Urban Outfitters, Inc.
Q2 2009 Earnings Call Transcript

Published: 14 Aug 2008

[Operator:]

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Incorporated second quarter fiscal 2009 earnings call. (Operator Instructions) The following discussions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please note that actual financial results of the company for the periods being discussed may differ materially from the financial results projected or implied in the forward-looking statements. Additional information concerning factors that could cause actual financial results to differ materially from projected results is contained in the company’s annual report on Form 10-K and in other documents filed by the company with the Securities and Exchange Commission. The company disclaims any intent or obligation to update forward-looking statements. No recording or rebroadcast of this call is permitted without the company’s express written permission. I would now like to introduce your host for today’s conference, Mr. Glen Senk, CEO. Sir, you may begin.

[Glen T. Senk:]

Good morning. It’s my pleasure to welcome you to the URBN quarterly conference call. Joining me today is Dick Hayne, our Chairman; John Kyees, our Chief Financial Officer; Ted Marlow, our President of the Urban Outfitters Brand; Meg Hayne, our President of the Free People Brand, and our senior executive staff. Earlier this morning the company issued a press release outlining the financial and operating results for the three and six month periods ending July 31, 2008. I will begin today’s call by reading prepared commentary regarding our performance; then the group and I will be pleased to answer any questions you may have. As usual, the text of today’s conference call can be found on our corporate website at www.urbanoutfittersinc.com. Put simply, we couldn’t be more pleased with the exceptional results our team produced during the second quarter

[Operator:]

(Operator Instructions) Our first question comes from Kimberly Greenberger of Citigroup.

[Kimberly Greenberger:]

Glen, I was hoping you might be able to comment on early reads on fall deliveries. What is it that you are pleased with in terms of the Anthro reads and what are you re-working here for fall?

[Glen T. Senk:]

You know, I really, as I kind of mentioned in my prepared comments, I don’t feel comfortable going into specifics. What I will say is that there is traction in virtually every category that we are selling and we had very -- we began delivering fall in June. We had very good reads on the business and we feel very comfortable with the way the inventory is positioned. The one other comment I continually say is go to the stores and if it’s on the floor at regular price, it’s probably selling and if it’s in the markdown room, it’s probably not selling.

[Kimberly Greenberger:]

Glen, could I ask a follow-up?

[Glen T. Senk:]

How about after the call?

[Kimberly Greenberger:]

I will, after the call. Thank you.

[Operator:]

Your next question comes from Jeff Black of Lehman Brothers.

[Jeff Black:]

On the operating expense line, could we get a sense of how much Terrain and Leifsdottir weighed on that, and also how much new stores weighed on that? I know we opened a lot more this quarter. And what is -- what should we expect for SG&A growth for the back half, just in terms of year-over-year growth? Thanks.

[Glen T. Senk:]

I’ll ask John to respond to that.

[John E. Kyees:]

I would tell you that there’s a basket of things impacting the SG&A, one is a bonus accrual from a very strong quarter and that’s a much higher bonus accrual than a year ago. Store openings were more aggressive in the quarter, so that also is contributing to the costs in the quarter. Terrain was another element. The debit card process, actually the interchange fee increased with the banks and so that was a part of the impact, and then of course when you have 13 comps rather than a [inaudible] or 3.5, where we start to leverage, that adds a significant amount of dollars. So I would say if we run another 13, you might see the similar kind of SG&A growth and I would be okay with that.

[Jeff Black:]

Great. Thanks.

[Operator:]

Your next question comes from Adrienne Tennant of FBR.

[Adrienne Tennant:]

You have every right to be bursting with pride. Great job to the team. My question is on the owned brand penetration at the Urban division, I know it was a little bit lighter than where you wanted it to be last quarter. Where is it heading toward and where should we see it at the end of the year? Thanks.

[Glen T. Senk:]

I’ll ask Ted to give you specifics but I would say that it wasn’t light of where we wanted to be. I think it’s exactly where we wanted it to be and the group has done a great job. But Ted, do you want to give some specifics?

