Good day, ladies and gentlemen, and welcome to the Urban Outfitters Incorporated 4th Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce Ona McCullough, Director of Investor Relations.
Ms. McCullough, you may begin.
Good afternoon, and welcome to the URBN 4th quarter fiscal 2016 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3 12 month period ending January 31, 2016. 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 Q4. Richard Haynes, 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, Ona, and good afternoon, everyone. I will start my prepared commentary discussing our recently completed fiscal year 20 16 Q4 results versus the prior comparable quarter. Then I will share some of our thoughts concerning the fiscal year 2017 Q1 and full year. Total company or URBN sales for the 4th quarter increased to $1,000,000,000 This sales increase included a minus 2 percent retail segment comp, a $1,500,000,000 increase in non comp sales, including the opening of 6 net new stores and a 29% jump in wholesale segment sales. Additionally, please note that our sales growth during the quarter was negatively impacted by approximately 160 basis points of foreign currency translation.
Within our retail segment comp, the direct to consumer channel continued to outperform stores, posting a double digit sales increase, driven by increases in sessions and conversion rate, which more than offset a slight decrease in average order value. Negative comp store sales resulted from decreased transactions and average unit selling price, while units per transaction were flat. The negative transactions could have been affected by traffic, which was down at each of our brands' comp stores during the quarter. By brand, our retail segment comp rate increased by 2% at Free People, while decreasing by 3% at Urban Outfitters and 2% at the Anthropologie Group. Our URBN Retail segment comp was negative in all months during the quarter with each month coming in fairly consistent to the minus 2% for the quarter.
Free People wholesale segment sales delivered another strong quarter as sales rose 29% to $75,000,000 These results came from double digit growth in specialty and department store doors domestically and internationally. Please keep in mind that the 4th quarter did benefit from approximately $9,000,000 in carryover of orders that were delayed in shipping at the end of the 3rd quarter. We are now completely up to date and do not anticipate any further fulfillment center delays. Total URBN gross profit for the quarter is flat to the prior comparable quarter at $349,000,000 Gross profit rate declined by 12 basis points to 34.5%. The decline in gross profit rate was driven by almost 100 basis points of deleverage in delivery
and fulfillment center expense.
Please note that approximately 25 primarily relates to primarily relates to the increase in sales penetration of the direct to consumer channel, which increased in retail segment penetration by nearly 400 basis points in the quarter. Store occupancy also deleveraged in the quarter by just under 100 basis points, primarily due to store impairment charges, which I will discuss in a few minutes and partially due to the negative store comps at all three brands. Almost fully offsetting these decreases was close to 200 basis points of improvement in markdown rate, driven by significant improvements at the Urban Aftoners brand. Both Free People and Anthropologie experienced higher markdown rates during the quarter as they work through some slow moving apparel products. As mentioned earlier, we incurred store impairment charges of $9,000,000 in the quarter with $7,000,000 of this charge negatively affecting gross profit rate by approximately 70 basis points, which is included in the 100 basis points already noted above and the remaining $2,000,000 negatively affecting SG and A rate by approximately 20 basis points in the quarter.
The store impairment relates to 3 stores in Europe, 1 in Canada and 1 in the United States. 4 were Urban Outfitters stores and the 1 Canadian store belongs to Anthropologie. Certainly, a lot of moving pieces in gross profit margin for the quarter. What we are most proud of is our improvement in maintained margin, largely driven by overall lower markdown rate. Had it not been for the impairment charges, we would have delivered an overall improvement in gross profit margin of over 50 basis points for the quarter as well as an improvement in overall profit dollars and rate.
Total SG and A expenses for the quarter were up 3% to $233,000,000 Total SG and A as a percentage of sales deleveraged by 65 basis points to 23%. This SG and A deleverage was primarily due to an increase in marketing expense to support our customer acquisition and retention efforts and an increase in technology related expenses used to support our omni channel initiatives. Operating income for the quarter decreased by 6% to $116,000,000 with operating profit margin deleveraging by 77 basis points to 11.5%. Foreign currency translation negatively impacted our operating profit rate by approximately 50 basis points in the quarter. And as earlier mentioned, store impairments negatively affected our operating profit rate by approximately 90 basis points in the quarter.
