Eric Artz - Chief Financial Officer Glen Senk - Chief Executive Officer, Interim Global President of the Urban Outfitters Brand and Director

Stacy Pak - Barclays Capital Richard Jaffe - Stifel, Nicolaus & Co., Inc. Dana Telsey - Telsey Advisory Group LLC Christine Chen - Needham & Company, LLC Michelle Tan - Goldman Sachs Group Inc. Paul Lejuez - Nomura Securities Co. Ltd. Adrienne Tennant - Janney Montgomery Scott LLC Brian Tunick - JP Morgan Chase & Co Omar Saad - ISI Group Inc. Marni Shapiro - The Retail Tracker John Morris - BMO Capital Markets Canada Erika Maschmeyer - Robert W. Baird & Co. Incorporated Jennifer Black - Jennifer Black & Associates Neely Tamminga - Piper Jaffray Companies Kimberly Greenberger - Morgan Stanley Elizabeth Pierce - Roth Capital Partners, LLC Lorraine Hutchinson - BofA Merrill Lynch Janet Kloppenburg - JJK Research

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. Second Quarter Fiscal 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission. I would like to introduce your host for today's conference, Mr. Glen Senk, CEO. Sir, you may begin.

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 majority of our executive management team. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3-month period ending July 31, 2011. 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.

Thank you, Glen. The following summarizes our second quarter fiscal 2012 performance versus the comparable quarter last year. Net sales increased 10% to a second quarter record of $609 million. Income from operations decreased 18% to $88 million, or an operating margin of 14.4%. Net income was $57 million or $0.35 per diluted share. Comparable retail segment sales, which include our direct-to-consumer channel, increased 1% with increases of 18% and 1% at Free People and Urban Outfitters, respectively, while Anthropologie was flat in the quarter. Total company comparable store net sales decreased 2%. Direct-to-consumer comparable net sales rose 15% with direct penetration increasing to 19%. Wholesale net sales increased 7% to $32 million. Gross profit decreased 2% to $231 million, while gross profit margins decreased 459 basis points to 37.9%. Selling, general and administrative expense, expressed as percentage of net sales, increased 32 basis points to 23.5%. Comparable retail segment inventories at cost, which include our direct-to-consumer channel, were 12% higher at quarter's end while comparable store inventories increased 9%. Finally, during the quarter, the company repurchased and retired 2.3 million common shares for $67 million, leaving 3.3 million shares remaining on the current authorization to purchase up to 10 million shares. Turning to our key business metrics. I'll begin by providing detail on the sales for the quarter. New and noncomparable store sales contributed $54 million to the consolidated net sales increase. The company opened 10 new stores in the quarter, 4 Anthropologie stores, 4 Free People stores, and 2 Urban Outfitters stores. Within the quarter, total company comparable store sales were strongest in June, followed by July, and then May. Within North America, sales at Anthropologie and Urban Outfitters were strongest in the South, and weakest in the Northeast for Anthropologie, and weakest in Canada for Urban Outfitters, while sales at Free People were strongest in the West and weakest in the Northeast. In Europe, sales at Urban Outfitters were strongest in Continental Europe and weakest in Ireland. By store type, sales at Anthropologie were strongest in freestanding and lifestyle centers, while Urban Outfitters were strongest in malls and lifestyle centers and weakest in street locations. Sales at Free People were strongest in lifestyle centers and weakest in malls. A comparable store net sales decline was driven by decreases in total transactions and average number of units per transaction of 3.1% and 0.7%, respectively, these decreases being partially offset by a 1.6% increase in average unit selling prices. Direct-to-consumer revenue increased 17% to $113 million, including a 15% increase in comparable sales. The penetration of direct-to-consumer net sales to total company net sales increased 100 basis points to 19%, with results largely driven by a 31% increase in website traffic to over 32 million visits. For retail segment sales, intimates and women's accessories were strongest in Anthropologie. Men's and men's accessories were strongest at Urban Outfitters, and intimates were strongest at Free People. Wholesale segment sales for the quarter increased 7% to $32 million driven by a 16% increase at Free People offset by the reduction in lease starter sales as a result of the decision to exit the channel in May of this year. I'd now like to turn your attention to gross margin, operating expense and income. Gross profit in the quarter decreased 2% to $231 million and the gross margin rate decreased 459 basis points to 37.9%. This decline was primarily due to increased markdowns to clear slow-moving women's apparel inventory at Anthropologie and Urban Outfitters, as well as occupancy deleverage caused by negative comparable store sales. Total selling, general and administrative expenses for the quarter as a percentage of sales increased by 32 basis points to 23.5% due primarily to e-commerce and related catalog investments. Additional items contributing to the deleverage in the quarter were investments in new technology and our new distribution of fulfillment centers in Europe. The company's effective tax rate was 36.2% for the quarter, versus 33.3% for the prior comparable period. The prior comparable tax rate was favorably impacted by certain nonrecurring items. Total inventories increased $60 million to $303 million or a 25% increase over the prior year period. Approximately half of the dollar increase was due to noncomparable receipts versus the prior year, specifically, $15 million of early fall receipts in the final week of July, $9 million more in transit, and $6 million of fabric and BHLDN inventories. The balance of the increase is driven by the acquisition of inventory to stock new retail stores and to support direct-to-consumer growth. Overall, we are comfortable with the level of our current inventory. As we look forward to the balance of the year, while we will not provide specific guidance, it may be helpful for you to consider the following: We plan to open 55 to 57 new stores this year, with the increase over our first quarter remarks coming from Free People and Urban Outfitters in Europe. Given the current environment, we believe it is prudent to anticipate third quarter gross margins to be somewhat similar to what we experienced in the second quarter. While we are focusing on managing our selling, general and administrative expenses, we are also committed to investing in our long-term growth initiatives. Our estimated leverage point for expenses in the second half is an approximate 2% comparable store sales increase. We remain on track with our long-term capital projects, including the addition of a West Coast fulfillment center and the expansion of our home offices. We continue to plan for fiscal 2012 capital expenditures of $175 million to $195 million. Finally, at this time, we are planning our annual effective tax rate at approximately 36.5%. And finally, the foregoing does not constitute a forecast, but is simply a reflected of our current views. So with that as a financial backdrop, I'll turn the call back over to Glen, who will proceed with his closing commentary.