[Tedford G. Marlow:]

The main area to focus on in regard to the question is obviously the women’s business. Over 30% of the women’s sales for the quarter was driven by in-house design and run through our in-house production as well, product. The team has come along very nicely and the one thing that I would say, we’ve talked about a lot of metrics in regard to this initiative but the thing that feels great to me is the culture that we have in our business at this point between the buying staff, the design staff, and production. After seven years of participating in the dynamics of those relationships, I can tell you it’s never been better, nor more productive. And as a result, we are really shooting to have that up to around 50% of the mix on the women’s side coming out at the end of the year.

[Adrienne Tennant:]

And historically, did it peak at 50?

[Tedford G. Marlow:]

Well, in regard to in-house design product, it’s been down in the teens. The private label product has certainly been higher than 50 but we are talking about in-house design versus buyer developed in the market private label.

[Adrienne Tennant:]

Great, wonderful. Good luck and keep up the great work.

[Operator:]

Your next question comes from Margaret Whitfield of Sterne, Agee & Leach.

[Margaret Whitfield:]

You mentioned six objectives for Urban. I think you just talked about brand execution. I wondered where you are with the other objectives. Do you feel you have reached the levels you wish to? Is there more to come? What initiatives remain?

[Glen T. Senk:]

Ted, would you like to --

[Tedford G. Marlow:]

Well, in regard to the urban business overall, we still think that we have opportunity for improvement in margin performance, some opportunity to be realized on our own in the IMU line but through wider initiatives going on in the company in regard to supply chain. We definitely think that there is opportunity in IMU improvement. A bigger opportunity, however, in margin is improved markdown performance, so improved margin is definitely at the top of the list. In addition, we have some in-house initiatives around real estate and expansion of the business on the retail side. We’re taking the business into another market in Europe this year, going into Germany before the end of the year. We’re launching a concept in California before the end of the year, where we essentially become a landlord as opposed to simply a tenant. So there are a few different initiatives on the subject of real estate that we are deeply involved in at the moment as well. On the direct side, a lot of what is going on in direct has to do with improved creative work, which I think we’ve seen very nice pay-back on in the first half of the -- through the first half of the year. That really was a key thing in our financing of our budget this year and I think we’ve seen, as I said, very good pay-back from the work that we’ve done thus far in that regard.

[Margaret Whitfield:]

Thank you.

[Operator:]

Your next question comes from Barbara Wyckoff of Buckingham Research.

[Barbara Wyckoff:]

Glen, I guess, and Dick -- what keeps you up at night? Everything is so great. Something must -- what keeps you up at night?

[Glen T. Senk:]

I live in a constant state of terror, to be perfectly honest and I really think that you can’t be good at this business unless you are -- have just an otherworldly sensitivity to every cue every day in every part of the business, not just the product but everything. And so I’m probably a little schizophrenic because I am incredibly confident -- I mean, we’ve got 11,000 plus employees that I think are the best people in the world, so what I tried to impart in the prepared comments is it’s not me -- it’s 11,000 people and my god, these people are unbelievable. So I’m incredibly confident in that. But you know, the only thing that is constant is change and we have just always got to keep our ear to the ground and incredibly sensitive to what’s happening. So I would say the biggest single issue that we face is people and we talk about it a lot -- in fact, we probably are talking about it more than we ever have. We have phenomenal people but we need lots of people and we will try to be as innovative with the support of Bill Cody and the rest of the group around that as we are in other parts of our business. Dick, do you want to --

[Richard A. Hayne:]

No, I have nothing to add. I think it’s people and I think you said it correctly.

[Barbara Wyckoff:]

Okay, great. Thanks, keep it up.

[Operator:]

Your next question comes from Michelle Tan of Goldman Sachs.

[Michelle Tan:]

You know, looking at the Anthropologie business, I guess the question I would have is how you are continuing to drive the gains in transactions in those stores? Do you have any color on it, whether it’s from the CRM initiatives or just who you are talking to at the store level? Is it the same customer buying more frequently? Are you bringing new customers into the store? And if so, what do you think is attracting them to the brand?

