up to somewhere in the 60s to 65% on brand penetration and one of things that’s required in order to do that, is to hire additional creative talents including designers to design and help produce that product. So we’re excited about this concept and it fits in with the whole notion of helping to bring down this trend or take away the trend or an increasing gross margins. So I think that, we hope to accomplish that and we’re in well in our way in the first quarter and we will be working hard all year long. Trish, do you want to add anything to that? A – Trish Donnelly: Sure, as Dick mentioned one of our biggest product initiative this year is to really focus on our internal proprietary brand. And Meg [ph] and I believe given the talent that we have in the design and merchant areas we know we have the opportunities to increase as Dick explained pretty dramatically and pretty significantly this year. And the penetration we’re looking at is actually similar to that two years ago when we ran one of our most successful women’s businesses ever. And as you know some of our proprietary brands include BDG denim, [indiscernible] Out From Under, Kimchi Blue and actually our own Urban Outfitters label and our receipts this spring are being distorted into own brand at the expense of some of the market and national brands. And as we’re seeing only a few weeks in, customer response to these proprietary labels feel so good, she’s responding and of course own brand carries the margin benefit and the IMU benefit. Branded wasn’t – it’s never been as impactful to the women’s business as to maybe some of the others. So the desire to increase own brand isn’t necessarily because branded in women’s was so negative, it’s just that we really believe in the product and the talent and we’re saying that’s where the customers are signing as well.

Your next question comes from Paul Lejuez of Citi’s Research. Please go ahead your line is open. Q –Paul Lejuez: Curious about the Free People Movement standalone stores where are you planning to locate those stores mall versus off mall, number of skews that you plan to run on that business relative to what you’ve got today, top spot, [ph] Urban’s ratio [ph] I’m curious about just anything you could share about what that might look like and just little bit more behind the decision to kind of go standalone as oppose to put in the box. Thanks.

Okay, Paul I’m going to ask Sheila to take that because Sheila’s in charge of it.

So first from a location standpoint. We have two planned locations in the LA Metro area and one in the mall, one in the lifestyle center and our third location that we have planned is in Colorado in a street location. All these locations we have a lot of information about our Free People customer. So we feel very confident and train into these markets. In terms of why standalone, I feel like over the past several years we’ve been protecting the product offering and feel confident in the productivity within the current Free People space so much so that, it needs more space and its own branding opportunity in a free standing store.

Paul, this is Frank I can add as well. I think Sheila’s done and the brand has done a great job at testing. The movement contact within the brand to the extent that even though over the last two years they’ve tested stores that are kind of with adjacent entrances whereas you had a dedicated entrance for FP Movement and a dedicated entrance for Free People collection and where they saw some of that dedicated space entrance windows, store associates wearing the apparel and trained to speak to the apparel, they actually saw elevated sales per square foot in productivity. So I think we’re pretty excited about the opportunity as a standalone stores and how they can perform on their own.

Your next question comes from Kate Fitzsimons of RBC Capital Markets. Please go ahead your line is open.

I guess I want to dig a bit more into the puts and takes on gross margin longer term. Do you still believe in a return to gross margin expansion overtime? Maybe as wholesale inventories normalize and newly game scale. And where do you see the recapture opportunities by the brand? And then secondly in your prepared comments, it sounds like you’re – you spoke to efforts to normalize logistical expense longer term and drive scale there. Just any initiatives we should think of it as deck into 2020 that would be helpful. Thank you.