Thank you, Eric. The quarter materialized much as we expected. We reported record second quarter sales. Free People delivered another record sales in profit performance, and we are on track with our plans to improve the all important women's apparel categories at both Anthropologie and Urban Outfitters. While our overall second quarter performance was not up to our normal standards, a 14.4% operating margin serves as a testament to our strong business model, especially in uncertain and volatile times. Of course, our #1 priority continues to be product, differentiated and compelling product. On the first quarter call, I spoke about organizational changes within our merchant ranks, and I am happy to report on the progress we made this past quarter. We have greater alignment and clarity with our assortment architecture, including an enhanced vision for top of pyramid product, the objective and strategy for market branded goods, and the all-important role of our own proprietary brands. We continue to expect product offerings into categories where we see meaningful opportunity. We are improving distortion strategies into products and attributes we wish to drive. We have begun to enhance our merchant organization by splitting the creative and operational functions, thereby unencumbering creativity. And finally, we are executing our overarching strategy to treat the web assortment as the alpha, presenting the fullest and most complete expression of our brands on the web. In fact, direct-to-consumer remains a focal point for the entire organization based upon what we believe is a paradigm shift towards online shopping. We're beginning to see results from our consumer insights initiative, which we have translated into deliberate strategies for increasing customer acquisition, targeted communication, and further expansion of our web assortments. We have continued to push investment into sites themselves, social media, video, mobile technology, and personalization. We're focused on fulfillments as well. We broke ground on our new West Coast fulfillment center in the quarter. When the facility is operational in the third quarter of next year, we'll be able to reach 80% of the U.S. with 2-day ground shipping service versus just 40% today. Our International Direct business continues to outperform with the penetration of global direct sales increasing by 500 basis points in the first half of the year. We expect this increased penetration to continue supported in part by the successful opening of our U.K. fulfillment center during the quarter. The execution of our store teams, both in the head office and in the field, has been outstanding. We believe our stores look better today than they did a year ago, and we opened more stores during the last 12 months than at any other point in our company history, with new store productivity equaling the existing fleet. Mobile POS is now in 107 stores, with plans to be in all stores by the beginning of the holiday. We have also completed the implementation of our new order management system so that domestic brands now operate with a single SKU across all channels. As we look to the second half of the year, I am reminded of a comment I made this time last year, that I believe we were facing a slow and lengthy recovery punctuated by periods of uncertainty and inconsistency. As Eric mentioned, June and the first half of July were the strongest part of the second quarter, but we believe the recent political and macroeconomic events have influenced our customer, especially at Anthropologie, where the trend has slowed compared to the other brands. So while we are confident in our strategies and believe we have made great executional progress, we remain cautious for the second half, anticipating gradual improvements in our comparable sales and financial performance over the balance of the year and into spring 2012. We have a clear, long-term vision for our company and our prospects for growth. We are a multibrand, multichannel, multinational retailer with tremendous opportunity within our core brands in North America and abroad, with future seeds for additional growth in our new concepts, including BHLDN, which has exceeded our expectations and is opening its first store this week in Houston. Before opening the call to questions, I would like to thank the entire URBN organization for their hard work and dedication, and our shareholders for their continued support. At this time, I will invite questions, limiting each caller to one question. Thank you.

