FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

Urban Outfitters, Inc.
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1809 Walnut Street
Philadelphia, PA 19103
(215) 564-2313

UNION CITY, CA (May 22, 1997)/FOOLWIRE/ ---Urban Outfitters reported their first quarter 1997 results May 21st. Sales for the quarter were $37.197 million versus $33.635 million last year, a 10.6% increase. Net income was $2.4 million versus $2.9 million last year, down 17%. Earnings per share came in a penny below analyst expectations of $0.15 per share at $0.14 per share versus $0.17 per share last year, down 18%.

SALES BY DIVISION. Sales by division for the first quarter starts with Urban Retail at $22.518 million this year versus $23.772 million last year. The Antropologie division came in at $6.208 million this year versus $2.303 million last year. The wholesale division finished the quarter at $8.472 million compared to $7.560 million last year.

COMP STORE SALES. Urban Retail comps were below last year on a negative read throughout the quarter which they had expected but they were more than the original plan in terms of down against last year's 12.2% positive comp. Some of the fashion items they are presently selling are fashion items that are, in general, less expensive than the ones they sold last year. Overall there is a decrease in the selling price points of about 5% in Urban Retail. Going forward, they don't see the fashion changing. In the second half of the year, they don't think they will have a problem maintaining the price points they held in the second half of last year. They are going to have to live with it as it is and just try to sell more units. Their plan is to run a low-single digit comp in the second quarter. Anthropologie, on the other hand, throughout the period, had very attractive positive comps in excess of their plan. Anthropologie is just 3 stores of the 8. The other 5 were, in essence, on plan. Wholesale division by plan was flat to the prior year but was up 12% and continues to run favorable.

GROSS PROFIT MARGIN. They do not break out the divisions in detail below the sales line. This year the gross profit margin was $18.608 million versus $17.065 last year. The gross profit margin percentage was 50.0% versus 50.7% last year. Urban Retail with the negative comps led to some markdowns in excess of the prior year and in excess of plan. So, Urban Retail, from a perspective of the percent of gross profit margin to sales was one of the major contributors to the 0.7% contraction. The Anthropologie gross profit margin was just slightly up against the prior year. Wholesale was significantly up. Last year wholesale went in with a new product line and their margins were slipping some but they have been able to price those and work on term to price so that the gross profit margins on all of their lines have improved this year. As far as the decline in gross margin, they feel that probably 60% or so came from markdowns and the remainder came from shift in mix where wholesale grew at a 12% rate and Anthropologie grew quite a bit more than that, and Urban declined. They were asked for an outlook on gross margins. They responded that the initial margins in the retail division is ahead of last year and markdowns are also ahead. The net result is that the maintained margins are down somewhat. They think, offsetting the markdown situation is a continuing increase in initial margins. It may not offset it 100%, but is a factor. On Anthropologie, the margins are running just above plan. They think that, while the margin in the first quarter took a pounding in Urban Retail against a very profitable, high margin quarter in the previous year, the reverse should be in the second half of the year when they are comparing against a particularly poor performance last year. They think they might see some erosion initially, but not in the longer-term as long as they execute properly.

OPERATING EXPENSES. Operating expenses were $14.762 million for the quarter compared to $12.344 million last year. Almost all of the dollars in terms of the increase relate to new stores, either Anthropologie or Urban. Not very much of it relates to overhead issues. The percentage is at 39.7% this year versus 36.7% last year. Again it is being driven by Urban Retail which with the negative comps had no chance at leveraging and, indeed, the reverse situation was there from a percentage perspective. Anthropologie again having some increases in dollars related directly to the five stores they opened last year, enjoyed significantly leveraged expenses against their sales due to those five stores. Wholesale was basically immaterial in terms of dollar increases and the percentages were about the same. One additional element related to expenses was the investment they are making this initial year in the United Kingdom with that expansion which gets going in earnest next year.

NON-OPERATING EXPENSES. Non-operating expenses were $380,000 this year versus $367,000 last year. Operating expense offsetting those in about the same amounts in both periods netting down to a non-operating credit of $295,000 this year versus $304,000 last year. They had talked about some inventory levels a lot of which relate to new stores in the press release. But, these expenses were higher than planned.

