Frank Conforti - Chief Financial Officer Dave Hayne - Chief Operating Officer, Free People Brand Richard Hayne - Chief Executive Officer David McCreight - CEO, Anthropologie Group Margaret Hayne - CCO, URBN and President, Free People Brand Ted Marlow - CEO, Urban Outfitters Group Trish Donnelly - President Urban Outfitters North America Barbara Rozsas - Chief Sourcing Officer.

Kimberly Greenberger - Morgan Stanley Lorraine Hutchinson - Bank of America Paul Lejuez - Citi Lindsay Drucker Mann - Goldman Sachs Janet Kloppenburg - JJK Research Dana Telsey - Telsey Advisory Group Brian Tunick - Royal Bank of Canada Marni Shapiro - The Retail Tracker Anna Andreeva - Oppenheimer Simeon Siegel - Nomura Securities.

Good afternoon, and welcome to the URBN Third Quarter Fiscal 2016 Conference Call. Earlier this afternoon the company has issued a press release outlining the financial and operating results for the three and nine month period ending October 31, 2015. 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 third quarter. Trish Donnelly, President, Urban Outfitters North America will provide a brief update on the Urban Outfitters Brand in North America.

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 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 recently completed fiscal year 2016 third quarter results versus the prior comparable quarter. Then I will share our thoughts concerning the fourth quarter.

Total company or URBN sales for the quarter increased by 1% to a third quarter record of $825 million. This sales increase included a 1% retail segment comp, a $9 million increase in non-comparable sales, including the opening of ten net new stores which more than offset a 5% decline in wholesale sales.

Addionally, please note that our sales growth was negatively impacted by approximately 130 basis points of currency translation. Our wholesale segment sales were negatively affected by transition delays at our new distribution facility in Gap, Pennsylvania.

These delays resulted in approximately $9 million of third quarter shipments being delayed into the fourth quarter. Had we been able to fulfill these orders during the third quarter, our wholesale sales growth would have been 9%.

As we enter into the fourth quarter, we continue to see strong demand in both department and specialty stores and based on several measures put into place we do not anticipate further sales misses due to delayed shipments.

Within our retail segment comp, the direct to consumer channel continues to outperform stores, forcing double digit sales increases driven by increases in sessions, average order value and session conversion.

Negative comp store sales, resulted from decreased transactions and units per transaction, partially offset by higher average unit selling prices. The negative transaction could have been affected by traffic which was down at our comp stores during the quarter although we did benefit from an increase in conversion rate.

By brand, our retail segment comp rate increased by 3% and 1% at Free People and Urban Outfitters while the Anthropologie Group was flat for the quarter. Our retail segment comp was positive in September, flat in August and negative in October.

When thinking about the months in the quarter, please keep in mind that the Labor Day holiday weekend shifted from August last year to September this year. So if you were to look at the months combined, they try and account for the holidays shift the net result of the two months together was a positive retail segment comp for the period.

Total URBN gross profit for the quarter was up 2% versus the prior comparable quarter to $288 million. Gross profit rate improved by 11 basis points to 34.9%.

The improvement in gross profit rate was driven by almost 150 basis points of improvement in URBN maintained margin due to significant improvement in the Urban Outfitters Brand markdown rate which was partially offset by lower maintained margin at the Anthropologie and Free People retail segment.

URBN maintained margin improvement was partially offset by approximately 100 basis points deleverage in delivery and performance center expenses primarily related to the ongoing gap fulfillment center transition and the increased penetration of direct consumer sales.

Approximately of the deleverage in delivery and fulfillment center expenses previously noted related to the transition of the South Carolina fulfillment centers to Gap Pennsylvania.

After the direct to consumer transition to the new facility in the second quarter of [Indiscernible] this deleveraging the third quarter which was primarily related to the wholesale segment transition was more than we had originally anticipated. We believe this deleverage will continue into the fourth quarter.

Additionally, we estimated that currency translation negatively affected our gross profit rate by just under 50 basis points in the quarter. Total SG&A expenses for the quarter were up less than 1% to $208 million. Total SG&A as a percentage of sales leveraged by 23 basis points to 25.2%.

This SG&A leverage was primarily due to lower incentive based and share based compensation expense as well as currency translation benefit which were partially offset by an increase in technology related expenses used to support our direct to consumer channel investment.

Operating income for the quarter increased by 5% to $80 million, with operating profit margin leveraging by 34 basis points to 9.7%. Net income for the quarter was $52 million or $0.42 per diluted share. Turning to the balance sheet, inventory decreased by 5% to $442 million.

The reduction in inventory is due to a 9% reduction in retail segment comp inventory headcost partially offset by increases in wholesale inventory and non comparable store inventory.

The decrease in Retail segment comp inventory is due to improved inventory planning and control as the business continues to work towards managing to a lower weeks of supply. We ended the quarter with $273 million in cash and marketable securities.