[Operator Instructions] Our first question comes from Christine Chen from Needham & Company. Christine Chen - Needham & Company, LLC: I wanted to ask, on the last call, you talked about having the merchants be more challenged and risk taking. I just wanted to see if that is happening within the organization, and does that imply that the assortment is even going to be more broad and more shallow? And how do you mitigate, I guess, markdown risk with that?

Yes, Christine, it's Glen. I think the organization has absolutely embraced the concept of taking risk. And it really goes back to what I said in my prepared comments about assortment architecture. And when you take risks, you try to be methodical about it so you try to maybe have 40% of your assortment dedicated to kind of some version of what you know you're up against, maybe 30% to 40% predicated on a current trend in the business, and then 20% to 30% on new ideas. And we may change those percentages, or will change those percentages based on the category, whether it's trending, whether it's trending upwards, trending downwards, and so on. But we definitely have been methodical about risk taking, and I think the organization is responding well to it. I think you'll see it. If you go on the sales floor now, you'll see it, in both the big brands and Free People. And I think you'll see more of it as we go into the fall. In terms of the potential impact on margin, obviously, we don't plan to hit every item, meaning we don't plan to succeed with every item. We plan a certain amount of failure. Quite frankly, if we don't have failure, it means we're not taking enough risk. And that's part of the merchandise planning process. Christine Chen - Needham & Company, LLC: And if I could just have a follow up. Have you SKU-ed more towards accessories? That's what it seems like on the floor, and that's something you commented on in the last call, and you know accessories seem to be doing better in intimates?

We definitely -- as I said in the prepared comments, and really all 3 brands have put more money behind the category that are working. And I'm sure I know everyone, where at the beginning of the earnings season, but I'm sure you'll hear from a lot of people that the intimates business is strong overall. They're a part of the accessories business that are strong overall. And I think apparel, to a certain extent, is hit or miss. If I look at Anthropologie, I think we have 9 major apparel categories. And I think 7 of them I'm happy with right now, and 2 of them have work to be done. At Urban, I think we're probably in a slightly better place right now, but we don't have quite as many -- within the overall assortment, there maybe aren't the highs that Anthropologie has, but the lows aren't as significant. But clearly, as I said on the last several calls, I think the real action is happening for the most part in non-apparel categories. So that's probably what you're seeing.

Our next question comes from Dana Telsey from Telsey Advisory Group. Dana Telsey - Telsey Advisory Group LLC: Glen, can you talk a little bit about the complexion of SG&A and how you're thinking about it for the balance of the year in light of the sales trends? Because what we've noticed in the stores are some improvement, in even just the way the stores look with new signage, and an increased focus on brands.

I'll ask Eric to talk about that question. And then if I have any follow up, I'll add to it.

Yes, Dana, our SG&A increases, we would anticipate, as I mentioned in my comments, to leverage similar to our history. So we've historically talked about a 1 to 2 percentage leverage point. I think we'll be probably closer to the 2% range. And it is due to some of the things that you mentioned. We called out additional creative spending in direct-to-consumer, catalog spending. We are investing in the store's technology, BHLDN and so on. So we're still operating within our overall range, but we'll continue to invest in the areas that we feel are important.

And just to tack on to that, Dana, I want to emphasize what we've said for the last several quarters is we're a growth company, we're investing in our infrastructure, and in our growth and in our brand equity. And while we're not happy with the level of profit that we earned in the second quarter. On a comparative basis, it's reasonably good. When you benchmark it to the industry, we certainly are generating a lot of cash, and we are very, very careful with how we spend money. We don't spend money where we don't expect to see a future return. But when you look at how we build our brand equity, be it at the website, digital merchandising, store renovations, the product itself, we believe it's absolutely the best use of our money.

Our next question comes from Adrienne Tennant from Janney Capital Markets. Adrienne Tennant - Janney Montgomery Scott LLC: Glen, I just wanted to understand the gross margin, how it plays into the inventory. It sounds like the comp trend should be sort of similar on an absolute reported basis to what we saw in maybe Q1 and Q2, perhaps improving. Inventory, you're comfortable with it being at the levels it is. But then the gross margins are coming under some severe pressure. And in the second quarter, the way I understood it was that there was clearance from the low planned sales in the May time period. And I'm just wondering shouldn't we be seeing sort of the third quarter with more full price selling, and why we would have a similar type of gross margin pressure?

