Oona McCullough - Director of Investor Relations Francis J. Conforti - Chief Financial Officer, Chief Accounting Officer and Controller David W. McCreight - Chief Executive Officer of Anthropologie Group Richard A. Hayne - Co-Founder, Chairman of the Board of Directors, Chief Executive Officer and President Tedford G. Marlow - Chief Executive Officer of Urban Outfitters Group David Hayne

Kimberly C. Greenberger - Morgan Stanley, Research Division Janet Kloppenburg Adrienne Tennant - Janney Montgomery Scott LLC, Research Division Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Marni Shapiro - The Retail Tracker Paul Lejuez - Wells Fargo Securities, LLC, Research Division Matthew McClintock - Barclays Capital, Research Division Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division Oliver Chen - Citigroup Inc, Research Division John D. Morris - BMO Capital Markets U.S. Simeon A. Siegel - JP Morgan Chase & Co, Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Neely J.N. Tamminga - Piper Jaffray Companies, Research Division Jeff Black - Avondale Partners, LLC, Research Division Omar Saad - ISI Group Inc., Research Division Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. First Quarter Fiscal 2014 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Oona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN First Quarter Fiscal 2014 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3-month period ending April 30, 2013. 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. We will begin today's call with Frank Conforti, our Chief Financial Officer, who will provide financial highlights for the first quarter. David McCreight, CEO, Anthropologie Group, will provide a brief update on the Anthropologie brand. Richard Hayne, our Chief Executive Officer, will then comment on our broader strategic initiatives. Following that, we will be pleased to address your questions. 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 Frank.

Thank you, Oona, and good afternoon, everyone. I will start my prepared commentary discussing our fiscal year 2014 first quarter versus the prior comparable quarter. Then I will share our thoughts concerning the remainder of the year. Total company sales for the quarter increased by 14% to a first quarter record of $648 million. This increase was driven by strong retail segment comp rate of 9%, opening 7 new stores during the quarter, a $32 million increase in noncomparable sales and a 16% jump in wholesale segment sales. The 9% increase in retail segment comp sales was fueled by continued robust direct-to-consumer growth and a positive comp store sales. Direct-to-consumer growth was driven by an increase in visitors and improved conversion rate. Positive comp store sales resulted from increased transactions, partially offset by lower average unit selling prices while units per transaction were flat. By brand, our retail segment comp rate was 44%, 8% and 6% at Free People, Anthropologie and Urban Outfitters, respectively. Free People Wholesale delivered another strong quarter as sales rose 16% to $36 million. These results came from double-digit sales growth to specialty stores and department stores. Gross profit for the quarter increased by 18% to $239 million. The gross profit rate improved by 125 basis points to 36.8%. The improvement in gross profit rate was primarily due to a reduction in merchandise markdowns mainly driven by improvements at the Anthropologie brand. We also improved our initial merchandise margins and leveraged store occupancy expenses. These gains were partially offset by deleveraging delivery expense, primarily related to an increase in penetration of direct-to-consumer sales. Total selling, general and administrative expenses for the quarter increased by 11% to $166 million. Total SG&A as a percentage of sales leveraged by 70 basis points to 25.5%. The SG&A leverage was…

Thank you, Frank, and good afternoon, everyone. I am happy to be here today to update you on our progress at Anthropologie. On an earnings call a little more than 1 year ago, we shared our assessment of the health of the brand, state of the organization and business, and path to regaining momentum with our customers. As you may recall, we outlined several specific priorities: correcting course and design in merchandising, returning full-priced and markdown sales to past ratios, improving 4-wall productivity, turbocharging our direct-to-consumer investments for growth and reversing trends in the house file. To begin, we've returned our customer to the forefront of discussions and decision-making, challenging our understanding of and connection to her. We encourage professional curiosity in order to engage a broader base of talent throughout the organization. We reexamined our organizational structure and how it supported our goals. And lastly, we added more analytical rigor to investments and processes to improve returns and efficiency. Now with a clearer view of our customer in mind, we shifted the product and marketing efforts into a broader range of aesthetics and moments in her life. We moved away from dependence on the quirky preppy look and emphasized other areas of our brand's aesthetic reach with softer, sensual feminine looks, as well as adding elements of Bohemia. Additionally, we identified other moments in her daily life where we thought Anthropologie had opportunity and began building into weekend casual and expanding our best-to-dinner offerings. And finally, we worked to recapture our customer's attention by adding back in thoughtful design details, for which Anthropologie had become so well known. In examining the organizational structure, we moved to clarify accountabilities and speed decision-making by tightening and realigning the structure across merchandising, design, creative, store operations and marketing. Now with professional curiosity…