During the third quarter, the company repurchased and retired 3.6 million common shares for approximately $112 million. We have 11.6 million shares remaining on the most recent Board of Directors’ share repurchase authorization. Year-to-date we have repurchased 10.7 million common shares for approximately $366 million.

As we look forward to the fourth quarter of fiscal year 2016, it may be helpful for you to consider the following. First, I wanted to briefly comment on our current quarter to days sales trend. As noted above, October was the weakest sales comp in the third quarter and this negative trend has worsened into the first half of November.

As of quarter to date, this negative trend is consistent across each of our brands and most prevalent in source. We are planning to open approximately eight stores during the fourth quarter totaling 28 net new stores for the year.

For the fourth quarter, by brand we are planning approximately six new Anthropologie stores globally including one new European store and two new three people stores in North America. URBN’s gross margin rate for the fourth quarter could decrease versus the prior year.

This decrease featured in by deleverage related to our fulfillment center transition to our occupancy deleverage related to negative store comps and lower maintained margins at the Anthropologie and the Free People brands. This deleverage could also be driven by the current negative sales growth rate.

This deleverage could occur despite year-over-year improvement in the Urban Outfitters Brand maintained margin due to continued progress in regular price sales and overall lower levels of marked down sales. Based on our current plan, we believe SG&A could grow at a midsingle digit range for the fourth quarter.

This increase would be driven by direct consumer channel investments related to marketing and technology. Capital expenditures for fiscal year 2016 remain planned at approximately $145 million driven primarily by new stores and the completion of our new east coast fulfillment center.

Finally, our fiscal year 2016 annual effective tax rate is planned to be approximately 36%. As a reminder, the foregoing does not constitute a forecast, but is simply a reflection of our current views. The company disclaims any obligation to update forward-looking statements.

Now it is my pleasure to pass the call over to Trish Donnelly, President of the Urban Outfitters Brand, North America.

Thank you Frank, and good afternoon everyone. We are incredibly proud of the progress that UO brand has made this past quarter.

The teams focused on assortment planning and allocation on creating, compelling trend right products, on delivering unique shopping environments and improved four wall productivity and on communicating our brand messaging through creative inventory and social engagements has given us solid quarterly results and a successful and stable foundation from which to continue to build.

Starting with assortment planning and allocation, the teams major focus in discipline around inventory control and management has resulted in significantly improved marked down rates and historically fast inventory turns. The collaboration between planners and merchants has been examplanary.

The teams work together to add at redundant styles and offerings while funding emerging businesses based on current trends. This balance and focus has resulted in positive rate price comps in both retail and direct. And the businesses into which we’ve intentionally restored it are seeing very exciting double digit full price comp results.

We came into this year knowing we had a lot of work to do around IMU. Although it is still the work in progress with great focus, discipline and collaborative efforts with Barbara Rozsas, our Chief Sourcing Officer and her team we are proud to report our IMUs for the quarter showed nice improvement versus last year.

Our design and merchants team have worked closely with Barb's group on increasing our internal design penetration which has also proven beneficial to improved IMU. In addition, the design team is executing more in-house trade which allow us to get samples right the first time resulting in faster production turnaround and speed to stores.

The last time we spoke I talked about our focus on driving four walls productivity and the initiation of a detailed review of all store for plan to assign appropriate square footage by product category.

We are well into this complex project and although it is still work in progress we’ve seen some excellent results in large format stores specifically Harold Square as well as our mall proto store in King of Prussia.

We are taking our learning here and continue to roll out what’s working to the rest of the stores, most recently successful examples of this has been in our dresses, intimate and beauty category where the margin contribution within our four walls has dictated greater square footage needs.

So we are distorting these areas accordingly on each store’s four plan. As a company we recognize the importance of its exercise in making our stores as productive as possible.

Now turning to product, last year Meg Hayne, Chief Creative Officer for URBN initiated a trend to concept process for the URBN brand, by promoting strong creative talent already within the brand and hiring outside talent where we needed additional support and expertise and the process resulted in an effective framework which gave clear focus to the design team and to the actual product assortment.

We are now able to further a broad number of sensibilities and end users that’s still above strong UO branding statement. We have now increased our attention to the men’s division where we know we’ve got tremendous opportunities to please our core customer.

We will build upon successes we are seeing and extend product categories where we see growth and opportunity. In addition to the initiative and progress already noted, we are still incredibly committed to delivering unique and exciting store environment to our core customer.

As in the past, our display artists in the fields continue to build compelling art layers and fixturings for the stores in which they highlight product. We saw great results with these fixture build which has helped define our floor sets and shop making easier and more feelings for customers to shop each defined area.

Successful examples of this include our back-to-school and fall shops in dresses, beauty, intimate and music and photography. These categories saw some of our highest comp growth rates for the quarter.

Even though our four wall focus is on efficiency and return on invested square footage we haven’t lost sight of the importance of divisional display and creativity that is unique to each individual URBN store.

In celebration of our artists in the field we posted images on hash tag UO display, on Instagram and given the thousands of instances in which the hash tag has been used and that thousands of likes we are seeing when we rebrand via our local and national accounts, our customers have a clear appreciation of a creative of the display team.