Okay, so I'll try to take a stab at this question, and then I'll probably ask Eric to help me a bit. We do feel comfortable with our inventory. I want to clarify. Our average weeks of supply on hand in the second quarter was actually slightly better than a year ago. If you strip out the last kind of week of the quarter -- and remember, we do not manage our inventory to a quarter's end. We manage our inventory in a week-in, week-out basis. If you strip out the early receipts, the majority of which related to the fact that we're voting more because of the cost pressures, I think our retail comparable segment inventories were roughly 4% up against the 2% sales increase. And we feel very, very comfortable with where that is. In terms of the gross margin, first of all, we're not making any forward statement about comp sales. But with regard to the gross margin, the pressure really comes from the productivity of the assortment of the product, itself, not the level of inventory. The inventories are very, very lien. If we had -- if we were in the zone in terms of picking things that the customers want, I think we'd have historic highs with gross margins right now. The issue is we're not getting the level of productivity that we need to get from every category. I think we do expect some gross margins sequential improvement, and Eric can speak to the specific numbers. So we're not looking for -- we're looking for improvement but we're certainly not looking to historical levels yet. Eric, you want to help me with that?

My only qualifier, Adrienne, would just be to say that when I made a comment earlier about our gross margins being, or anticipating our gross margins to be similar to Q2, I was referring in absolute terms. So roughly 38%. And that would translate to about a 300 basis point decline versus the prior year third quarter. Where in the second quarter, we delivered a 460 basis point decline. So I just want to clarify, I was referring to absolute terms.

Our next question comes from Richard Jaffe from Stifel, Nicolaus. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: I guess a follow-on to the inventory clearance and just something to clarify on the prior question. Clearance inventory as a percent to total this year versus last year, is it about in line? Have you taken care of your problems entering the third quarter? Are you...

Richard, we -- I mean I don't think we'll give disclosure on that. But you've followed us for a long time, I can tell you we take markdowns fast. So that has not changed. If fall product, has come in, in the last 4 weeks, and we're not happy with the way it's selling, you'll see it markdown. I mean we have never held markdowns, and we won't begin. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: And can you just identify your term of productivity of certain categories not being up to snuff, would that be...

Yes, Richard, we talked about that on the last call. I have to find a better way to articulate this because I know I've created some confusion. But if we're on a trend in business, it's easier for the merchant team, and the designer team quite frankly, to design into what's selling and to get a high level of regular price sales out of what they buy. When the cycle is not as clear, there are more hits and misses. So you're not going to get the regular price selling that you would get when you're on the upward part of the cycle. So it's as simple as that. In the intimates business, which is very strong for us now in all of our brands, we're having very, very high regular price selling. So it really is category dependent. Eric, I know you wanted to add a comment.

I would have just added on the inventory, while we don't talk about the content of it, we do comment frequently on the aging of our inventory or the freshness of our inventory. And this period compared to where we ended in July of last year, our inventory is more current. So we measure the days from when it arrives at the DC until it's sold, and we have a very high percentage of current inventory. And like I say, that percentage has improved over last year.

And I would say in directional terms, we, in units, we have less markdowns on hand today than we did a year ago. I would say the markdowns are maybe a little bit deeper on the units that we have.

Our next question comes from Paul Lejuez from Nomura Securities. Paul Lejuez - Nomura Securities Co. Ltd.: Just thinking a little bit about cash, wondering what made you slow down the pace of buybacks and what we should expect going forward. Also wondering if you're seeing any different terms from your vendors?

Yes, I'll pass that to Eric.

So Paul, we're happy with the progress that we made in the quarter. More importantly year-to-date, considering where we've been historically. So having purchased 2.3 million shares in the quarter with 3.3 million still available on our authorization, we'll continue to evaluate that program. We'll continue to be opportunistic, but we remain committed to it. And the second part of the question was about supplier...

Whether we're getting terms from suppliers? Paul Lejuez - Nomura Securities Co. Ltd.: Yes.

No, it's -- I mean quite frankly, we're looking for the best possible -- as always, we look for the best product with the best possible prices.

Our next question comes from Jennifer Black from Jennifer Black & Associates. Jennifer Black - Jennifer Black & Associates: Glen, I wondered on a scale of 1 to 10, where do you feel you are as far as progress in the women's apparel and accessories? And then I also wondered when Judy and Johanna would have an influence at Anthro, and it's Terence at the urban division?

Yes, if you look at the 2 businesses, they performed relatively equal in the second quarter and pretty much across the board. And I feel good with the progress both brands made. As we said in our prepared comments, I'm a little concerned about the last 10 days or so in Anthropologie. And I'm not sure how much of that has to do with what went on in Washington or Wall Street. And how much of it, quite frankly, may have to do with something else. And it's early in the season and 10 days don't make a trend. But in the second quarter, the 2 brands are virtually identical. I think as we said earlier, I think we're going to have constant improvement throughout the year. And I don't know that I can give it 1 to 10, but I can tell you I think historically, both floors look a lot better today than they did 3 months ago or 6 months ago. With regard to Judy and Johanna at Anthropologie, Judy started at the beginning of the year. When she was here, she was looking at fall finalization. That's product that came in stores 6/30. I think she and Wendy made minor tweaks. Johanna then joined the business in March. I would say they're -- you'll begin to see some meaningful impact from them in kind of 9/30 deliveries. I did just look at spring finalization and I have to say, and Eric is probably going to kick me, but I think it's some of the best product I've seen in Anthropologie in a long time. Now there is still some holes in the assortment, but I absolutely loved what I saw. So I feel very good about that. In terms of Terence, Terence has joined us on May 6. And Terence has, I think within about 2 weeks of joining the business, it's like he's been here 10 years. Terence loves the brand, the brand loves Terence. He's been a blast to work with. I loved working with the Urban team very directly. They're earnest, they're fast. In a lot of ways, it's easier to move things at Urban than it is in Anthropologie because it's more item focused, less collection focused. So you might even see the impact at Urban happen faster. I think you're actually beginning to see it on the floor now. So hopefully that answers your question.