Thank you, and good afternoon, everyone. David, I'm so pleased by the progress Anthropologie has made over the past 12 months. Your product offering is now more compelling and customer-appropriate, and your marketing is once again inspiring your customers. Congratulations to you and the entire Anthropologie team for a job well done. While the turnaround at Anthropologie certainly helped to drive Urban's record first quarter sales, Anthropologie was not alone. The Free People brand produced outstanding comp gains across all of their channels. In fact, all brands continued to build upon the successes established last year, and each posted record first quarter sales. We have repeatedly stated that driving top line growth in ways that are accretive to the bottom line is our #1 financial objective. You may recall us discussing the 4 initiatives to achieve this goal. They are: expand and enhance the direct-to-consumer channel at each brand; continue to build additional stores in underpenetrated domestic markets; expand each brand internationally using all of our channels of distribution; and importantly, continue to expand product choices and categories and enter adjacent businesses. Concerning this last initiative, our product expansion and foray into adjacent businesses will be accomplished through a combination of internal development and external relationships, which may include licensing, partnerships, joint ventures and acquisitions. I'm pleased to report that during the first quarter, we made progress on each of these 4 initiatives. First, expanding the direct-to-consumer channel. During the quarter, this channel continued its breathtaking growth. Each brand posted strong double-digit sales increases, and total direct-to-consumer penetration to total retail sales jumped by more than 400 basis points. On a year-over-year basis, web traffic was up by almost 20%, mobile sessions more than doubled and conversion improved by 56 basis points. Better use of data analytics, personalization and segmentation…

[Operator Instructions] And our first question comes from Kimberly Greenberger from Morgan Stanley.

I wanted to ask about some of the investments that you're making here in 2013, and we're assuming that there will be ongoing investments continuing into 2014. Could you just help us understand in sort of large buckets to the extent that you can, which items -- what kind of capital projects are you looking to invest in? And where do you see the biggest bang for the buck in terms of allocating some incremental SG&A dollars to your budget? Where -- either where have you started to see that, if you've been spending more money there and where do you expect to see it in the future?

Okay, Kimberly. I'm going to take a shot at it, then let Frank come in and probably finish. I think that the 2 main buckets that I look at is in merchandising and design and that's talent, and the second one is around marketing, and marketing both hard and soft. So hard marketing is the segmentation personalization and data analytics that we discussed, and soft marketing is around content and how to -- a perfect example of that is the investment we made in FP Me at the Free People brand. And so those are the main areas that I think are going to drive the most incremental business to the direct channel. Of course, we're still driving a lot of business in the bricks-and-mortar side by investing in retail stores. So those are the primary areas. And I know we're doing a lot in the area of technology, but we're also doing a lot in the home office, and that actually may consume more capital dollars. Frank, do you have any further thing to say about that?

Yes -- no. Dick's correct in that the majority of our SG&A spend is more around headcount and marketing initiatives. So it's headcount to support the marketing initiatives around customer analytics, data segmentation and other marketing initiatives, more so than it is capital itself. The technology piece that rolls into SG&A is capital, and that's around initiative to do, of course, different functionality on our websites. We are launching a Free People app this year, as well as other mobile enhancements within the other brands. So those types of technology spend will hit capital -- the capital spend and depreciation for the year.

Our next question comes from Janet Kloppenburg from JJK Research.

Frank, I was -- first, Dick, I was wondering if you could talk a little bit about Urban Outfitters and how you saw their progress in the first quarter? And what we can look forward to, from that brand, some of the new initiatives there for fiscal '14? And Frank, I wondered if you would give us a little hint on SG&A in the second quarter, because the first quarter came in a little light to the original indications you had given us. And I was thinking a high teen pump up in SG&A for the second quarter, and I just wanted to see if that was -- remained consistent.

Okay. Well, again, I'm going to let Ted Marlow talk about Urban since he's the -- right here, and he knows -- he's much closer to it than I. Ted?