In addition to unique visual merchandising within our four walls we are also highly focused on the direct channel and saw year-over-year increases in conversion across all of our experiences, desk top, tablets, mobile web and our UO app.

As the majority of our direct customers experience our brand true mobile, we activated our weekend program in all stores this past quarter. Engatgemnet here is growing with 65% of customers receiving beacon messages choosing to interact.

Also in the quarter we launched scan and shop in the UO app allowing customers to shop the styles in our dress books simply by holding their phone up to the catalogue page while in store. In addition with music being so important to our core customer, we’ve launched EO music within the app featuring our favorite playlist and our EO mix chip.

And in our Harold playstore to enhance and add to the more experiential shopping experience we’ve opened our first UO café which is fast becoming a popular breakfast, lunch and dinner spot. From a Brands marketing standpoint, our web imaginary continues to drive and support the impressive, direct to consumer comp increase we saw in Q3.

As this imagery has resonated with customers on our website and our app and in our digital marketing channels, we’ve begun using the imagery in stores to support our product initiative, shop and shop and distortion category.

This omni-channel visual approach led by Sue Otto, our Chief Creative Officer helps links the online and offline shopping experience and sends consistent cross-channel messaging.

Sue and her team have made it clear for the customer to see what we are stading for and what we are excited about the season with the more singlular cross-channel brand marketing point of view.

Given the excitement around our brand imagery we are also exploring printed piece opportunities specifically our recent holiday dress up and our mens journals which launched at the end of Q3. We will continue to explore this direct mail journal and zing concept as we move into spring.

Our social media team continues to drive engagement throughout the quarter with particularly strong increases in Instagram and Pinterest, up 76% and 52%, respectively over last year. Our Instagram following of almost 4 million was highly interactive this past quarter with our post averaging close to 100,000 likes.

Particularly exciting is that we saw engagement at [Indiscernible] high levels across all categories, women, men, assortment, music, electronic, beauty and intimate.

Some of our newer more successful social campaigns this past quarter included hash tag UO on campus, our all-store listening event, previewing Lana Del Ray's newest album which became the number trending topic in the U.S.

during the hash tag launch, our marketing campaign around product collaboration with Calvin Klein, Fila and Adidas and our dreamers and doers event in stores which celebrate artisans in local market by providing -- with our stores and marketing support to show their work.

Because our customer is very interested and highly engaged in these types of social interaction, we’ll continue to build on this opportunity and we are excited about our future initiative. In Q3, we experienced double digit growth in our active customer account with increases in new customers and retained customers as well as customers coming back.

While we’ve made notable progress over the last year in the areas of inventory management, product offering, four wall productivity and brand marketing, we continue to see significant growth and efficiency opportunities within the business. We still have a lot of work to do.

I’d like to sincerely thank the Urban Outfitters team for the quarterly results and I appreciate your time on the call today. Thank you..

Thank you, Trish good afternoon everyone. The Urban team has made excellent progress in re-energizing its brand over the last two years and that progress continues in this year’s first quarter. AS Trish explained the team made a decision to go back on promotional acvity while including the fashion and the quality of the offering, despite a lean year.

Although top line growth in the third quarter was just 1% the improvement in regular price selling grows healthy double digit increases grow [Indiscernible] profit dollar. The Brand team also improved greater messaging with better imagery and more robust social engagement.

Many on today’s call should have received a copy of the Urban holiday book, this is but one example of the improved market. I hope you agree with me that [Indiscernible] as Trish said, similar books with be distributed next year as the team believes this will help drive digital sales on a slower track.

After two years of rebuilding the brand it is now positioned for growth, we believe there is considerable opportunity to -- new market, expand the direct to consumer channel and build more projects, like space 24, 28 North Sea Texas. I’ll talk about that exciting project in a few minutes.

I congratulate and thank Trish, Meg and the entire Urban Brand team for a job well done. Before I turn your attention to the other brands, let me say a few words about the macro climate in which we currently operate. The policy has been disciplined from the traffic and sales perspective.

Combined North American slow traffic for the quarter versus the same period last year was down 6% while conversion results were well based. Meanwhile combined North American direct traffic or specials grew by 4% and conversion was up 20 basis points.

However, even though direct sessions were up on a quarter-over-quarter basis, so rate of increase dropped in Q2. The effect of this drop in traffic has been uneven across the categories we offer. In general, sales of apparel and accessories have been slower, while home intimates, shoes, and beauty have been more robust.

I believe our customers current lack of enthusiasm for the apparel and accessories categories. This is primarily due to a lack of fashion newness. We currently have a number of new fashion bright spots in our apparel offering. But whether or not these trends become more mainstream is uncertain.

Having been in this situation before, my experience tells me the best course of action is to keep inventories lean, continue to expand and know that new trends will emerge soon. Now I’ll address the other brands beginning with Anthropologie. For the Anthro Q3 was based end loaded Q2.