Our next question comes from Marni Shapiro from the Retail Tracker. Marni Shapiro - The Retail Tracker: So let me ask you a quick question. As we see trends start to emerge at the brands, you said that they performed about equal in the second quarter. Would you say that the hits, or the things that you are starting to feel are bankable are about the same? If it's x% at urban that you feel really good about and feel very clear about, is it about the same level at Anthro? And any update on Free People? I know they've been on fire. I just wanted to make sure that nothing sort of changed there.

Well, again, I can't make forward looking comments but to answer the first part of your question, I think that there are meaningful opportunities in all 3 brands. And there are some consistencies across all 3 brands in terms of what's hot within a specific category. But clearly, the interpretations are different, and there are also differences. But I think all 3 brands have plenty of opportunity. In terms of Free People, they continue to execute very, very well. I think the floor right now looks terrific.

Our next question comes from Erika Maschmeyer from Robert W. Baird. Erika Maschmeyer - Robert W. Baird & Co. Incorporated: Could you provide any other color around your comment around the slowing trends at Anthro? Any -- can you dimensionalize it at all, when you first saw it?

Yes, I don't want to give that specific of information. Obviously when we issue the Q, we'll provide more insight. But just to reiterate, the 2 businesses performed almost identically all throughout the quarter. I would say that trends for the most part at Urban and Free People has continued the way we thought it would continue. And urban and Anthropologie definitely slowed down. It seemed to coincide with the friction in Washington. Quite frankly, I'm keeping a close ear this week to the other earnings calls to see if anyone else noticed a hiccup. I mean I will say in 2008, Anthropologie was affected before urban. So there may be a little sensitivity. But it also may just be, they don't like the current floor set. So obviously, the team is working on every angle. They're look at their inventory. They're looking at the visual merchandising. They're looking at the website. They're obviously being very proactive. So I'm sorry. If I knew more, I would tell you more. I'm telling you what I know based on a 10-day trend.

Our next question comes from Janet Kloppenburg from JJK Research. Janet Kloppenburg - JJK Research: Glen, let's just stay on Anthropologie for a second. My question was can you discern when the new products for fall came in and perhaps that there was a slowdown because of lack of enthusiasm for some of the new receipts, I mean is there a product category that slowed down that had been strong? And also with respect to Urban Outfitters, I was wondering if the improvement that you saw throughout the quarter, and that I think has continued, was being witnessed in the Women's business or -- and is the acceleration there, has that brought it up to where the Men's business is? If you can give us some sort of calibration on the change in the women's business at Urban Outfitters, I would appreciate it.

Yes, so in Anthropologie, Janet, I don't think -- as I said, 10 days isn't a trend, so I don't think I have enough data to really tell you where we're losing it. It's kind of across the board, which makes me think that it's not about a specific category. And we'll make adjustments to the floor set, as I've said, adjustments to the website, where we do have action. We'll try to move the seats up, and we do have categories that are performing particularly well. At Urban, I'd say the Women's is not up to Men's yet, but there was definitely improvement in Women's. I feel, and I know we've had some off-line conversations, we feel the floor looks crisp. You can tell what they're behind. I think there's a real clarity of what they stand for going back to school, and I think they've made a lot of progress. Janet Kloppenburg - JJK Research: Okay. And on the Anthropologie business, did you see a change in the direct channel as well as in the retail store channel?

No, direct, I would say whatever happened in -- whatever trends there were in direct, they were less sensitive to the last 10 days. Janet Kloppenburg - JJK Research: What does that tell you, Glen?

Janet, I don't know. I mean, I'm really being honest with you guys. I'll know more probably by the end of the month. I really just don't know. And Eric, do you want to add... Janet Kloppenburg - JJK Research: Okay, I'm sorry if I pressed.

No, no, no, I appreciate the dialogue. I mean, I look -- I'm going to have my ear to the ground for the next 10 days, listening to what everyone else says. Janet Kloppenburg - JJK Research: It just says something to me about mall traffic, perhaps. The e-commerce customers are alive and well, there's some reluctancy to go to the mall maybe or to store, shopping.

Yes, I really -- I just don't know yet. Believe me, we're working very hard to understand it.