Yes, Janet, in regard to the Urban brand in the quarter, the focus really for -- our key focus over the past year, as you know, has been distorting our opportunity through direct-to-consumer. We realized a very strong quarter, both in the North American, European market and Direct. While our North American and European retail businesses did treat us positively, the distortion of the business really was in the Direct side. We've been driving that through customer acquisition and retention along with increasing our style offer to customer. I believe this last week, we were operating the Urban North American business with somewhere around 18,000 styles and the assortment up against about 10,000 last year. So it's dramatically increased in regard to the size of offer, as well as the database that we are reaching out to today is nicely increased over last year's database size as well. In regard to the overall content of the mix, we had good performance out of the fashion businesses in North America and in Europe. The weather was not necessarily our best brand in North America and the northeast as it pertains to some of our offer. But we felt good about how we look. We feel good about how we look going into second quarter. And it's a moment of change in the mix in regard to what we're seeing in silhouette performance. And I think that our teams' got a good -- done a good job of identifying that and fueling our inventory with appropriate product.

And Janet, this is Frank. I'm going to answer your SG&A question because I suspect there's probably a few more on the call who are in it as well. Our SG&A growth rate did come in lower than we had planned for the first quarter, and that was primarily due to lower headcount than we had -- headcount hiring coming in lower than what we had originally expected. We still are planning for a mid-teens SG&A growth rate for the year, so we do expect to see that SG&A growth rate accelerate into the second quarter and for the remainder of the year. If you remember last year was very similar dynamic too. We started out a little slower than we originally planned based on headcount hiring coming in a little slower than planned, but still finished the year exactly where we were targeting from a growth rate standpoint for SG&A. And I expect the same to -- or we're planning for the same to occur this year.

Our next question comes from Adrienne Tennant from Janney Capital.

Dick, can you talk about -- you're not on the 4-5-4 calendar, so you didn't get the week where weather really turned to warmer temperatures across the country. I was wondering if you could give us any color on what you're seeing in regions that were weather-impacted. And then really quickly kind of housekeeping, of the 5 UO and 2 Anthros that are international, can you tell us what countries they'll be in?

Sure. I'll talk about the weather impact because I'm sure it's on the minds of several of the analysts. And I didn't -- did the weather actually turn for a week? I thought it was only for a couple of hours, here on the East Coast at least. We saw some effect of weather based on geography, meaning that the weather in the West Coast was certainly warmer and more conducive to spring, summer purchasing than here on the East Coast. And we did see some sales differential across all brands as a result of that, but I really think that we prefer not to talk about weather. We believe that fashion always trumps weather. If we have the right fashion the customer spends. And if we don't, the weather may be a factor, but it's much less relevant. The 4-5-4 calendar did affect us differently. As you know, we're on a monthly calendar, not the other. So the difference being the last week in March and the first week in April was different for us than it was for other retailers. So we have seen a fairly steady comp and sales trend over the entire quarter if you factor out Easter, and so I think that -- and we see that will actually continue into May. So I don't think there are any big news items based on either weather or based on the calendar.

And as far as the locations on the -- or I guess, specific countries on the international stores, I believe Anthro is both in the U.K. And I'm going to let Ted take Europe, because admittedly, I don't know all of them.

Europe, we have 3 U.K. and 1 store in Cologne, Germany and then Amsterdam on the docket for this year.

And our next question comes from Lindsay Drucker Mann from Goldman Sachs.

Just 2 quick ones for me. First of all, Frank, if you could just talk about on the gross margin side, why you're expecting to see a deceleration in gross margin improvement across the year? And then just secondly, Dick, if you could talk a little bit more about you mentioned as we do more ship from store, the opportunity to reduce weeks of supply and weeks of inventory and just make more efficient, can you kind of walk through the mechanics of how we layer on extra costs to ship from store, any extra labor associated with that, and how much we think that can improve the inventory efficiency?

So regarding gross margin, I do want to remind you that second quarter -- second and third quarter last year were actually our strongest gross margin rates for the year. So as we did come out a little better than we planned here in the first quarter, our plans for the year remain to be at least 50 basis points, if not better, with the second and third quarter being a tougher compare than the first quarter was for us. We remain focused on steady ratable improvement from quarter-to-quarter in continuing, our biggest opportunities in gross profit margin continuing to be markdowns followed by IMU.