Hi Kate, this is Frank. The answer is yes. We believe that, there is definitely a fair amount of gross margin recapture that we can achieve in the upcoming years and even years in the back half of the year. Let me talk to you a little bit from a segment perspective. I would start with the wholesale segment whereas while we do believe that could put pressure in the first quarter. I think it’s important to note that, wholesale segment was up against 21% operating profit in Q1 so really strong number that number gets much easier from a comparison perspective, as we get into the back half of next year and believe that wholesale will reset itself in a very healthy mid-teens operating profit perspective helping to recapture some of the margin erosion that has occurred relative to that segment. As it relates to retail segment, we do believe that the retail segment could be flat to slightly positive in the first quarter as you’re starting to see the brands red [ph] price business really started to accelerate more specifically to the Urban and Anthropologie brands and then started to recapture mark down rates. On a longer term basis, I think Anthropologie actually has the largest mark down rate opportunity out of all the brands and is still few hundred basis points off of their historical best and even their historical averages, when the brand is really resonating well. The good news is that, I think we have seen the top line improve and we’ve seen the women’s apparel improve so we do think that there’s opportunity for them to continue to recapture mark down rate this year and even into the future years, which will have a favorable impact on URBN. As it relates to logistics, there’s a lot of moving pieces here. Obviously, the more kind of expensive logistics processing being digital and subscription versus just distributing bulk out through the stores, increasing penetration that puts pressure on the total company logistics line item, that will continue over the next couple of years as those channels continue to increase from a penetration standpoint. What won’t continue, what I would say or excuse me we have the opportunity not to continue is the deleverage related to our lower AUR and AOV and this gets a little complicated. But as you think about the brands in the back half of this year having a lower AUR, so lower sales despite the number of units that needed to be processed in the distribution center, you deleverage that expense and to the extent that we can reduce our mark down rate and reduce our reliance on promotions that creates an opportunity to recapture some of that deleverage and logistics. And lastly, which is a sort of longer term initiative that we’re working through here in North America and a little more near term from Europe, is the distribution centers. We’re investing in more highly automated distribution centers which will be less reliant on labor and we do believe that can create a more efficient logistics and faster processing speeds going forward. So, I know there’s a lot of moving pieces there as we’ve got a handful of segments across our business. It is complicated, but there is opportunity across the logistic line item.

Your next question comes from Simeon Siegel of BMO Capital Markets. Please go ahead. Your line is open.

Frank, just a quickly follow-up on that. Can you quantify how much of the logistics deleverage was tied to AUR and then as you think about the European home office expenses? I guess how much of that is one-time in [indiscernible] as you think about that transition? Thanks.

Sure. I would think about logistics sort of as a third, a third, a third. So a third of that being through the penetration, a third of third doing due to AUR and a third due to just higher wages as well. So as you think about the holiday and just kind of the unemployment market that we’re facing right now domestically and internationally you’ve got wage inflation as well and it’s really a third across all three of those things. What I would say is the AUR is recoverable and the higher wages to the extent that we become less reliant and more automated and efficient down the road with the new facility is also is recoverable opportunity over the longer term horizon.

Your next question comes from Janet Kloppenburg of JJK Research. Please go ahead your line is open.

Two quick questions on Urban. I know you’re feeling encouraged on the revenue outlook right now. I’m wondering what you’re thinking about in terms of improved margins in the first quarter at Urban Outfitters and if you think, that can be worked out in this period or if it will take longer. And secondly, I was interested in Frank’s comment about the top line growing close to the rate of SG&A, 9% rate that the guidance provided. Of course I understand mid single-digit comps might be embedded there. But perhaps you could talk about the impact from expansion year-over-year and the newly impact. Thanks so much. A – Trish Donnelly: Hi, Janet. Its Trish I’ll take the first part of your question.

Hi Trish. A – Trish Donnelly: So we’re very encouraged by reg price and that’s really the secret, that’s really what we’re looking to drive for Q1 and for the spring season as Anthro and Free People have done such an incredible job there. So yes, I do expect us to work it out over the first half of the year when you do the like-for-like comparison and QI over OI [ph].