[Glen T. Senk:]

That’s a great question and we are still only about maybe 40% into the way of our functionality with the CRM system, so I really can’t answer those questions. I hope to be able to answer those questions in 12 to 18 months from now but my gut instinct, I still spend a lot of time in all of our stores and my gut instinct is that we have a higher level of conversion. I think the stores -- I think all three of our brands look really good and I think that they are pleasant places to be. It’s almost when you look back at 9/11, our business popped back almost immediately. Why? Because I think that they -- it is a mini vacation when you walk into any of our three brands and I think that it’s the same way today, so with all of the horrendous news that’s going on and the discounting and so on, they come in and they have a mini vacation in our stores. And I just think that’s what’s happening and again, it’s not just Anthropologie. I think all three brands executed beautifully. They kept the content fresh, they nailed the fashion the customer wanted. I think the marketing efforts were great, the visual merchandising was great. They were just positive places to be.

[Michelle Tan:]

Great, thanks and congratulations again.

[Operator:]

Your next question comes from Richard Jaffe of Stifel Nicolaus.

[Richard Jaffe:]

First of all, congratulations, Glen. You are right to be proud, really sensational, particularly given the climate of the environment. Given the success and the greater-than-expected results across all channels, is there an opportunity to rethink the growth prospects and the ultimate size of each division, Anthro, Urban, Free People retail, Free People wholesale? And to kind of change our perspectives on how big each of these businesses could be and the rate in which they could get there?

[Glen T. Senk:]

You know, Richard, great question and the answer is probably no. I think that we believe to the core of our being that scarcity creates demand and as Dick has said many, many times, enemy -- [big is the enemy of cool], and we absolutely -- in fact, if anything, I would be more conservative about the potential store count. Early on, I used to think Anthropologie could be 300, 350, and we’ve said publicly that we are comfortable with -- in North America, Anthropologie and Urban both in the 250 range, Free People in the 100 range. The reality is that we are less than 50% penetrated in North America with our three core brands. We’re minimally penetrated in Europe. We have virtually no distribution in the far east. We think we have tremendous potential in the direct business. I think that Meg has paved the way with We The Free and Intimately Free at the Free People brand, this whole idea of doing sub-brands that feel like the parent brand but serve a different purpose. I think Anthropologie, we’re thrilled with the initial results to Leifsdottir. Whether or not that stays under the Anthropologie brand or becomes its own brand eventually, I think we won’t have a decision on that for the next 18 to 24 months. But to get back to your question, we see ourselves as a portfolio of lifestyle brands that all have an experiential component to them and we -- all of our brands will continue to be targeted to an up-market, sophisticated customer and typically the customer that we target to appreciates scarcity, so we’ll continue on that path.

[Richard Jaffe:]

Thanks very much.

[Operator:]

Your next question comes from Samantha Panella of Raymond James.

[Samantha Panella:]

I’m wondering if you could give us an update as to where you are with establishing an office in Hong Kong. Thank you.

[Glen T. Senk:]

I think most of you know that I was there a couple of months ago with Barbara [Rosotts] and we are making tremendous strides with our CTM effort, a part of which may or may not be establishing an office there. We’re still working out those strategies. I’m not prepared to talk to it yet but -- you know, I’m not prepared to talk to that component but I’ll tell you I’m thrilled with the progress Barbara has made. It’s very, very important to understand when you look at our gross margin, the improvement was pretty equally weighted between markdown reductions, initial margin, and occupancy. In fact, initial margin contributed a little bit more to the improvement than the other two categories, so that is a fantastic testament to the success Barbara and the merchant teams have had over the past several months.

[Samantha Panella:]

Great. Thank you so much.

[Operator:]

Your next question comes from Liz Dunn of Thomas Weisel Partners.

[Liz Dunn:]

I was wondering if you could just discuss your inventory positioning by concept and give us a little bit more color on the quality of that inventory, just sort of you know, how current is it? Obviously very current, I’m not seeing a whole lot of mark-downs in the stores but if you could just provide some additional detail on inventory.