A number of important classes like sweaters and dresses offered assortments less compelling than prior year period and those classes depressed overall sales gains. The team continues to make adjustment in the assortment and offering additional promotions where necessary to move slower-selling inventory.

The effective inventory management has helped to mitigate the markdown pressure and as of October 31, apparel inventory this year stood 4% below last year on a comparable basis. Even though some assortments were up to the mark, the Anthropologie group also produced a number of success.

Categories and businesses such as Home, Beauty, Shoes, BHLDN and Terrain all delivered very strong quarter over quarter sales. For example online sales of home products in the quarter were exceptionally strong. They were driven by expanded and compelling product along with the mailing of home only journals.

The Anthro customer also responded positively to the new beauty offering. After strong results from testing these products online in several stores the brand recently concluded a roll out of new shops within 70 existing stores. Early results are very encouraging and speak of a much larger potential to the beauty and the brand.

These and other product expansion categories helped by double digit increases in Anthropologie direct consumer sales in the quarter. The growth of online sessions and increased traffic coming from the site via natural search suggest that Anthropologie customer advantage results remain very powerful.

The success of expansion categories online has also increased our excitement on launching large format stores that can offer more expanded product, four of the larger stores are scheduled to open FY’17. Anthropologie was not alone in the success that was achieved by offering expanded categories. So you can manage the business well.

Recently three people opened two new larger format stores, one each in Denver and Dallas, each built of new locations within existing stores, within the same mall and each more than double performance based previously announced.

The additional space related to the brands offer wider selections from the Free People expansion category including large branded footwear and -- in both locations. Denver featured in the area of the [Indiscernible] of a leading launch FP Movement active wear. And Dallas greeted customers at the door [Indiscernible].

All of this newer product compliments the established regular wear and accessory offerings. I am pleased to report that both stores registered sales significantly greater than their open end day plan. And the Denver stores easily set an industry leading opening days sales record despite stiff competition from its sister store in Dallas.

More stores have continued to produce longer sales so the customer clearly likes the larger stores and thus the brand continue to have more stores of this size 44.

Three months ago in our investor call I suggested that it would be difficult to maintain let alone improve the extremely high levels of sales productivity that Free People are going to achieve in their existing retail stores. My concern who would be correct. On store productivity declined in Q3 versus the prior year period.

Reported seasonal dresses, like sweaters, jackets, the cold weather accessories fail to beat their comparative sales. We have now realigned our expectations for future comp store sales growth and believe that future increases at safety for brand will come mostly from square footage growth.

As with Anthropologie, Free People success with expansion categories mostly which aren’t available in the smaller formats stores did continue to drive upper digit sales increases online. This was achieved despite stockist in international web sales during the quarter due to the strength of the U.S. dollar.

The brand did however manage to report better online sales from U.K. to China because of poor investment marketing. Before I discuss the wholesale channel performance, I want to comment on a new Gap fulfillment center issues that Frank referred to in his earlier commentary.

After a relatively painless transition to the Gap facility or a DTC [ph] channel in late summer, the wholesale inventory was moved into the Gap fulfillment center. This turned out to be a bigger job than expected and resulted in a delay in serving wholesale orders in late September and early October.

Consequent wholesale orders performing in October in one of the peak wholesale shipping markets was more backend loaded than normal. The compressed early flow was more than the new store could handle.

Processing volume combined with systems problems and insufficient staff training resulted some October wholesale orders being shipped in the first few days of November.

Today we believe the software/hardware problems have been largely fixed, we have hired additional staff and have implemented a more rigorous training program, virtually all of direct orders are now going to ship within 24 to 48 hours from our fulfillment centers on both the East and West Coasts, and wholesale shipments are up to date from both our Trenton and Gap facilities.

Based on corrective measures we have taken over the past month, I believe we are positioned to help all of our owners on a timely basis in the fourth quarter. As for the performance of the wholesale channel in Q3, had it not been for the transition terms, I believe that division would likely oppose to double digit sales increases.

Furthermore, based on its [Indiscernible] I believe that it will return to a double digit sales increase in Q4. Now let me discuss this morning’s announcement. For several years we’ve been talking about extending categories in order to please our customers more and capture low -- spending.

We have consistently repeated that new categories can be products or services as long as they fit within the lifestyle of the customers.

In recent years, casual dining has been one of the fastest growth categories and our involvement in the food service business through our successful cafes in two training locations and in the Urban Outfitters location on Herald Square has harnessed the potential synergies that can exist between retail and food operations.

This morning we announced an agreement to acquire substantially all of the Vetri Family group of restaurants which includes its award-winning Pizzeria Vetri. Most recently Food and Wine Magazine named Pizzeria Vetri the best pizza restaurant in America.

With casual dining growing rapidly and Pizza one of the most popular foods in the country we will be amidst tremendous opportunity to withstand the Pizzeria Vetri concept.

