The company’s operating expense leveraged 101 basis points to 22.3%, principally due to the leveraging of direct store controllable and other corporate expense.

It is important to note that last year’s other corporate expense included a nonrecurring legal fee related to protecting intellectual property, which resulted in a negative impact to the quarter of 19 basis points.

The company’s income from operations increased 66% to $80.3 million or 17.3% of sales, with earnings per share growing from 21 cents to 32 cents versus the same period last year.

In a design and merchant-driven organization, the company sometimes neglects to recognize the outstanding efforts of the support team. It is this operational excellence, however, that liberates the merchants to focus on their customers and their product and ultimately enables the company to function so effectively.

Fiscal 2008 Highlights

- Total company sales were up 23% to $1.5 billion.
- Total company sales over the last five years have grown at a compounded annual rate of 29%. Total company comparable store sales for the year increased by 5.5%, with Anthropologie and Free People increasing by 13% and 18% respectively and Urban Outfitters decreasing by 1%; over the past five years, including fiscal 2008, the company averaged a comparable store sales increase of 9% - by brand, Anthropologie averaged 10%, Free People averaged 19% and Urban Outfitters averaged 8%.

- The direct-to-consumer business grew 34% to $205.7 million with a circulation increase of just 9%. Over the last five years, the direct-to-consumer business has soared at an annual compounded growth rate of 45%.
- Site visits at the company’s three websites grew 26% to 49 million visits, picking up more than 10 million visits for the year. The Free People wholesale business increased 27% for the year, and has grown at an impressive five-year compounded rate of 39%.

- The total gross margin increased 135 basis points to 38.3%. As with the quarter, the year was nicely above the prior year but below plan, driven largely by markdowns taken at the Urban Outfitters brand.
- Store occupancy leveraged 43 basis points, driven largely by significant improvements at Anthropologie.
- The company’s operating expense leveraged 18 basis points to 23.3%, principally due to the leveraging of store support-related expense.
- Income from operations grew by 37% to $224.9 million or 14.9% of sales, with earnings per diluted share growing from 69 cents to 94 cents.

Fiscal 2009 Outlook

- At Anthropologie, there are four key initiatives for the year. The brand debuted Leifsdottir, its wholesale label, on February 7th during fashion week. This new line, with an average retail of $220, will hang with such labels as Marc by Marc Jacobs, Diane von Furstenberg, See by Chloe and Nannette Lapore. The feel of the product is vintage-inspired “young designer’, featuring better fabrics and yarns and a high level of tailoring. The line ships initially on June 30th to an exclusive group of accounts including Bergdorf Goodman, select Bloomingdale’s and Nordstrom doors, and about 30 of the best specialty doors in the country.
- Anthropologie will begin selling shoes in 23 of its stores at the end of March. Assortment will consist of approximately 24 styles, half of which will be own brand. As the team garners information, the presentation may expand to as many as 40 stores by year end.
- The brand is beginning to research expansion beyond the United States. Anthropologie’s direct channel began shipping to Canada and Europe at the end of the fourth quarter and it is likely that the first Anthropologie store in Canada will open by mid-2009, and likely that the first Anthropologie store in Europe will open by mid2010.
- The brand is continuing to develop its CRM program, named Anthro. There were nearly 200,000 members by year-end and the team will continue to fine tune the program through fiscal 2009.

- At Free People, there are also four major initiatives for the year. The brand is now shipping 18 deliveries of Collection, the core of the Free People line. This means that accounts will have new product on the floor every three weeks, if not more often. It is important to note that the company has grown Free People business largely by increasing productivity in existing accounts as opposed to growing distribution.
- Intimately Free People, Free People’s new intimates line, will be delivering 12 times this year, with distribution in key accounts including Bloomingdale’s, Nordstrom, numerous specialty doors and own retail stores.
- We the Free, Free People’s newest line, successfully debuted in own stores at the end of 2007. The collection is designed to hang with Free People, with an average retail of $100. It is knit-driven, boy-inspired with a heavy amount of finish work including printing, art work and washing. The line will deliver seven times in 2008 with a small and extremely exclusive distribution.
- Free People is pioneering a wholesale website, allowing more than 1,500 specialty accounts to place and track their orders online. Like retail sites, the website will have real-time inventory, and will enable the sales team to communicate trend information, best sellers and other insights.

- At Urban Outfitters, there are five key initiatives. The Urban team will continue to make important refinements to the calendar including increasing the number of own brand deliveries and flow. The objective is to have continual freshness on the floor, thereby increasing turn and regular price selling.
- The brand plans to decrease private label penetration and increase own brand penetration. The own brand buy represented 30% of the total women’s apparel buy in the first quarter of fiscal 2009. Goal is to achieve a penetration in excess of 50% as the design and buying team acquires the appropriate information and experience to do so.

- The brand is testing a new real estate concept - a lifestyle project called Space 15 Twenty in West Hollywood. The Space 15 Twenty building is 26,000 square feet. Urban will be taking 11,000 feet, and acting as the landlord to a variety of other hand-selected, unique tenants for the remainder of the space.
- The company will open its first Terrain store this coming April. The company purchased the J. Franklin Styer nursery in February and the facility will be reopened as Terrain at Styer’s in April, just in time for the peak gardening season. The site will have 19,000 square feet under roof, housing plant material, garden equipment, pots, garden accessories, furniture, found objects, gifts and a café. It will have another 4,000 square feet devoted to landscaping services and approximately three acres devoted to plant material, outdoor furniture, and accessories. The team’s objective is to reinvent the garden center and the company is all highly enthusiastic about the opening plans, including the visual execution and product assortment.

Key questions from the fourth quarter earnings call conducted by Urban Outfitters, Inc. on March 6, 2008.

Kimberly Greenberger (Citigroup): Could you expand on your concept to market discussion and when do you think you will fully realize the benefits of CTM in merchandise margin and in the assortment?

Glen T. Senk: I do not think we are prepared to answer fully when we expect to realize the margin improvements. It is a multi-year process. If I laid out a timeline, I would say we are 25% to third of the way where we want to be. Barbara and her team and the merchant team and the design team have done an exceptional job. The big to-do right now is we are doing a proof of concept on a software package that will help us enormously. We are in the process of considering opening up an overseas office. We are in the process of consolidating factories. We have got a lot of work to do in the current year and the year or two thereafter.

Brian Tunick (J.P. Morgan): Can you give color on the Urban Outfitters division, either sort of the gross margin recovery story, sort of where are you and the categories inside Urban Outfitters?

Glen T. Senk: We never release margin information by brand. We also tend not to give specific information by merchandise category. All divisions were at least single-digit positive, so there is a lot of traction in the business. The regular price selling penetration was up, that we ended the quarter with 44% less markdown inventory, so you can draw inferences as to what is working, what the margins could look like in the first quarter going forward.

Margaret Whitfield (Sterne, Agee & Leach): The tax rate is higher than expected for this year. Are there any strategies afoot to bring it down in the out years?

John E. Kyees: The approach I would recommend for future years is to use around 36.5%. We are at this point. We can not totally control what happens on state taxation and unitary tax moves, so 36.5% is a good number.