Net income for the quarter was $73,000,000 or $0.61 per diluted share. Turning to the balance sheet. Inventory decreased by 8% to $330,000,000 The reduction in inventory is due to a 6% reduction in retail segment comp inventory at cost. 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 lease of supply. The reduction in inventory is not necessarily predictive of future sales growth as we are currently doing a nice job of getting faster turns out of our inventory as shown over previous quarters.
We ended the quarter with $363,000,000 in cash and marketable securities. During the quarter, the company repurchased and retired 4,300,000 common shares for approximately $100,000,000 We repurchased and retired a total of 15,000,000 common shares in fiscal year 2016 for approximately $465,000,000 We have 7,300,000 shares remaining on the most recent Board of Directors share repurchase authorization. As we enter the Q1 of fiscal year 2017, it may be helpful for you to consider the following. We are planning to open a total of approximately 26 net new stores for the year, excluding our Food and Beverage division. For the Q1, we are planning 3 new Free People stores in North America and will close 1 Urban Outfitters store.
For the year, we are planning on opening 4 net new Urban Outfitters stores, including 1 in Europe, 10 net new Anthropologie stores, including 2 in Europe and 12 net new Free People stores. We are excited We are excited that we are opening approximately 4 expanded format Anthropologie stores this year, primarily through expansions or relocations of existing stores. These expanded format stores give us a great opportunity to please the customer more with a broader assortment in categories like home, beauty and intimates as well as the Beholden wedding brand and the Terrain Outdoor Living brand. We're also planning on opening 2 to 3 veggie pizzerias, which will be standalone locations. URBN gross margin rate for the quarter could improve slightly versus the prior year.
The improvement could come from improved maintained margin, driven primarily by the Urban Outfitters brand, which could be partially offset by a maintained margin decline at the Free People brand and store occupancy deleverage for all of URBN if negative store comps continue. Based on our current plan, we believe SG and A could grow at a high single digit rate for the first quarter. This increase would be driven by direct to consumer channel investments related to marketing and technology as well as store related expenses to support our square footage growth, which is planned at approximately 5% for fiscal 2017. For the year, we believe SG and A could grow at a mid single digit rate. Capital expenditures for fiscal year 2016 came in at $135,000,000 which was approximately $10,000,000 under our original plan.
Capital expenditures for fiscal 2017 are planned at approximately $160,000,000 with approximately $10,000,000 moving from fiscal 2016 into fiscal 2017. Total spend for fiscal 2017 is primarily driven by new relocated and expanded stores and the completion of our new East Coast fulfillment center. Finally, our fiscal year 2017 annual effective tax rate is planned to be approximately 37% and could be fairly consistent each quarter. 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 Dick Hayne, Chairman and Chief Executive Officer of all of URBS.
Thank you, Frank, and good afternoon, everyone. Today, I'll speak to our Q4 results, talk about the macro business environment and then finish with how we plan to navigate in this climate. In general, the holiday quarter performed pretty much as we expected and as we discussed on this call last November. Let me begin with the Urban Outfitters brand. Results of Urban North America during the quarter benefited from steady execution of the basic merchandising strategy implemented at the beginning of the year, namely upgrade the fashion and the quality of products offered, grow initial margins and control inventory tightly by decreasing weeks of supply, so there would be fewer markdowns.
This strategy worked in the Urban Brands, our regular price sales and margin improvement throughout the quarter and the year. In Q4, total comparable sales came in below what we would have liked, but the negative comps were caused solely by fewer markdown sales. Regular price comp sales grew nicely in the quarter and when combined with higher IMU resulted in the Urban brand achieving many hundreds of basis points improvement in merchandise margin. The strongest regular price comps came from the women's apparel, intimates and home category. Not only were regular price comparable sales up in the quarter, but Trish and her team were able to drive those sales with less inventory.
