This additional inventory was acquired to help stock the 32 new stores opened during the year and to support the strong growth in the wholesale business. Total comparable store inventory on a year-over-year basis fell by 2.9% in dollars and by 8.7% in units. This year-over-year reduction in inventory would have been much more pronounced if the Anthropologie and Urban brands had not received an extra $7 million at cost of spring merchandise during the last two weeks of January. This merchandise was scheduled to be received in February, but arrived early. Without it, total inventories would have been down by approximately 8% in dollars.

The company benefited from a number of tax incentive programs.

Most of these programs are tied to the investment in and development of the company’s new office complex in the Philadelphia Navy Yard. Some are one-time benefits while others should be available over many years.

Fiscal 2007 Highlights

- The company opened a total of 32 new stores. During the fiscal year, Anthropologie added 14 new stores, Urban opened 16, two of which were in Europe, and Free People opened two. By year’s end the company operated 93 Anthropologie stores, a 106 Urban stores with nine of those in Europe, and eight Free People stores, or 207 retail stores altogether. Those 207 stores house a combined retail selling space of 1,736,000 square feet versus 1,457,000 square feet under roof on the same day last year. This equals a year-over-year growth rate in selling square footage of 19%.
- Annual effective tax rate was down 670 basis points on a year-over-year basis from 38.4% to 31.7% of net income.

Fiscal 2008 Outlook

- The company believes it can grow top line in excess of 20%. To accomplish this plan, the company plans to expand the store base by 18% to 20% on a year-over-year basis and open at least 38 new stores.
- The company plans to return to producing positive comparable store sales.

- The company expects the direct-to-consumer business to continue to increase its penetration to total company sales. To accomplish this, the company intends to emphasize growth in the e-commerce channel while increasing catalog circulation at a modest 4% to 6% rate.

- The wholesale business also continues to exceed plan in the prior year with advanced bookings for the spring and summer deliveries running ahead in both metrics. The new Free People’s intimate wholesale line has been shipped and is performing well in stores.

- The company has developed procedures to ensure that it is reducing construction costs by coordinating the lease negotiation process with the construction process by planning, engineering and source more effectively and by purchasing more construction materials in bulk. The goal is to reduce store construction costs by at least 10%.

- CRM, Anthropologie expects to launch a CRM program later this year.

- The company is migrating from an agent-based sourcing and production arrangement to a factory direct structure. Its goal is to take time and expense out of the supplies chain so merchants can react faster to customer demand and the company can increase initial margins.

Key questions and answers from the fourth quarter fiscal 2006 earnings call conducted by Urban Outfitters, Inc. on March 8, 2007.

Is there any classification or other challenge that you see in the business that could prevent comparable store sales from turning positive?

The company is optimistic that it can make its conservative plan for the quarter. It is much about positioning the brand as it is driving the business. The real business driver is women’s apparel business, and the company is pleased that it has got positive reaction there. In Urban in the fourth quarter the company did see eight points of improvement in the women’s and women’s accessory business to where comparable store sales had been in the third quarter, so the trend has been improving through the back half of the year. The overall business was low single digit negative in the month of February with women’s contributing a fair share. The main issue on the women’s side is complimenting Urban Outfitters fashion offer with base staples to balance out for day in/day out business in all stores.

Could you comment on the performance of the recent catalog?

The company can not comment on that yet, but prior to the early spring book which dropped in mid-January, and then a second drop on that book was in early February. Those drops performed very well. The circulation on the book was down about 14% compared to last year, and conversely the sales projection on those books is up about 15% to 20% compared to last year.

What happened in the past two months that changed business in both Anthropologie and Urban?

The customer is seeing the fashion change, and she is getting more comfortable with it. In Anthropologie, the merchant team and the design team have figured out how to interpret the fashion, so that it is customer and brand appropriate. On the Urban side, during the holiday selling period and the peak shopping weeks, Urban Outfitters’ business treated it well as it came through the month of December. The company’s December results overall were about $3 million better than what the company had forecast for the month, which is about a 5% improvement. The company saw that as well continue into about the first 10 days of January as Urban Outfitters was comparable store sales positive. The back half of January was soft. Toward the end of the month in January, the company did see business improve turning the corner into February. During the holiday selling period, the company did not get to in the month of December positive comparable store sales but was at low single-digit negative.

What is the inventory by division and then the total sales productivity for the year by division?