Our next question comes from Lorraine Hutchinson from Bank of America. Lorraine Hutchinson - BofA Merrill Lynch: It sounds like you're accelerating the rollout in Europe. I was just hoping for a little more detail. I mean how is the comp trend going? How is your customer reacting to some of the macro factors over there? Just any more color on that business that you could provide would be great.

Yes, I'll let Eric handle that.

Sure. So the comp store performance improved sequentially in Europe as we went through the quarter, and as compared to last quarter. So the economic challenges over there are rather pointed as well, so we do still feel reductions in traffic. But the team is really rallied, conversion is up, so we're very pleased with how they've reacted and managed their business. Glen also mentioned in his commentary about the 500 basis point increase year-to-date in our Direct business internationally. So that's a testament to how our brands are resonating. And I just, again, want to make sure that you understand it, that is additional business in markets that we've served for more than a year. So we're not expanding into new markets, we're expanding within the markets that we've been operating in. So yes, we continue to build our confidence. We continue to make progress. And we have, as a result, increased our store count slightly as we progressed through the year.

The other thing I would add is we're excited that 2 of the stores this year will be in Germany. And as Eric said in his prepared comment, the continent was the strongest in Europe. They were nicely positive. So we believe we have a lot of opportunity in Germany.

Our next question comes from Liz Pierce from Roth Capital Partners. Elizabeth Pierce - Roth Capital Partners, LLC: So Glen, thinking about Anthropologie and thinking about the number of customers, I think you mentioned the last quarter $7 million, but I think that was companywide, that you have in relationship with. Any thought on reaching out to these customers to see perhaps why maybe business has slowed down over the past 10 days?

Yes, Liz. We're doing that. So actually -- and the number just for everyone's information, across all our brands, is 8.4 million, and Anthropologie is about half of that at this point. We'd have to get back to you on those specifics, but my guess is Anthropologie is roughly 40% to 50% of that 8.4 million. And absolutely, Liz, we're reaching out to people. And you'll also see a little bit more targeted marketing over the next couple of weeks. The good news is that we're beginning to start to see the benefits of Merkle, so we're able to do targeted e-mails. In other words, segment customers by what they bought recently, what we believe they're interested in, and communicate to them specifically about their interest rather than General Communication. We're able to do surveys, go out to people and understand if they're shopping more or less. If they're shopping more and not with us, where are they shopping, and so on. We had a fantastic blogger event a couple days ago. I think we've gotten over 2 million mentions right now. So we got a lot of good feedback from the blog community. So I mean, as I said earlier with Janet, we're doing everything we can to get our arms around this.

[Operator Instructions] Our next question comes from John Morris from Bank of Montréal. John Morris - BMO Capital Markets Canada: A lot of focus on Anthro, but Glen, I wanted to kind of come back and follow-up on Janet's question earlier. With respect to the merchandising at Urban and the successes that you had seen in the second quarter on the women's side. Men's obviously strong, but can you care to comment a little bit more on where you saw the real nice pickup in women's categories, and the opportunities that you hit there?

Yes, what we really spent time doing was talking about assortment architecture at Urban. And we've talked about the purpose of brands, the purpose of their own product, the purpose of basics, how to balance the relationship between all of those things. We call it the product pyramid. We talked about where to take risks, how best to manage those risks. We spent a lot of time talking about buying product that we love, product that elicits an emotional reaction when you hang it in front of 15 or 20 people as opposed to worrying about how the hell you're going to cover last year or 2 years ago best seller. And it's really just getting people to kind of connect with their emotions and their vision of how to move the brand forward. And I think that -- I'll reiterate, I have loved working with the team. They are earnest. They are smart. They are fast. They are fast learners, and they're making great progress. And Terence hasn't been with us very long, but he is an outstanding trend merchant. He has terrific taste. He has probably spent, I'm going to say 10 days, getting to know our customer in the stores, and traveling. And I just think all around, it feels a very good to me. The morale is good. People feel very, very focused and positive.

Our next question comes from Kimberly Greenberger from Morgan Stanley. Kimberly Greenberger - Morgan Stanley: Glen, I'm wondering if you can talk about the productivity of inventory comments you made earlier. And how you think the assortment productivity looks as you get through third quarter into fourth quarter. And is there a good way to help us understand when you think the inventory productivity might get back to historical kind of levels?

Yes, I can't go out probably much beyond third quarter. I mean we certainly expect to see sequential improvements from quarter-to-quarter. But I just don't know when we're going to get back to historical highs. And it really -- it's really about having the key buys, sell-through at regular price, where we need them, where we plan them to sell, and where we need them to sell. And I kind of will know it when I see it. I mean we're seeing progress, as Eric said, we're kind of guiding you to a 300-point delta between last year and this year, for Q3, which is an improvement over both Q2 and Q1 of this year. I don't know when we'll get to flat. I hope sooner rather than later. Believe me, I'm doing everything I can to accelerate it. And Eric, you want to add anything? Okay, Kimberly.