[Glen T. Senk:]

Liz, the important thing to remember, and we’ve talked about this several times before and I didn’t bother mentioning it again, is that we really don’t look at last year when we look at our inventory. We look at our weeks of supply and we plan the inventory dynamically. And we, in my almost 15 years here, I’ve never been asked to hold the mark-down. In fact, I’ve always been told to take them the minute we know we have a markdown. That’s never changed and it’s unlikely it’s ever going to change. So we feel very, very comfortable with our position of 3% comp inventory in total. By brand, it’s actually down 1% at Urban. It’s up 6% in Anthro but in weeks of supply by brand, we’re exactly where we want to be. We had square footage growth in the quarter of 17%. Our total inventory is only up 14%, so on a square footage basis, we’re actually down and in terms of the FIFO, I don’t remember the exact numbers, John can go over that with you after but I can tell you we are very clean.

[Liz Dunn:]

Okay, great. Thanks.

[Operator:]

Your next question comes from Brian Tunick of J.P. Morgan.

[Analyst for Brian Tunick:]

This is Anna for Brian. I was actually hoping to clarify on SG&A -- given the higher bonus accruals this year, does this raise your leverage points on SG&A as we go through the year, or do you still need 30% roughly to lever? Thanks.

[John E. Kyees:]

We would still be targeting a 3.5% to 4% SG&A leverage point. We obviously have some issues going on with some extraneous factors and that’s why I said it’s probably appropriate to target a 25% kind of SG&A growth, if in fact comps continue at a 13% level. That is not guidance by any stretch but that would be the thought process. We don’t have any problem with the leverage points in the business. We think people flex very well in those areas that they can flex in, so we’re not disappointed with the total SG&A growth.

[Analyst for Brian Tunick:]

Okay, great. Thanks so much, guys. Good luck.

[Operator:]

Your next question comes from Betty Chen of Wedbush Morgan Securities.

[Betty Chen:]

Glen, I was wondering if you can talk a little bit more about the accessories business. I think you mentioned earlier that it has now had two consecutive quarters where it’s kind of led the way in terms of category performance. Could you talk a little bit about what has changed in the categories? Any additional color you can give, whether it’s really shoes, handbags? And also, what is the current mix of accessory sales by division and what is your longer term target? Thank you.

[Glen T. Senk:]

Thank you. That’s a lot for me to remember. You may have to help me but I would say that the principal reason why our accessory business is better is that we focused on it this year. We have -- we allocated more staff to it and we are just executing much, much better. There are certain -- and I’m not going to go into details of what’s driving the business. There are certain consistencies across all three brands. On the other hand, there are certain businesses in one brand that may not be happening in another, so there are some similarities and some differences. What’s common is that we focused on it across the business. And I don’t have the exact penetration numbers, so maybe John can give you a call after the call but the highest penetration is actually at Urban Outfitters. They historically have done the best job with accessories, followed by Free People and Anthropologie. If you’ll recall, Anthropologie had a hiccup in the accessory business a couple of years ago, so there’s quite a bit of opportunity there for increased penetration.

[Betty Chen:]

Okay, great. Thank you and best of luck in the third quarter.

[Operator:]

Your next question comes from Janet Kloppenburg of JJK Research.

[Janet Kloppenburg:]

Ted and Glen, I was wondering how important your focus was on price right now. We are hearing a lot about price increases on products sourced from around the world and I’m hearing some more from you about less private label, more vendor collaboration. I’m wondering if we are going to be seeing average prices rise and if you think that’s an inhibitor to business or whether you think it really won’t have that much of an effect. Thanks very much.

[Glen T. Senk:]

I’ll answer one part of the question and then I’ll defer to Ted to answer the second part. With regard to the price we are paying at the factory level, what I said on the last call and what I said in several conversations that I’ve had is we are not seeing pressure. And having been there myself and speaking to a lot of people, my understanding is that most of the price pressure relates more at the commodity level. I think the more detailed handwork, wash work, stitch work, et cetera the product has, the less pressure there is. I said a few moments ago that the largest part of our gross margin increase in the second quarter was actually IMU. The group is doing a terrific job and by the way, we never achieve IMU for charging more for a product this year than we did last year. We achieve it by either paying less for a product than we paid a year ago or by building a lot more into the product so that we can charge more for it. So it’s really -- I’m hearing the same things I think the rest of you are hearing but we are not seeing it in our own business. With regard to the pricing strategy within the brand at Urban, I’ll defer to Ted.