INVENTORY LEVELS & MARKDOWNS. They were asked to talk about inventory and markdowns and were specifically asked if they were still carrying merchandise from last year that they are unable to clear. They responded that there may be a minor amount of merchandise left over from last year, but it is very minor. They planned inventories to be up over 10%. Last year, the inventories were less than what they would normally carry and normally want, both in terms of dollars and in terms of units -- particularly in terms of units. They had several stores last year constantly complaining that they felt they were understocked and indeed they were understocked. So, they planned this year up front to have 10-12% more inventory in units and dollars than they had last year. Having said that, at the end of April obviously they are over more than that and some of it will translate to additional markdowns. Right now it is difficult to tell how much that is going to relate to, but they don't think it is as material as the 24% increase in inventory would lead one to believe. They do think Urban Retail throughout the first quarter has exceeded last year in terms of that percentage and are over their plan with the expectations that some of these overplanned inventories are going to have to be marked down. They would expect that there would be some addition to the plan and likely the prior year. The issue with the prior year is that the inventory was low in the beginning and throughout the quarter and then, on top of that they had 12.2% comp store sales so the sell-through was enormous. The turn was much higher and the markdowns that were associated with that quarter were extraordinarily low. So, they suspect that just naturally, on a normal year, they are going to have some high markdowns but in this case they will still see more as they go into the second quarter. They are not saying, however, that they are going to be any different than what their ultimate plan in terms of earnings for the quarter are or for the year. In fact, for the first quarter, in terms of earnings they were on plan even though the disappointment in sales was slightly ahead of plan.

MEN'S CLOTHING SELECTION IN URBAN RETAIL. One analyst asked them to talk about the men's clothing selections at Urban Retail, commenting that the women's side seemed in line with trends, but the men's side still seems to be off. They were asked how they have changed that and what they see going forward. They responded that it was a fairly good analysis. The women's side of the business is fairly good relative to the comps they announced and the men's side is still suffering. Right now they are looking at Fall and back-to-school. They certainly have product changes scheduled for men's that they think are the right fashion looks for Fall, but it remains to be seen. They have identified some elements of men's that are going well and have taken the steps they can take to address those. They think men's will pick up in the second quarter, but they think they probably will not make their plans. They have very high expectations for back-to-school. They were asked to talk about the mix of home versus soft goods at both Urban and Anthropologie. They replied that the planned mix has not changed.

INTERNATIONAL EXPANSION. They were asked to comment briefly on how the Canadian stores are doing and what their outlook for other international stores is. They responded that when they first opened the Canadian stores, both of them were opened during the holiday season last year, the worst time to open a store. They had a few glitches with their distribution into Canada, but most of those have been resolved. They think the Canadian stores are doing fairly well right now and should definitely give them a four-wall profit contribution this year. They are looking at more stores in Canada and have taken on the task of opening a European division and have staffed up and are looking at real estate opportunities in London and other parts of the UK. They have a few definite sites they are interested in.

EXPANSION PLANS & STATUS. The company presently has three fully executed leases for stores which it expects to open this year: Boulder, CO and Miami, FL, for Urban Retail; and Highland Park, IL for Anthropologie. In addition, the company has signed letters of intent for Urban Retail sites in San Diego, CA, Bloomington, IN, and Providence, RI (the latter two being test markets for the smaller Urban Retail format); and for Anthropologie sites in Boston, MA and Birmingham, MI. The Highland Park store, which they have anticipated for some time in Anthropologie has been delayed because of landlord building delays and they hope to have that open in about two months. Of the other leases, Miami will probably be open some time in late August/September and that is by design. Boulder Colorado will probably be open more toward the end of October/beginning of November. With the letters of intent, the leases aren't signed so it is premature to talk about projected times there. They believe, however, that they can open a store some time in the Summer and then the other ones would be in the Fall and going into the Holiday timeframe. The slightly smaller version of Urban Outfitters will have a slightly edited mix of merchandise. The concept is coming along quite well and the real estate search is coming along very well and their goal is to have two of these open in the Fall and possibly three by year end. They will still call the stores Urban Outfitters.

STOCK REPURCHASE PROGRAM. They were asked to comment on their share repurchase plan that was put in place 18 months ago. The plan is still in place and if and when the stock is at a level that the board thinks is a level at which the stock should be repurchased, they will initiate that.

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