We feel fortunate to have Marc Vetri, a James Beard award winning chef, with his business partner Jeff Benjamin and their caliber of teams working in partnership with [Indiscernible] to realize this growth opportunity. Currently the team operates two pizza restaurants in Philadelphia is scheduled to open any moment in the next 12 months.

We believe future can be standalone restaurants, so part of a larger complex. A big attraction of this concept is the enormous depth of its appeal. Very young to very old, everyone loves great pizza. Last week the Urban brand launch its new Space 24 Twenty project Austin across from the University of Texas campus.

This project includes an expanded Urban Outfitters store where several food and beverage concepts including Pizzeria Vetri and Michael Symon's Burger joint. The store and the restaurants are clustered around an open area courtyard that offers restaurant seating and a stage for special events and concerts.

So, in addition to a large Urban store we've assembled award winning pizza and burgers serving beer and other beverages and offering live music. And this is all directly across the street from 50,000 plus new [Indiscernible] students. We believe the project has a high probability of success.

The Vetri pizza concept is not limited however to pairing only with Urban brand. In early 2017 we planned to open a project in Devon, Pennsylvania, which is high-end suburb of Philadelphia.

This project will include a larger format Anthropologie store, a Terrain Garden Center outdoor store, a Glass House cafe, a Pizzeria Vetri and one of Vetri Groups higher-end restaurants. We're fighting to add foodservice to our brand portfolio and believe that Vetri Family Group of restaurants compliments our brand nicely.

Having known Marc for many years and having worked with him on numerous charitable projects, I know our organizations and cultures fit together easy. Marc and Jeff will partner with Dave Ziel, our Chief Development Officer who currently runs our URBN Food and Beverage division and leading his exciting opportunities for our company.

Finally a special thanks to all of the home office folks who volunteers to help work in the new fulfillment center at the end of October. And of course I thank all of our 23,000 associates worldwide for their inspiring drive and creativity. I recognize and thank our many partners around the world and also our shareholders with their continued support.

That concludes my prepared remarks. I'll now turn the call over to [Indiscernible]..

Thank you ladies and gentlemen. [Operator Instructions] Our first question is from Kimberly Greenberger of Morgan Stanley. Your line is open..

Great. Thank you so much. Good evening. I think we're all just trying to figure out what's going on in the external environment and you talked about that a little bit tonight on the a call.

Do you have obviously a lot more data as you look at your store businesses than your different concepts and performance by category, maybe you can just help us with your early diagnoses and obviously this is a dynamic situation but your early diagnosis is some of the things that are causing business to be a little software or store traffic to be a little softer and was there something that changed materially in October and I guess November year to-date that would suggest that there could be something beyond the weather happening in your business?.

Hi, Kimberly, thanks for the question. I don't necessarily think there is anything that happened in October, as you say, beyond the weather.

Of course weather is always a factor and we have had significant decreases in some of our weather related classics, but as you know having been associated with the Urban brand for many, many years now, we never ever blame weather for anything. So I want to discount that.

We have seen lower traffic as I said in my prepared remarks that you could hear them. We've had lower traffic throughout the quarter and traffic got a little bit worse in October. I think that from our analysis the primary thing driving is a lack of newness in fashion.

I think the current fashion look is getting a little long in the tooth and I wouldn't be surprised that we start to see some signs of it changing a little bit more radically than it have let's say over the last four or five years.

We do think that we do see a number of areas in our business that we're excited about with the new fashion, but those – it’s pretty early to start saying that it’s a trends because there are items here, there are items there.

But what we have seen outside of the apparel and accessory areas and why I don't believe that it is the lack of traffic is let's a precursor of recession area environment as we seen real strength in a number of our categories.

I'd mentioned the home category in Anthropologie which has been really off the charge, so they've done a great job of providing more products and with the journals that they've issued, I think the customers are responding very well to that. Across all three of the concepts we've seen intimates and we've seen beauty respond very well.

So there are number of categories that are doing very well and so I don't think customer is without money. I think she's without fashion newness..

Great. Thanks Dick..

Thanks, Kimberly..

Thank you. Our next question is Lorraine Hutchinson of Bank of America. Your line is open..

Thank you. I just wanted to focus on SG&A for a minute.

Where there incentive comp reversals in this quarter and what's the reason for the reacceleration in the SG&A dollar growth rate in 4Q? And then just following up on that, are there cuts you can make for 2016 or fiscal 2017 if sales trends don't pick back up?.

Lorraine, this is Frank, I'll take that question. So, yes, the third quarter benefited from first and foremost strong control at the brands related to variable spending specifically direct store controllable as comp there were negative, the brand mange to payroll appropriately.

Secondly, there was a benefit in the quarter due to lower incentive based as well as share based compensation as the company is no longer on pace to hit it where we'd originally hope to land for the year. There were some appropriate reversals there.

That is why you see the growth rate come back up a bit into the fourth quarter, although we originally planning for the fourth quarter to be in the high single digit range. Right now we have revise that down into the mid single digit range.

Again that's spend will be focused primarily on technology and marketing initiatives to continue to support growth that we're continuing to see in the direct-to-consumer channel. As it relates to fiscal 2017, we have a little bit more commentary on that when we get on our next call. Thank you..