[Tedford G. Marlow:]

The only thing I would touch on, Janet, in addition to where Glen is, is that we did see a nice growth in AUR on our regular priced women’s business. Obviously our AUR growth improved in a nice fashion tied to less markdowns from the business, but on the regular price piece of the business as well, we saw nice growth in AUR, and I think that that is very much indicative of improved content. We are seeing nice comp performance. The customer is responding to the improved content, so we at this point have not seen any issue there.

[Janet Kloppenburg:]

Thanks very much.

[Glen T. Senk:]

We’re very -- we’re always focused on having an assorted price strategy in all of our businesses. We can’t take our eye off of opening price points, and we never have. But we also have no resistance to special product and tiered pricing and we are not seeing anything in our business now that would suggest it’s any different than it was a year ago.

[Janet Kloppenburg:]

Thanks very much and good luck.

[Operator:]

Your next question comes from Christine Chen of Needham & Company.

[Christine Chen:]

Thank you. Congrats on another amazing quarter. I’m wondering if you could talk a little bit more long-term about international opportunities now that you are selling internationally at Anthro, and then about opportunities in the Far East for Urban. Thank you.

[Glen T. Senk:]

I think we spoke about this on the last call, when we had a special board session devoted to growth several months back, the board decided that we would focus first and foremost on Europe, over and above North America. Since that time, I’ve been over there twice. I think Ted’s been over there three times now. We’ve gotten more aggressive about finding sites for Anthropologie. We’re accelerating that rate with which we open Urban in Europe and we are very, very confident in our prospects there. We are still in the stage of due diligence, Christine, so we are learning a lot about the kind of infrastructure we need there, how we can tap the potential that’s there relative to the potential that’s in North America. The interesting thing is that the apparel business in Europe is about the same size as it is in North America, but the distribution channels are different. So we are figuring out how we can tap into that potential. You know, at this point, I’ll tell you we are very, very excited. We think it can be at the very minimum, neutral to the ROS rate and possibly accretive, and in just general terms, we think that it can probably be a minimum of 20% of the size of North American business, but probably significantly more than that.

[Christine Chen:]

And did the European stores at Urban do better than the U.S. stores?

[Tedford G. Marlow:]

The European stores have had a pretty strong run for the last few years. For the quarter we’re just completing, all stores were comp positive. The comps overall were in the I think mid-teens for them for the quarter, up against a pretty good quarter last year as well.

[Glen T. Senk:]

And Christine, I just want to remind everyone, Ted launched Urban Direct, a standalone Urban Direct business in the U.K., Ted, about a year ago?

[Tedford G. Marlow:]

Fall of ’06 -- fourth quarter ’06.

[Glen T. Senk:]

Okay, and it’s doing quite well and Anthropologie began shipping internationally with a strong focus in several European markets at the tail end of last year and is doing very, very well.

[Christine Chen:]

Great. Thank you and good luck.

[Operator:]

Your next question comes from Sharon Zackfia of William Blair & Company.

[Sharon Zackfia:]

Glen, I guess I’m curious where you are at this point in identifying a successor to head Anthropologie, and as you look across the rest of the businesses, how is the succession planning playing out and are there major gaps that need to be filled?

[Glen T. Senk:]

I think that we are pretty close with a solution to Anthropologie North America. I would expect that we’ll have something to talk about within the next month or so. With regard to the succession planning, it’s as I said -- I see that, the idea of leadership development is my number job, my number one priority and I probably spend 30%, 40%, as much as 50% of my time each week working on that. And I will get that done.

[Sharon Zackfia:]

Thank you.

[Operator:]

Your next question comes from Liz Pierce of Roth Capital Markets.

[Liz Pierce:]

In terms of performance by either geographic performance or location, you’ve called that out before. I just wondered if you could update like lifestyle street and mall on --

[Glen T. Senk:]

I think if you take out some of the outlayers, the headline is there’s really not much of a difference, so I said that the Northeast led the way but all regions were good. By type, Urban has slightly more strength. John, where --

[John E. Kyees:]

The malls were actually the best-performing, metro was second best and there really wasn’t a huge spread.