Sure. Lindsay, the pick, pack and ship initiative that came online last year accounted for approximately $9 million in additional business in the first quarter of fiscal year '14. And so we're pretty pleased with that. And yes, it is costing us a little bit extra in terms of staffing and supplies in the stores, but we feel that it's more than made up for by the fact that, that $9 million, most of it would not have been shipped because it would have been out of stock in the distribution centers had we not had the ability to do pack and ship. Also, of course, we do get the benefit of now that we can see across both retail channels, one, inventory, we get to reduce the amount of inventory. There's not as much inefficiency in holding the inventory in the 2 tranches: one in the direct-to-consumer fulfillment center and the others in the stores. So we can reduce overall inventory, and I would like to see that improvement somewhere around a 5% incremental improvement in fiscal year 2014 versus 2013.

And our next question comes from Lorraine Hutchinson from Bank of America.

I wanted to follow up on a gross margin topic. You had spoken on last quarter's conference call about web exclusives and the dilutive impact that they could have on gross margin this year, but you didn't mention that too much in the prepared comments. So can you give us an update on that, maybe by brand and your expectations for the rest of the year?

Yes, Lorraine. This is Frank. So as it pertains to web exclusive, we continue to see that product to be slightly unfavorable as it relates to initial margins. And again, that's predominantly due to the buys being smaller than your cross-channel product, but we're actually seeing markdowns. And it actually depends on the category, depends on the brand, depends on the month coming very comparable to where our cross-channel product is. So the effect of web exclusive on our margins for this quarter has not been significant. And from a trending perspective, I think it's just a little too early to tell, with those initiatives, exactly what it's going to mean for the year.

And our next question comes from Marni Shapiro from The Retail Tracker.

So rather than talk about the stores, I want to talk a little bit about online. Can you focus on a little bit on the progress you've made online, specifically in areas like home and footwear, even swimwear where I've seen greater assortment than you've ever had before at Urban Outfitters. And the price points that you are running on online across the brands, in a lot of places, are significantly higher than what I'm seeing in the stores. And I'm curious about how all these things are playing out online.

Okay. I'll take it in general. First, I'm going to ask Ted to talk about Urban specifically. We are seeing the ability to have higher price points online than we can have in stores. The customers are reacting to the product online more favorably than -- the higher price points more favorably than they do in stores. And I believe a lot of that is due to the fact that they can more easily see how those products might look on them and are inspired by some of the models and photography that we use. So to the degree that we offer inspirational outfitting and inspirational photography, I think we can sell a higher-end product and we can sell product at higher margins. Specifically in terms of bathing suits and other categories at Urban, Ted, would you address that?

I just see we've continually offered a broader assortment. We've linked in the selling season as well on swim. I don't doubt that there is online a year-round opportunity to pursue in the swim business. As it pertains to the home business, we have identified that as a business that we're very interested in building out with a broader product assortment, specifically focusing on certain categories within home. Home is a very important piece in conveying the overall concept of Urban, which it's not simply an the apparel, men's and women's business. We like involving the home environment in our story and feel like we've been a bit negligent in building out the opportunity of that particular area of the business. We do penetrate -- our customer has taken us there. We do penetrate much higher in our home business in terms of the business we do in direct versus store, but some of the signals that we're getting off product assortment through direct are leading us to be more bullish on our thoughts about home and the store environment as well.

And our next question comes from Paul Lejuez from Wells Fargo.

Just a quick follow-up on that last question. Could you talk about your average ticket specifically in the e-comm channel versus the store level? And in which brand do you see the largest gaps between the 2? And I'm just wondering with all this talk about e-comm initiatives, what are you doing to drive traffic to stores specifically?

Okay. That's a lot of questions. In terms of overall price points, as we said, the online price points are slightly higher, but we have seen slight reductions overall in the price points this year versus last year. In terms of -- the second part of the question?

The second question was what do we do in the direct stores?

At the Urban business, there are a number of efforts afoot to, actually through email communication, give sort -- notice of certain events that are happening in stores and promote locally. So that's been reasonably successful, and we intend to continue to do that. And some of the other brands will probably follow suit.

Our next question comes from Matthew McClintock from Barclays.

Just a follow-up on the last 2 questions, just sticking with the online theme. I was wondering if there was -- if you saw any fundamental differences in performance for like-for-like product that you offer online relative to in your stores, perhaps speak to private label performance online relative to what you see in the stores itself.

Okay, Matthew, I think -- I would be remiss if I started talking about overall patterns because I think it really depends an awful lot on individual items and things like coloration. So I don't see any real pattern on differences between online and in-store.