And Janet as it relates to the top line opportunity, you’re correct. Embedded in that opportunity would be mid single-digit retail segment comp and then you’ve got also contribution from non-comp sales. So as we open new stores last year and are planning to open incremental new stores this year you’ve got contribution of the non-comp in the retail segment. Additionally, we do believe that there’s the opportunity for the wholesale segment to return to growth rate in the second quarter and going forward for the remainder of the year. So you’ve got contribution from the wholesale segment as well and then we believe right now there is the opportunity for Nuuly to contribute a point of comp to the top line for the company this year as well, which gets you into that very, very high mid, if not low-single low end of the high single-digit range for URBN for the year.

Your next question comes from Ike Boruchow of Wells Fargo. Please go ahead your line is open.

Frank, two for you. Just looking at the Nuuly business. The operating losses I guess are accelerated through the year. At what point do those losses start to stabilize and then what - should we expect a larger loss for the fiscal year than the $20 million from last fiscal year. And then just on the wholesale commentary you gave it sounds like Q2 start to see some inflection of profitability, can you talk about the visibility you have on that commentary around gross margins getting better in growth and growth returning – if it’s order book or what you can talk to, but just trying to understand that little better.

Ike, this is Frank. As it relates to Nuuly, we think their losses should be fairly ratable each quarter this year and in the ballpark in approximately $9 million or so per quarter and that would then equate to the annual number. But fairly ratable each quarter around that $9 million or so from a loss perspective. You have to remember as well that this is something that we believe in for our future and a long-term growth opportunity for our future. We are building into some of the investments that we made to support this business and support the customer experience and right now the customer feedback has been overwhelmingly positive and we’re happy with the subscriber that we’ve been able to capture in the timeline that we’re starting to see and starting to project going forward. As it relates to wholesale, we believe we’re starting to see the improvement now in the margin. So if you were to sort of looking at the sequential from Q3 to Q4 and now into the first quarter and we believe we have the opportunity in the first quarter to show improvement from where we ended the back half of last year and then continue to show the improvement over the second and going forward quarters remainder of the year. Obviously, the comparison gets much easier as you get into the back half of the year like I said; we’re up against 21% operating profit in the first quarter. So we could be down on a year-over-year basis but if you were to look at from sequential basis, we do believe that we’re starting to show improvement in the first quarter versus where we finished in the fourth quarter.

Your next question comes from Marni Shapiro of The Retail Tracker. Please go ahead your line is open.

Congrats on the improvement and much happier looking stores. Can you talk a little bit about Europe, it seems like there was a little inconsistency in the brands there? And I’m curious if the brands are being impacted by local business. It looks like Urban’s return the corner and some of the others didn’t as well. Can you just dive into that a little bit, what you’re seeing there?

Sure, Marni. This is Dick. Now that the Brexit uncertainty is history. The European business that we see is rebounding pretty nicely. The Urban brand in Europe is enjoying a very strong season with most product categories putting up excellent comps and that’s being led by both the women’s and men’s apparel which we’re happy about obviously because that’s where lot of the margin is. The Anthropologie and Free People brands were also producing positive comps, so we’re happy about that as well. Now if you’ll recall late last year, we opened our new and expanded offices in London and as Frank mentioned we completed work on our new distribution fulfilment center, that should be coming online later this year, it’s partially online it’s not fully operational. These investments will accommodate almost three times our current sales volume, so as the brands add more stores and look to grow their digital business which is really doing extremely well right now in the Europe, that we’ll be able to satisfy their needs. So, we’re very bullish about Europe right now and are 100% in, in terms of supporting their growth.

Your next question comes from Mark Altschwager of Robert W. Baird. Please go ahead your line is open.

So you’ve outlined a lot of pieces model today. We have the 9% SG&A growth expect revenue near that level. Outline some GM pressure in the near term probably a bit tougher to tell that will look like in those default season but obviously some easier comparison. So I’m wondering if you can just kind of step back and talk about how you’re thinking about the earnings growth algorithm over the next few years as we put all of that together. And then some of the business does generate a good amount of cash, CapEx stepped up a little bit here in the near term. But you’ve been opportunistic with buybacks historically how does that work into the EPS growth algorithm as well? Thanks.