[Glen T. Senk:]

And at Anthropologie it was relatively flat, so there is really no pattern, either geographically or by type that I would want you to read into.

[Liz Pierce:]

Okay, great. Thank you.

[Operator:]

Your next question comes from Robin Murchison of Suntrust.

[Robin Murchison:]

John, this is for you -- the long-term marketable securities, 191, I presume that that is mostly auction rate. Can you just give us an update on what is going on there?

[John E. Kyees:]

Our auction rate position is really pretty good. We have a small amount of student loans that the auctions have failed on but we feel very comfortable because parity on those instruments is fine. We have some additional municipal auction rates which are again commanding great interest rates and we actually bought into a few of those to take advantage of those. So in total our total marketable securities, we’re probably dealing with about $90 million of auction rates and the balance is all in other types of instruments.

[Robin Murchison:]

Thanks very much.

[Operator:]

Your next question comes from Marni Shapiro of The Retail Tracker.

[Marni Shapiro:]

I was curious if you can give us any update on the home space. I know it was something you were tinkering with at Anthro. You obviously have some big hits there in bedding and it looks at Urban that you have dived in a little deeper to what I call a dorm kitchen and a couple of other sub-categories. I’m curious if we can get any color on this.

[Glen T. Senk:]

You know, I think that the home business really across the brands was healthy. Again, and I’m sure it frustrates everyone, but we don’t want to give specifics within categories. But the home business was maybe slightly below the rest of the brand in both brands, but it was a very healthy business. We’re very comfortable with where we are. Again, I’ll say the same things -- go into the stores; if it’s at regular price, it’s selling.

[Marni Shapiro:]

Great. Good luck with back to school.

[Operator:]

Your next question comes from Dana Telsey of Telsey Advisory Group.

[Dana Telsey:]

Glen, as you talk about people and people being a huge priority, what holes do you have to fill? And how is the training? Does it differ by brand in order to get people basically imbued with the culture of any of the brands? And just lastly, as you think about differentiation, which is what I think all of your brands are about, how do you think about store differentiation versus product differentiation and the process to get each there? Thank you.

[Glen T. Senk:]

I’m going to ask Bill to comment on the first two parts of your question, the key openings and the training.

[Bill Cody:]

I think for the key openings outside of Anthropologie President, we are continuing to look for a Chief Operating Officer, and I think that’s a key position for the company to really give us the opportunity to put Glen’s focus not only on the people but the full amount of the operations side of the business. So I’d say if I looked across the business, that’s really where we are going to focus. From the training side, each of our brands does training that’s specific within the brand and I think that’s really the thing that keeps the culture distinct, Anthropologie from Urban and Free People. So from a corporate level, we focus more on leadership development and let the brands take care of a lot of the cultural elements and the things that are specific within each of their businesses.

[Glen T. Senk:]

And Dana, what was the last part of the question?

[Dana Telsey:]

As you think about -- differentiation is how I see your brands, what they are all about. How do you look at the store environment differentiation versus the product differentiation? Are there processes that you use to keep them all going at the same time or are they at different stages?

[Glen T. Senk:]

We can discuss some of this offline but the way our business is structured, we have creative directors or visual directors who are responsible for the store environment. We have folks who are responsible for the marketing communication, be it the websites, the catalog, the labels on the garments and so on, and then we have people who are responsible for the product. So we have a variety of creative people and they work collaboratively together but they also bring their own point of view to it. But I’ll give you a call after, Dana, and spend some more time with you.

[Dana Telsey:]

Perfect. Thank you.

[Operator:]

Your next question comes from Crystal Kallik of D. A. Davidson.

[Crystal Kallik:]

I’m curious to see if you are still thinking that second half circulation will be about flattish, and I think because of the calendar shift, you were expecting one quarter to be up quite a bit and then one to be down quite a bit, but net net, flattish. And how that reacts to your feelings about the direct business and the sales growth there for the second half?