Our next question comes from Michelle Tan from Goldman Sachs. Michelle Tan - Goldman Sachs Group Inc.: Glen, I was wondering, on your expectations the comp trends you're going to improve through the balance of the year. As we look ahead, how dependent is that improvement on whatever's going on at Anthropologie being a more short-term market phenomena as opposed to a product phenomena? Is that something that could be significant enough to cause you to revise that expectation? Or if we continue status quo, you'd be -- you'd still expect to see that sequential improvement through the balance of the year?

I want to make sure we're all on the same page, so I'm going to read the sentence from my prepared comments. I said, so -- and this is, "So while we are confident in our strategies and believe we have made great executional progress, we remain cautious for the second half, anticipating gradual improvements in our comparable sales and financial performance over the balance of the year and into spring 2012." So I just want to make sure that I'm managing expectations clearly. I think that, Michelle, if you had asked me my level of optimism on July 25, I've got to be honest, with regard to Anthropologie, I would've been more optimistic than I am today. And what I'm saying is, I really need to understand what's kind of going on in the last 10 days, and I can't comment on that yet. With regard to the other 2 brands, I don't -- I mean, I think we're pretty much on track. Is it possible that Anthropologie could derail our progress? I suppose it's possible. But it's also possible that this is a temporary blip, and that we'll get back to where we were. I mean, we were -- when something is kind of a 6-month trend, as Anthropologie has been, it's usually when you see something like this, usually it's a hiccup. And I just hope that's true, and when we issue the Q, will have more insight into that. Michelle Tan - Goldman Sachs Group Inc.: Yes, makes sense. And then in a semi-related question, if I could squeeze it in. How do you think the customer adoption of the whole fashion shift that you guys have been flagging is progressing? I know it's really a question of her getting comfortable with some of the style changes that you guys are seeing. What's your update there?

I think she's increasingly comfortable with it. I think that, of course, people are always -- when there's a shift, people don't know quite how to make an outfit, but I think she's more comfortable with it today than she was 3 or 6 months ago.

Our next question comes from Stacy Pak from Barclays Capital. Stacy Pak - Barclays Capital: One follow-up on Michelle's question, and that is, if you'll answer it, the decline you're seeing in the Anthro comp, does that offset what you've been seeing from Urban Outfitters, or overall has the comp continued to improve? And then, Glen, I guess my bigger question is, do you think that the strength you're seeing at Urban Outfitters is because that customer is adopting some of the new fashions that are out there more readily, and the Anthro customer takes some time? And what are you seeing in terms of the ability to price higher now?

Okay, so I'll try to answer your questions, if I can remember them. I think we're not going to disclose the impact of the last 10 days trend. We'll disclose that in the Q. In terms of adoption levels of Urban versus Anthro, what I can talk about publicly is the fact that both brands were on par with one another in the second quarter. So in the second quarter, the customers for both brands adopted the fashion that both brands presented equally well. The delta has only been in the last 10 days or so, so which makes me think that it's a speed bump or an external factor. Stacy Pak - Barclays Capital: Right, because that customer does read the paper more, right, or reacts to Washington more?

Historically, that customer has been more influenced by environmental issues. So that's really -- but in terms of the adoption, I think both brands -- if I had to evaluate both brands as of July 25, I would have said they were on equal ground. Stacy Pak - Barclays Capital: And what about the pricing environment, Glen? What are you seeing there in the ability to price higher on the right stuff?

If the product is right, we can price higher. It's the same thing I probably said for 2 years. It's newness elasticity, fashion elasticity, not price elasticity. When the product is wrong, it's price sensitive. Stacy Pak - Barclays Capital: So the 1.6% increase you got in average selling, was that across the brand?

Yes.

Our next question comes from Brian Tunick from JPMorgan. Brian Tunick - JP Morgan Chase & Co: Obviously, we're going to get a lot of gross margin questions tomorrow. So I figured same thing on the Q2, Stacy sort of asked it, but the AUR was up 1.6, the gross margin down 460. Can you maybe help us out a little understanding that? I mean, sourcing doesn't sound like it's been an issue. We obviously have some degree of occupancy deleverage. Can you maybe just go into some of how AURs were up but gross margins were down so much, just maybe in the buckets?

Eric, I'll let you take a pass at that, since I've been doing so much talking.

I think Free People continues to be a good example of what we're trying to accomplish overall. So again in the second quarter, we've made reference to them in the past, their AURs being up in the double-digit range. But they're delivering more compelling products, so their product cost is up, but they're delivering greater margins. And that continues to be what we focus on in terms of driving the businesses, especially at Anthropologie. So...