And our next question comes from Erika Maschmeyer. Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division: Could you provide some greater detail around the Anthro loyalty program and some of your comments around the house file strength? I think David mentioned something about reversing trend in customer file, what was he referring to there? And how does the recent trend going? Is that you think corresponding with some of the stylistic changes that you've talked about, and I guess, kind of had your assortment there shifted too far from its core base?

David?

Erika, yes. I do think it starts and most importantly with product and secondarily probably, how we're marketing and the way we're addressing her need. We made the -- when you look at the actual -- we saw the house file erode from past years. And so we measure that and our retention rate drops. We saw fewer new customers. And what we have seen, broadly speaking, are strong double-digit increases across all 3 metrics. The largest source of growth in the file has actually been slowing the retention rate because that's the bigger part of the population. So that loyalty or loyalty portion of the business where people are buying back and remaining active is probably one of the strongest indicators. The highest percentage increase is actually people coming back to us, people who we would say relapsed or reactivated. And that's in the -- that's the highest rate, but the smallest gross number. And then the rate of new customers was right in between the 2 in terms of contribution. The Anthro program is something we've -- that had been in place for several years, but we decided to give it some teeth and to stand on a series of components we promised, whether it's personal shopping guidance, purchasing, opportunity to reserve product briefly, maybe advance notice of sales and then an occasional benefit here and there. We have, for the past year, been really working to engage our talented field in signing people up to build a database. And then we've also improved the positioning and marketing of it online. And we have seen tremendous growth in the program where -- and we track their purchase behavior. They tend to purchase at a much higher rate than non-Anthro members, almost twice the rate of purchase as a non-Anthro member, and we look at their behavior. The other thing we've been noticing is a real shift to multichannel, where we've had a lot of single-channel buyers in either retail or direct, and now we're getting a lot of cross channel shoppers. And we think that has a large part to do with the technology improvements online, the customer's comfort with shopping online and some of the things we talked about with pick, pack and ship.

And our next question comes from Oliver Chen from Citi, Citigroup.

Regarding inventory turnover and your strategies there going forward, could you update us on your lead time versus peers and where you are now versus where you hope to get? Also, related to inventory, how should we think about that driving either gross margin or your comp, or both, and how that relates? And as just a follow-up, I was curious about your comments on the health of the consumer at large. Do you feel like the housing prices and S&P performance is helping there?

Okay. I'll start with the last first, the health of the consumer. We don't really see any change. I mean if you are one of the fortunate ones that have a job and are employed, I think you're doing reasonably well and have enough money to spend. If you happen to be one of the unemployed, I think it's a tough time. So I don't think that that's really changed much in the last 3 months. I would say that with stock market up, the Anthropologie group probably is benefiting slightly from that with a group of people who are feeling slightly more flushed, but I want to emphasize slightly. In terms of lead times, no, our goal over the next 3 quarters, and it's already begun in all the brands, is to reduce the lead time by approximately 5%. We haven't done a study to try to indicate to us where we stand versus our competitors. We know where we stand and we know that we can do things better. Some of the things that we can do are purchasing raw materials upfront, doing what we call incremental development and that has to do with trying to do things like figure out what kind of watches, what kind of trims we're going to want before we actually place orders. And then also at the Free People brand particularly has begun using some regional design and product development facilities in Los Angeles and thinking of expanding that overseas. So these types of things we believe that we can get at least a 5% increase or decrease in the lead time. And I think there are probably more room -- considerably more room after that, but we want to take the baby steps first and see how it goes. Frank, do you want...

No, to answer your question related to margin opportunity, the opportunity is really around the accuracy of the buyers. As you reduce your lead times and you're closer end to the sales period, the opportunity is just to have more effective product and a more accurate buy.

And our next question comes from John Morris from BMO Capital Markets.

Maybe a little bit more color on the European business. Any regional differences that you're seeing in performance? And I know it's a younger business and it's not apples-to-apples, but if we were to adjust for the time line, maybe the strength there compared to total company's reported or compared to your expectations on the quarter in progress.

Sure. I think we're actually feeling a little bit more bullish about the European business in terms of both Anthropologie and Urban Outfitters. Our inventories are well controlled there. Actually, the weeks of supply are actually down nicely from the prior year. And we feel like the consumer over there is a little bit more bullish than certainly they were at the end of the fourth quarter. So our overall view of Europe is actually more bullish in the end of this quarter than the prior quarter.