Our next question is from Paul Lejuez of Citi. Your line is open..

Hey, thanks guys.

I'm just curious, what sort of AUR increases? Are you seeing at Urban Outfitters brand and I guess same question, I mean, Anthropologie and Free People side in terms of the decrease and how long do you assume that these trends will continue? Is there a point that you can see in the future where we should expect AUR to start moving higher at all three brands? Thanks..

Hi, Paul, it's Trish. I'll take that question for Urban brands. In terms of AUR increases, we're not seeing anything material. We are able to get better IMUs through some strategies and also by focusing on internal design product and we're close to production, but in the Urban brand we're not seeing any material AUR increases..

Paul, its David. I have to eco Trish's comments. AUR has been relatively steady. We're seeing a great response from our – solid response from our existing core customers and working on seeing the traffic decreases coming mostly from new customer trends.

And as Dick indicated the appetite doesn't seem in the products rate as we're at home, she is willing to buy larger ticket items from us at a greater [Indiscernible]..

Thank you. The next question is from [Indiscernible]..

Good afternoon and congrats on the successes at UO. They look fantastic, so good luck there. Dick, I guess my question – I have two quick questions.

One is can you talk about the differences in sort of the uptake, if there are emerging trend at UO and successes of fall today or season to date versus this 35 year old customer perhaps at Anthro, are these trends less in her kind of wheel house in other wheel house, maybe that's for David actually.

And then on the wholesale channel, do you think it’s all for this notion or the company specific got Pennsylvania move? Or do you think it has something to do with what may see the north -- the department are saying about over inventory and just slowing in their channel? Thank you..

Okay. Let me take the last part of you one question first. As far as wholesale is concerned, it has absolutely nothing to do with our customers.

I've had conversations with the wholesale folks as recently as Thursday of last week and they assured me that all of our partners are still enthusiastic about the Free People brand and are enthusiastic about receiving the product.

It had everything to do with exactly what I said, which was a combination of some errors on our part in not accurately projecting the quantity of merchandize where we're going to have to ship. Having a few – more than a few actually system bugs both hardware and software and then as I said inadequate training.

So, those three things combined to cause them real problems. I believe that the majority of those problems are now behind us and I believe that we will be shipping wholesale product and our direct-to-consumer product on time to our various fulfillment and distribution centers.

Now I think I'll ask Trish to take the first part of your question and David, you take the other part of that one question..

Hey, Adrian, thanks for the comment about the look book. We're really excited about as well. In terms of emerging trends we're seeing great growth particularly dresses and skirts. In additional to the emerging business we talked about – I talked in the commentary which intimate and beauty.

So, I think I'll refer to David on the second part of your question about how that relates to Anthro..

Hi, Adrian. Yes. When we look at Anthro's comparables against LYY positive comps in the apparel space, as Dick said, when we look at it, there's no news of the macro fashion side where we've had some early reads on new fashion propositions, they tended to be short lived.

We get a week or two by, so probably our earliest and fast factors, the proposition still seems to be big over little for us. The categories that are checking and when we look at the items they sort of reinforce that.

We are seeing some movement in long over slim at a proportion, but that being again that being said there is sufficient traffic and brand engagement or had we executed better and had a little more appeal in styling, we think we could still had better results when we actually delivered.

We have looked at our approach to design our lead time as Dick has talked about across all of URBN and like where we're headed for spring of next year in terms of being even more nimble and linear and working with Meg and done a same approach of concepts to customer, so we're hoping that will yield better results..

Thank you. Our next question is from Lindsay Drucker Mann of Goldman Sachs. Your line is open..

Thanks. Good evening everyone. I just wanted to see as you think about the deceleration comp churn that we've observed and you talked about specifically in the quarter across successive months.

Is the key factor that surprised you on the deterioration in traffic trends? Was that the big sort of comp lever that disappointed you? And can you square the comp shortfall with how down your inventories are in the quarter? Would you have expect if comps have gone to plan, inventory to be down even further than what they ultimately materialized, or you able to cut orders back or is there another timing issue there? Thank you..

Okay, Lindsay, I'll try to answer that. I think that traffic definitely was the biggest surprise. However, I'd say that, we have been experiencing lower traffic in stores now for a number of quarters. It just happen to be a little bit more intense in this quarter and it also manifested itself in the direct business which we really haven't seen before.

So, I would say it was – traffic was a bit of surprised. As far as inventories are concern, I think we've really have a very good group of people now in each brand controlling inventories.

And they've reacted extremely quickly to the business and that's the way we did it many years ago and it's the way I like to do it, so that we react to the current business and going forward, so we don't get caught with the excess inventory.

So, I think you're right, as the sales materialized where we had plan them to materialized, we may have been a little bit lighter in inventory, but I think the teams did a great job in cutting back when they saw the trend..

Thank you. Thank you. Our next question is from Janet Kloppenburg of JJK Research. Your line is open..