Brian, I'm not really quite clear how to answer your question. I mean directionally, Free People had the best AUR increase followed by Urban and actually Anthro was slightly down. But it's a mix of average regular price, average markdown price, and so on. I mean, I think the answer goes back to what I said to Stacy, if the product is right, we can typically get the right price for it. That's not an issue. It's when the product is wrong, I'd say, there's more price sensitivity. Brian Tunick - JP Morgan Chase & Co: Right, I guess, but you're not seeing any sourcing pressure in the second quarter. And I guess we're just trying to figure out between occupancy deleveraging and markdowns. Can you give us maybe some idea of how of those shook out in Q2?

As we highlighted in the call, or on the prepared remarks there, product costs on a like-for-like basis continues to be something that the teams have managed externally well. We talk on several occasions about the levers that we continue to pull. And one of the successes in the second quarter, as an example, was reduction in our air freight. So if we were last quarter, last year, above 80%. That number has come down more in the 60% range. And that's contributing to the in-transit inventory numbers that we talked about as well. So I think we're managing the cost side extremely well. And yes, there was some slight deleverage, as you would expect, relative to how we speak about our leverage points due to the negative store accounts. Another issue that we've talked about, which we didn't have to talk about in this call because it was insignificant, was the international delivery. I think the logistics and distribution teams have responded extremely well in their methods, in their processing in the distribution center for those orders, and we've worked on the delivery cost there. So it really comes down to the women's markdowns -- I'm sorry, markdowns in the women's apparel categories at Urban and Anthro, that's really driving the comp decrease in basis points there on the gross margin.

Our next question comes from Neely Tamminga from Piper Jaffray. Neely Tamminga - Piper Jaffray Companies: Hey, Glen. No rest for your vocal chords is here yet, but just curious on the productivity assortment. Is the key here bottoms, or some sort of bottoms-driven trend? I'm just trying to understand what really is going to be the inflection point in terms of driving the productivity.

Well, what I said, I don't want to give -- I'd love nothing more than talking about fashion, but I've been burned by talking about it on the call, so I can't. But as I said earlier, we have 9 major categories of product. If you look at knit tops, sweaters, blazers, blouses, pants, skirts, shorts, and dresses and outerwear, I think that totals 9. At Anthropologie, 7 of those 9 businesses have good trends. Two of them have rough trends so we have to fix those 2 trends. And I'm not going to comment as to whether or not it's bottoms or tops related but I really -- I don't think that's a relevant way to look at it. At Anthropologie, we don't have anyone -- at Urban, excuse me, we don't have any one category that's costing us a lot of money. So the composition of the business across the 2 brands is a little bit different. In all 3 of that brands we have opportunity to drive non-apparel. So I mean we're -- I feel very confident in the way we're approaching this. I feel confident in the way that we've architected the assortment, and kind of plan the business, and distorted the buys. I would say anywhere from like to love what we have on order, and we just have to see how it shakes out. Neely Tamminga - Piper Jaffray Companies: So again, outside of the 10 days at Anthro, you're basically seeing more hits than misses on an improvement rate?

Yes.

This will be the last question of the day. Our question comes from Omar Saad from ISI Group. Omar Saad - ISI Group Inc.: As we think about the competitive landscape, I wondered if you could comment on what you're seeing out there. It's certainly -- Urban Outfitters Inc. is certainly not the only kind of women's fashion company, whether you're looking across the U.S. landscape or the European landscape, that's been experiencing some markdown pressure in parts of the businesses, and slowing comps. I was wondering if you thought about or you could describe some of these trends, is there a disruptive competitive force out there, is it women's fashion as a category, is it all about the fashion shift in this time of turmoil? Just from a competitive standpoint, what you're seeing out there, and how that could be impacting kind of the medium near and medium term trends?

Yes, so Omar, first of all, I would say we have to be careful about the word decelerating comps because if you look at our comps performance over the last 5 quarters, and Q2 of last year, we were 6.7 -- and this is store only -- we were 6.7% favorable than in Q3 of last year, we were 0.5, Q4 negative 2.2, Q1 negative 4.9 and then we improved it to down 2. So I mean I don't want to tell you what to read into that cycle, but I'm certainly hoping -- I'm hoping that we see improvement. I do think there are some competitive issues. I think there's a lot of competitive pricing out there. I mean, I shop the stores I'm sure as regularly, if not more regularly than you do. And I mean just last week, and this is the beginning of fall, there is window after window of save 50% off, save 70% off. And that I think when the product is not right, that has an impact on us. When the product is differentiated and right, I think that impacts us less. But we do have to be smart about pricing architecture and the assortment. And we have got to capture the customer's imagination. So I hope that answers your question. All right, everyone. Thanks so much, and I look forward to chatting with you all over the next few weeks. I know Eric and Oona have a busy evening tonight. So thanks so much and talk to you soon. Bye-bye.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.