And our next question comes from Brian Tunick from JPMorgan. Simeon A. Siegel - JP Morgan Chase & Co, Research Division: It's actually Simeon Siegel on for Brian. So I apologize if I missed it, but did you say how much DTC grew or what percent of sales the online channel represented this quarter? And then how much deleverage did you see from shipping due to the growth in the orders?

This is Frank. So no, we didn't specifically call out the direct-to-consumer growth rate. We're going to only give the retail segment combined now as we felt like the channels between stores and direct-to-consumer just continue to be more and more blurred as we continue to try and please the customer. The second part of your question?

Well, if I can jump in on that, what we did say was the penetration of direct-to-consumer versus the retail stores increased by almost 400 basis -- or more than 400 basis points this year over the same quarter last year. So we continually expand that, but Frank's 100% right. The lines between the 2 are getting more and more blurred, and it's so difficult to tell that we now have combined and only look at retail as a combined number.

And I apologize. I remember the second part of your question, which is on delivery expense. So no, we didn't specifically say how much delivery expense delevered, but meaningful enough that we spoke to it. But I just want to make sure you understand, the deleverage in delivery expense is primarily related to the increased penetration of the direct-to-consumer business, so exactly what Dick is talking about, that increased penetration going up by roughly 400 basis points, the delivery expense is going to deleverage on the total company basis. But I also caution you to remember that the direct-to-consumer business or direct-to-consumer channel still remains a more profitable channel than the stores.

And our next question comes from Dana Telsey from Telsey Advisory Group.

Can you give any update, as you were looking at to fall, we had great -- very good success here in the spring season. As you're thinking about fall by brand, private label versus brand penetration, where do you see it going in sales and margin contribution? How should fall 2013 look different, and how are you planning for it differently than last year?

Okay, Ted, you want to take that for the Urban brand and then, David, do you want to talk to it about Anthropologie?

Sure. Dana, it's Ted. Related to the Urban business, the way that we're thinking about the opportunity in our own branded product is we continue to introduce new own brand product in North America and Europe. Some of that product is specifically focused on classification and customer type, some of it is multi-classified. We intend to build our own brand strategies in a number of different ways. But in terms of increasing the penetration and our overall business model, we are not focused on really driving the overall penetration up dramatically. Again, the concept that we merchandise is one that is own brand as well as a procured brand out of the market. We simply are looking to improve productivity and to build out sales opportunities as we see them in our assortments. David?

For Anthropologie, we have seen growth in the own brand penetration. And that's largely due to the quality of the own brand design and the strong sourcing partnerships we have within our shared services group. And I do hope through, as Dick and Frank mentioned earlier, through development of talents and building more in-house design capabilities, that we'll continue to see own brand grow over time. That penetration will be contingent really on the quality of design. And so I wouldn't want to project a steady increase. It will be more as we add capabilities and the quality of the product coming through. Our margin expansion has come through a strong reduction in markdowns, which goes back to better buying and better product, tighter turns as well as initial markups helping us, and we see that continuing for the near term.

And Dana, I didn't want to not include Free People. But because your question was about private label penetration and because Free People was nearly 100% owned product, I don't think it's that relevant. Okay. Thank you.

And our next question comes from Richard Jaffe from Stifel, Nicolaus. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: Just a follow-up. I know you mentioned a broader assortment online and I believe in the context of Urban, and I'm wondering how the mix is changing online versus in-stores for each of the 3 brands, and how the stores are handling that possibility of a return of merchandise that they don't carry? Sort of a two-part question.

Okay. Across all brands but particularly in Urban, there's a increasing penetration of what we call web-exclusive product. And as I said, Urban's leading that charge and now is in excess of 50% web exclusive. Other brands are close behind and also increasing. How are we handling returns? Before, we were handling them poorly. But now that we have a pick-and-pack initiative behind us, thanks to Calvin and the IT group, we can take the returns that come to the stores and have products that they don't carry in the store and we can ship them out the next time they are ordered online. So we're seeing a much cleaner store environment in terms of the onesie and twosie returns that we have seen in the past.

And our next question comes from Neely Tamminga from Piper Jaffray.

Dick, I was wondering if you can talk a little bit about mobile. I apologize if I missed any sort of stats about mobile earlier on, but is it possible that mobile is maybe even more significant than PC url for the future of, let's say, Urban versus Anthro? And I guess, going one step further, if it's all about having the store basically in their hand no matter where they walk, have you guys considered any sort of geo-fencing sort of technology related to getting the customer into your store, Urban versus Anthro?