Mark, first of all let me just jump in on the buyback and capital allocation. So you know I think we remain to committed to returning our surplus cash to our shareholders through stock repurchases. I would say, with that being said our first priorities are always supporting our business and our growth base initiatives and right now our business needs and distribution center projects will be the focus of our primary spend in the upcoming year. I will say as a reminder in the last three years we’ve repurchased just shy of 20 million shares and deployed almost $500 million in capital for share repurchases.

Your next question comes from Janine Strichter of Jefferies. Please go ahead your line is open.

First question just on AUR. Dick, I think you mentioned the opportunity to gradually migrate the AUR higher. Does that something you see more the function of just the gross income of the mark downs you’ve had this year or is there a plan to actually move up ticket? And then also curious on the comments on Anthro the advertised promotions being flat year-over-year, but more sales on those days. Do you think that kind of industry wide phenomenon or is there anything specific to answer there and anything you can do to migrate some of those sales back to full price? Thank you.

Janine, this is Dick and I’ll ask Hillary to talk about the Anthropologie-specific question. As to AUR, we think that both of the larger brands have an opportunity to raise AUR. First and foremost, by reducing their mark downs, but secondarily we think that there’s opportunity for both brands as we do more internal design to raise AUR and when I said gently, I mean gently. We’re not trying to make any quantum leap here in AUR. But a couple percentage points up in AUR really makes a significant difference in terms of leveraging the logistics and delivery expenses as well as the gross margin. So, I think that we’re putting a lot of effort in design and we’re putting a lot of effort into our own brands. We’re spending more money in marketing and all those are design to reduce mark downs and increase the AUR. So, Hillary, will you take the second part. A – Hillary Super: Sure. Hi. I’ll speak first to the potential about reducing mark downs and I would say yes, absolutely we have the potential to reduce mark downs particularly in the first three quarters of the year, we’re already seeing it as we enter the spring season early days of course, but we’re seeing mark down rate coming in lower and really nice full price sales, so we know the potential is there. As it relates specifically to the period between Black Friday and Christmas. This year as you know we had a condensed calendar and so each of those promotional days that we’re up against just count it more and I imagine that was the case throughout the industry, but I can’t say for sure. And I do think that we will continue to see that sort of pressure in those six weeks of the year. But overall on an annual basis, yes. We’ll be able to improve.

Your last question comes from Susan Anderson of B. Riley FBR. Please go ahead. Your line is open.

I guess really quick on the private label front, do you guys expect to be I guess at 60% for the back half of the year, is it a number where we should think about gradually getting there towards the end of the year. And then, I guess maybe if you could talk a little bit on the branded side of things. Are you seeing any new brands that you can mix into the mix and in terms of the brands that you’ve had in the store over the past year, so are you seeing any new styles or you’re seeing resonate any better with the consumer now in the spring time? Thanks.

Are you talking about a specific brand? Of our brand?

Just in general, I guess maybe some of the retro brands more of the sport type brand.

Well the first part of your question I’ll answer, which is, yes, we think we can get up into the 60s and I think we’re actually close to that right now as we speak. So I think we’ll have a very good shot at hitting our goal 65% penetration this year. So we’re very excited about that. We think it’s the right thing to do and the customer is telling us, she thinks it’s right thing to do as well. You want to talk in at all about brand. A – Trish Donnelly: Sure and from a branded perspective, yes there are some athletic brands that are less important currently than they were this time last year. However, there are some other athletic brands that we carry that are actually more important, so it’s not really a blanket. There is no real blanket answer to that question and in terms of newness. We’re always looking for new and emerging and exciting and since it’s a very competitive world out there. I’m little reluctant since all [indiscernible] working. But it’s always been part of the nexus at Urban as you’ve known part of our DNA and we have a talented team, who’s always looking to new and [connect].

So thank you all very much. It’s been a pleasure and I hope to see you or talk to you in three months.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.