Hi, everybody. I have clarification question. It sounds like the Urban Outfitters' business women's is performing well.

Trish, you done a great job there, Trish, Meg, the whole team, and I was just wondering if you same slowdown there and if you're worried about fashion trends to that customer, because it feels like you actually performed better there than most.

So I want you to talk about the women's outlook or the trend in women's at Urban Outfitters' and if the trend – if slowdown occur to the same magnitude there? Secondly, Frank, I'm little unclear on the gross margins for the fourth quarter, you say, they maybe down, which I understand relates to the top line, but is there also some one-time impact coming there from the gap, Pennsylvania issue, the DC issues and gap Pennsylvania and can you give us a magnitude of what you're thinking in terms of the one-time fulfillment issues? Thank you..

Okay, Janet, I'm going to start off and then ask Trish to come in and then Frank. I think that Urban Outfitters' women's did recently well during the quarter. I would congratulate Trish and women's team and Meg for really giving the customer what I think is extremely good product.

When I go into the stores and I take a look at the products and compare it to two or three years ago, I think it just spectacularly better. Now having said that, overall sales were up 1%, so I think while the women's apparel had much better full price, it shows that it wasn't enough to offset the markdown group of product.

So, I think that, again, traffic is an important element of this and we're sort of fighting against the wind as it were, when it comes to the offering. I think that there are still opportunities for the urban brand to do it better in some classification, but overall I give the Urban brand in women's a solid A for their efforts and their offering.

So, I do think traffic affected Urban as well as the other two brands. I just think that Urban had a better fashion presentation. Trish, do you want to add anything to that..

Sure. Hi, Janet. As Dick said, our focus in women's is really on right price and delivering compelling trend right products at better quality at really good prices and we saw that payoff in number of categories. Now it's because that they are some categories that were still – we're still working on it and we'll continue to do that through the quarter.

So, overall happy with where we were for Q3 understanding we have a lot more work to do going forward..

Hi, Janet, this is Frank. So first let me just say, obviously based on the current sales trend, it’s very hard to predict where the fourth quarter gross profit margin is going to come in and we certainly that it is appropriate to be planning the quarter conservatively right now.

You are correct, there are some one-time items hitting the fourth quarter that will affect us in a similar way to the third quarter.

Those being the fulfillment center transitions which we do anticipate the leverage in the fourth quarter similar to that what happened in the third quarter as well as the currency translation negatively effecting us in the fourth quarter similar to what hurt in the third quarter as well..

Thank you. Our next question is from Dana Telsey of Telsey Advisory Group. Your line is open..

Good afternoon everyone..

Hi, Dana..

Hi. As you spoken about the other categories beyond apparel and accessories that are working, what do you see and what is your envision is as the percentage of the store that is allocated to those categories going forward, what the percentage of sales should be in the future? And how does this impact gross margin long term.

Is there a new normalized gross margin that we should be look forward? Thank you..

Okay, Dana. Sorry about that. I think that one of the things that the Urban brand had a lot of success with this quarter, was putting a right penetration of the product into the store and rearranging the stores so that it is grouped categories as oppose to product categories being hashed throughout the store. So that has helped us a lot.

When you think about and say, what is the right penetration of these various product category? The answer is, the right penetration is what the customer deems it to be. Our job is to figure out what the customer wants and what is the percentage of a certain product category that she wants and then you give it to her.

So I don't think there's any necessary long term affect on gross margin, because I believe as I said before, when the fashion changes or as the fashion changes I was full expect apparel and accessories to come back. And whatever margin it has, it will have. Meanwhile the other categories may carry higher or lower margin.

So I don't think there's any particular long-term effect of margin on these other categories. And I would say the one exception to that is probably the home area and home traditionally has a lower initial margin, but are they enough. It usually have a very similar maintain margin because the markdowns are typically much less.

So that shouldn't really have much effect on gross margin. Thank you..

Thank you. Our next question is from Brian Tunick of Royal Bank of Canada. Your line is open. Brian, I believe you disconnected. Can you re-queue [Operator Instructions] Your line is open..

All right, super. Thanks. I guess Frank just when you thought you were at the end of the IMU questions, now I guess you'll start hearing questions about cheese prices, but my question really was on the Anthro margin this quarter.

Lots of worry there about where gross margins will normalized, can you maybe talk about where does the third quarter shakeout versus your plans and maybe David talks about how either changing the open to buy or lead times today is different versus previous cycles for the company? Thanks very much..

So, Brian, this is Frank. I'll answer as much as I can and then certainly David is open to add in as well. So the Anthropologie margins for the third quarter were down from what we had originally planned.

With that being said due to how well the brand has managed inventory not just this quarter but over the last several years and how quickly they react that deleverage in margin was not as significant as what we've seen many years ago that would have driven Anthropologie to a much lower level of profitability..

Following on Frank's comments we look for those early reads and adjust. We are working on trying, as Dick talked about our go-to-market strategies and working with Barbara Rozsas and our supply chain partners to shrink that even closer.