Neely, I am not the expert in mobile, but I do know that mobile is not singular. There are 2 mobile platforms, one being the phone and one being tablet. And the brands have different penetrations of those 2 platforms depending on largely by age. So at the Anthropologie brand, we see much more purchases through tablets than we do on phones. And at the Urban brand, we see more phones than we do tablets, particularly sessions. And then also in terms of sales at Urban are more of phone-oriented than they are tablet-oriented, although the tablets are increasing. The whole mobile platform, both of those combined, as I said in the prepared notes, growing at more than -- much more than double quarter over last year's quarter. And we see this being probably the fastest growth area of any of the direct-to-consumer areas. I don't know that I have any other color to give you. I think that on the phone end of things, we see people responding when they've already logged on either through email or through tablet and decided that they wanted to make a purchase, and they're going on to make the purchase on their off hours, maybe commuting back and forth to work. So the phones are growing rapidly. And right this year, we are planning to increase our investment in the apps that can better accommodate our customers.

And our next question comes from Jeff Black from Avondale.

Can you just, Dick, framework for us, and we've had a lot to talk about e-commerce. But are we at a point, given the weighting of e-commerce and given what you're doing on shipping and given the omni-channel, where we're now seeing some structural headwind on gross margin? And if so, how much are we looking for as we go forward? And can that be offset by the stuff you're talking about on the inventory turn side at some point?

Headwinds in gross margin, I don't believe so. I think that the gross margins over time should be just fine. I don't -- if you are talking about the difference in gross margin between web-ex and cross-channel, as we said before, the difference is largely in the IMU area. But when you get down to the MMU area, they have largely disappeared, so I don't think there's any impact in gross margin. Of course, there is a bogey in terms of online for shipping, but that's more than offset by the fact that there is very favorable occupancy cost benefit to online. So the economics, as Frank said, in the end should be slightly favorable to direct-to-consumer and has been for the last 5 to 7 years.

Our next question comes from Omar Saad from ISI Group.

I thought you had some interesting comments around Japan actually in the Free People, I know it's a new business there. I wanted to see if you could maybe talk about how you think that market works from a fashion standpoint. It's a little bit different than North America in terms of some of the trends and phenomena over there, and how the Free People brand fits into that, how it's different than your kind of Europe expansion? And maybe last, if you see an opportunity in Japan for some of your other brands.

So I'll ask Dave of Free People to respond to that because he's been the one involved with the foray into Japan.

Yes. So we've been relatively pleased with the reaction so far in the Japanese market. It's early, we've had about a month's worth of selling so far, but the response has been very good. We've been very excited about it. We've been excited that the fashion that we have put out there has been -- has gained traction over there, and it's been a similar fashion to what we put out in the U.S., so we've been pleased with that response.

We think there's a lot of opportunity, given the response that we've seen in Japan, to continue to increase our penetration of the wholesale product into the Japanese market. And as I said, Free People is intending to launch a direct-to-consumer -- a Japanese direct-to-consumer site later on this year in conjunction with our partner there.

And our last question comes from Barbara Wyckoff from CLSA. Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: I guess for Ted, we've been talking about entering Japan for some time, when might that be happening, and then are you seeing of any evolution of your customer as you move kind of away from college campuses and have a broader sort of day-in, day-out business in the malls and high street locations?

Sure, Barbara. I'll jump in to that. In terms of if we're seeing any evolution or change in regard to the customer that the brand is targeting, really, what drives the work that is done out of the home office, both here and in London, the focus remains consistent with regard to the life stage that we target with our business in North America and Europe. As to who the brand attracts, yes, it's probably a broader customer in today's market. But we remain focused on a 20 to 25 as the core piece of the business. And we're confident we get younger, we're confident we get older. If I take took a look at our email database, combined with the followers of the brand through social, that rolls up to over 10 million people. And I don't doubt that, that might be a little broader than simply that core of 20 to 25, but that's what drives the work that we do. As it pertains to Japan, yes, we are looking at opportunities from Japanese market. We've made a couple of trips over the past year meeting people in the market. We are currently involved with conversations with people in the market about opportunity. However, at this time, we do not have specifics to announce.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.

Thank you.

You may now disconnect.