[Glen T. Senk:]

I’ll leave John to give you the specifics on circulation and then I’ll talk about direct.

[John E. Kyees:]

The third quarter projection is to be up 18% on catalog circ, and that’s simply a timing issue because fourth quarter is down [19], so it’s an end-of-quarter catalog that shifted from one quarter to the other.

[Glen T. Senk:]

And in general, we are very, very bullish on our direct business. I mean, when you think about a 42% increase in sales -- 42% with just an 8% increase in circulation, that’s staggering. And it is an illustration of, as I said, the myriad of initiatives the direct groups have undertaken over the last couple of years but it also illustrates what we’ve said in prior earnings calls, is a paradigm shift in the way people shop. I think it is different from quarter to quarter. I think the people tend to use the web more in the fourth quarter than quarters one through three, but I think that the modern way to think about a business is to view it as one brand across multiple channels, and sometimes people go to the web and then end up buying it in the store. Sometimes people go to the store and end up buying it on the web but the world is changing and the whole nature of the business is changing. As John has said in prior calls, ultimately we believe the direct business can be significantly more profitable than the bricks and mortar, so we are very happy about the increase in penetration but we don’t expect the circulation to predict the sales increase in the direct business. We certainly think they are related but not linear.

[Crystal Kallik:]

Thank you very much.

[Operator:]

Your next question is a follow-up from Adrienne Tennant of FBR.

[Adrienne Tennant:]

I just wanted to get the D&A and CapEx for the quarter, please.

[Glen T. Senk:]

I’ll let John handle that.

[John E. Kyees:]

Total D&A was $20.5 million.

[Adrienne Tennant:]

And the CapEx?

[John E. Kyees:]

CapEx, I don’t have that handy.

[Adrienne Tennant:]

Okay, I’ll follow-up with you. Okay, thanks. Good luck.

[Operator:]

(Operator Instructions) Your next question is a follow-up from Kimberly Greenberger of Citigroup.

[Kimberly Greenberger:]

Glen, I’m wondering if you can talk about the CRM package at Anthropologie -- how are you thinking about developing this over time and when do you think we might see the top line impact of those efforts? Thanks.

[Glen T. Senk:]

Kimberly, the whole premise of the program for the customer is the more we know about you, the more we can do for you, and so it’s not a program where we are going to be using accumulated spending to provide discounts. It really is going to be a database system that helps us understand how people want to shop the store, when they want to buy things, the kind of services they want, and it will I think build the brand and reinforce the brand as opposed to promote the brand. We are, as I said earlier, we are about maybe a third to 40% of our way there technologically, so we don’t have the systems to do everything that we want to do now to segment the files and communicate as consistently as we want. But I am very pleased by -- at the rate with which we are acquiring names and anecdotally, I am pleased with the impact that the communication on this 515,000 customers is having. I mean, for example, we have always circulated catalogs in our retail trading areas but we’ve used a modeling technique to get to those names and we really didn’t know if they were customers or not. We inferred they were customers. Now those 515,000 who signed up to be Anthro customers are getting the catalog, not necessarily all the time but a good portion of the time. So it’s a work in progress but the long-term view is all about understanding how to better satisfy the customer, much in the way we do with the direct business.

[Kimberly Greenberger:]

Perfect. Thanks.

[Operator:]

Your next question comes from Margaret Whitfield of Sterne, Agee.

[Margaret Whitfield:]

Just a follow-up question -- you indicated your back-to-school was off to a good start. I wondered if you could comment on how your comps are running month-to-date.

[Glen T. Senk:]

Margaret, we don’t do that. We’ll certainly give some indication of our business in our mid-quarter release but what I would say is back-to-school for us started really in the -- about two-thirds, 50% of the way, two-thirds of the way into the second quarter. I did say that we built some momentum, particularly at Urban, with back to school and that’s all I can say at the current time.

[Margaret Whitfield:]

Okay. Thank you.

[Operator:]

I’m not showing any further questions. Would you like to continue with any further remarks?

[Glen T. Senk:]

No, just thank you all for your questions and your support.

[Operator:]

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may all disconnect. Everyone have a great day.