We're underway – I would say most of that gain we're going to start to see in next fiscal year and this year was when we got early reads and indication we work with our vendor partners to reduce orders and so we cut back. But we're excited about the nimbleness we have for three plus years and I believe worked on speeding our churn.

This year churn will probably slightly flat. We're not expecting to see a faster churn, but we do believe there is plenty of opportunity to lower inventories going forward without sacrificing rate price..

This is Frank. Just to jump in and provide a little more clarity. When I was speaking of plan I was talking about what we would budgeted originally for this year as it relates to the third quarter and the last time we spoke, Anthropologie's margin actually came in very consistent with what we expected..

Thank you. Our next question is from Marni Shapiro of The Retail Tracker. Your line is open..

Hey, guys. If you can just get a quick update on your international business, and then I guess a big picture question. It feels that the Meg has the magic touch her e and I see first around, I guess waving you magic wand, Meg, she's done some impressive things as she partners with each of the groups. And she's one person obviously.

So can you help us understand short of Meg coming back and helping Anthro.

How should we think about if the company as far as are there new people working in Anthro has they're been turnover or has it changed and Free People and I guess overtime how doesn’t that look?.

Marni, I would never speak for my wife, so I'm going to ask Meg to answer that question..

Hey, Marni. Thanks for the compliment and it’s been nice talking to you throughout this time, but we worked really hard at very brand to develop talent if needed to be able to do the job.

And when I came over to Urban there was a lot of creative talent within that perhaps and we just gave them a strong reporting and we also hired some externally to support that. I feel very confident with the creative talent in the branch. I am with Trish, and she recognizes how that creativity is important to support all of our initiatives.

And with Anthropologie, there are several very creative people there too. I'd like to promote someone that's working directly under me that managing design and concept that's been with the brand.

I think for over 10 years and we're building there team there as well and working with image team who we had someone that works for Anthropologie and left and came back.

So I feel pretty confident with all the people underneath me working for these brands with the creative talent and then we're just working and supporting the process and procedure as David has said and Trish has said, the trend that customers incredibly important and getting that right process in place and making sure the people in place have the strong voice to be able to carry through original vision.

So, so I know I'm busy putting round from place to place but our goal is to always for creative talent in each brands to be able to choose a job that's needed to be done. Thank you..

Our next question is from Anna Andreeva of Oppenheimer. Your line is open..

Great. Thanks so much. Good afternoon and thanks for taking our question.

I guess the question to Frank, looking at the spread between sale and comp, it had narrowed pretty significantly during the quarter even after we adjust four delayed shipments, is there anything to call out from our new store productivity performance during the quarter and should we expect that spread to return to more kind of normalize levels in the fourth quarter.

And just to double check on the fulfillment issues. Should we expect those to be contained to the fourth quarter or could they continue into 2016? Thanks..

Yes, Anna, this is Frank. That spread has actually been declining a bit over the last several quarters. Do you think there is opportunity for to recover a little bit in the fourth quarter, but certainly the spread would be down from where we've been historically.

I would say that our new store productivity, although we are building a lower number of stores as we've always talked about the Anthropologie and our Urban Outfitters' brands in North America been capped internal our own doing around 250 stores.

We're getting closer to that caps, you're seeing a lower number of new stores and that's part of the effect that you seeing there. Additionally please remember that this is – the spread is also being negatively affect by foreign exchange. We've about 130 basis points negative affect on sales related to FX in the third quarter.

I do anticipate that to be fairly similar in the fourth quarter and then we'll start to anniversary that as we move in to next years..

And to discuss again the fulfillment center issues, I do believe that we've have taken a lot of corrective actions, I can’t promise we have discovered each and every one of bug in the hardware and software and we believe that we certainly have the ones that know about, fixed I believe that we have, I know we have hired extra people, that’s why Frank has suggested that the delivering might occur in the fourth quarter as well and I know that we have instituted a much more vigorous training program.

So with all those things combined, we are pretty confident that we have this under control and I don’t expect to see any additional problems in the fourth quarter..

And your last question comes from Simeon Siegel of Nomura Securities. Your line is open..

Hey thanks guys, just two quick one. So Frank just when thinking about your expenses, do you know what percent of variable versus mix and then sorry if I missed it, but just given kind of the acquisition announcement and the buyback just [Indiscernible] update thoughts on capital allocation and strategies at this point? Thanks..

Sure, Simeon. So the reason we don’t typically give out our percent of variable versus fixed is because as the direct to consumer channel continues to increase at varying rates from quarter to quarter but continuous to outpace the slower growth. That number actually changes from quarter to quarter.

So essentially as soon as I would give it out it would be different in the following quarter and it’s just difficult and I don’t want the modeling to be relied on the number that’s continually moving.

As it relates to capital allocation consistent with each quarter next week we have our board meeting and certainly as share buyback and capital allocation will be a topic of our conversation and we will then act accordingly..

Thank you all very much for joining and I look forward to talking with you in three months..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day..