Urban Outfitters Inc. Earnings Call Nuggets: Square Footage Growth and Full Price Selling

On Monday, Urban Outfitters Inc. (NASDAQ:URBN) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Square Footage Growth

Adrienne Tennant – Janney Capital Markets: Actually, my question is for Eric. Can you talk about – it sounds like the square footage growth rate is probably going to be in the high single perhaps low double digit range. We obviously don’t know what the comp is going to be, you haven’t given that guidance. But I guess my question is on the SG&A dollar growth on the mid-teens starting off the year and then sort of accelerating into the back half of the year, and the thought that I – the question I have is often times during transition, we see a little bit more control perhaps to the SG&A line items until we can see that momentum coming through on the top line. Just wondering how much of that SG&A can you pull back if you want to see the progress that you wanted to on the top line? Thank you.

Eric Artz – CFO: Adrienne, I think I’ll answer your questions from a numbers perspective, but I think I’ll tier to Dick first to talk a bit about our strategy, so I’ll come back to you.

Richard A. Hayne – Chairman, President and CEO: This might (indiscernible) you again.

Adrienne Tennant – Janney Capital Markets: Yes it is.

Richard A. Hayne – Chairman, President and CEO: I think our concept here is one of investment, and we don’t believe that it is going to be as easy to leverage the business as it was let say 10, 15 years ago when all we were doing is adding stores. As you know there has been a fairly significant shift in consumer demand into the clicks area and we feel that we have underinvested in that are area, so, some of the investments that we intend to make this year we’re looking at catch up to have proper investment in the clicks and we will be emphasizing that. We will also be investing more international growth. So, our old model which was grow the top line by 20% or so, and try to leverage the bottom, I think is going to be distorted to our time as we try to get that 20% plus percent back on the top line and we may need some additional investments on the bottom.

Eric Artz – CFO: Adrian, just to follow-on that, if we’re sitting here thinking about SG&A growth in the high teens range, the areas of spend that we’ll be looking towards in this year would be with our Direct-to-Consumer fulfillment center on the West Coast. We have systems investments, we have talent investments relative to the expansion or potential expansion of products lines being offered on the web and we have additional marketing investments as well. So, I think you opened your question with a comment about, during transitions, I think some of the comments Dick made in his prepared remarks there would confirm that we don’t have change in strategy. We are looking to accelerate our investments in the Direct-to-Consumer area. So, we do have control over that spend if we should so choose we did that this year and during a period of declining comp sales, so we clearly don’t want to start the year with that mentality, but to give you a range in terms of how we think about it for planning for high-teens SG&A growth, we have the ability to probably manage to mid-teens should the year not evolve, but again, just as this year occurred most of that difference would come from variable compensation and other direct store and variable expenses.

Full Price Selling

Michelle Tan – Goldman Sachs: Eric, I was wondering if you could just clarify one of your comments and maybe Dick, you want to chime in as well, but you talked about seeing improvement in full price selling versus fourth quarter and also mentioned higher comparative markdowns in the first part of the year. How do we think about this? Do you mean that you are still expecting to see merchandise margin pressure through the first part of the year, but less than fourth quarter with improvement in the back part of the year or do you see improvement in the merchandise margin potentially coming with the inventory and a cleaner position in the first part of the year?

Eric Artz – CFO: We’re planning for merchandise margins in the first half of the year to improve sequentially from where we were in the fourth, so from the fourth to the first, from the first to the second quarter. However, when you look at it on a comparative basis, so Q1 last year versus Q2 this year we’re not planning for improvement at this time. I think we feel great about where we ended the fourth quarter with our inventory position, but the ultimate outcome of our gross margins through the first half here will depend upon the content and the productivity of our inventory. So, and clearly our comparisons are more difficult in the first part of the year easing as we progress through the second half of the year and to give you one more piece of information relative to our markdown history. I know we’ve spoken about this in the past as well. You know this past year we’re probably running between 200 to 250 basis points higher in our markdown rates compared our historical averages. So on an annual basis we’ll be looking to get back more to our historical norms.

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