Total comp ending inventory decreased by 12% in the quarter. Looking ahead, comparisons look favorable for the brand. Excessive markdowns began to subside last year as Q1 progressed. So as the brand begins to anniversary fewer promotions, I believe urban comps could benefit from the regular price sales momentum that began in early FY 2016 and has continued to date. The story at urban Europe in Q4 was similar to that of North America, except that the EU teams were not able to achieve the same initial margin improvement, largely because of weak exchange rates and higher penetration of branded product.
Like its North American counterpart, I believe the yield business has upside sales opportunity in Q1 versus the prior year period. Now let me turn your attention to Anthropologie. The brand's 4th quarter performance in North America mirrored the prior 3 quarters. All product categories except apparel posted positive comparable sales. Assortments that lack diversity like sweaters and dresses weighed on comp sales in the apparel division.
And since the category mix of sales skews heavily toward apparel, the negative comp in that category offset gains in others. The result, total brand comp sales dropped by 2% in the quarter. Markdowns rose, but their effect on margins was partially offset by nicely higher IMU across all product categories, including apparel. David and team also effectively managed comp inventory, which ended the quarter down 2% versus the prior year. The Anthropologie team produced many product category successes in Q4.
The home product expansion continues to exceed expectations and David's goal announced at Investor Day 18 months ago of doubling home product sales by 2020 seemed very achievable. The recent home catalog has been well received, so the brand expects strong home sales to continue throughout the first half of FY twenty seventeen. In Q4, customers also responded eagerly to the new beauty assortment offered online and in 70 concept shops within stores. The shops were so successful that the team is planning to roll out an additional 60 shops this year. Other notable Q4 success stories include the Beholden and Terrain concepts, both of which delivered very strong double digit comparable sale.
Customer excitement around all of these expansion categories has confirmed our belief that the Anthropologie brand continues to resonate deeply with its customer and possesses significant opportunities to expand and grow. Clearly, the task at hand for the Anthropologie team is to approve the apparel assortment. To that end, David, Meg and the creative teams at Anthropologie have worked hard over the last 9 months to implement new process and procedures to unlock the team's creativity and to improve the in house design product and creative messaging. I believe positive results from this work could become visible in the 1st 6 months of FY 2017. An example is a dress assortment, which is now flowing into stores and is available online.
These dresses were featured in a dedicated catalog that went into homes last week. The new product and the marketing materials to support it has successfully boosted dress sales. Comparable weekly sales in that class have gone from negative to double digit positive. Anthropologie was not alone in building successful expansion categories. During the quarter and throughout the year, Free People experienced significant growth in their intimates, movement, shoes and party dress categories across all channels.
Like with the Anthropologie brand, the recent slower growth rate of retail segment comps for Free People is a result of slower apparel sales. The brand team attributes this slowdown to difficult comparison following 13 consecutive quarters of strong growth and sub optimized distortion of new fashion trends. For the first half of this year, I would not be surprised to see the brand produce flat to low single digit negative retail segment comps, as the brand chases reorders and distorts its buys into the emerging trends. In Q4, the wholesale channel experienced very strong 29% sales growth on a quarter over quarter basis. Even after backing out the benefit of carryover shipments from the Q3, wholesale revenue increased by an impressive 14% in the 4th quarter.
This when many retailers were struggling with excess inventory. Current wholesale bookings remained strong and in late January for the first time the brand shipped FP Movement product to selected wholesale accounts and 60 new athletic only accounts. Early sales report indicate that the Movement product is performing very well. Now let me say a few words about the macro environment. As all of you know, fashion retailers had a difficult 20 15.
The consumers' appetite for fashion seems to be inversely related to price. It's relatively easy to list the many headwinds that might have caused such a phenomenon. Anemic growth, stagnant household income, increased spending on non discretionary items like health care, education and shelter, increased competition from newer retailers both traditional and online, stiff deflationary pressures and continued competition from other trending categories like electronics and dining out. However, the results in Q4 show all of our brands produce solid positive comps in most of their non apparel category home, intimates, accessories, shoes and beauty. Obviously, all these categories face the same headwinds.
So why then was apparel the outlier? To me, the answer is simple, fashion or more accurately, the lack thereof. The last major fashion shift was 10 years ago when skinny bottom returned to popularity. Since then, we've had all varieties of skinny low rise, high rise, color, black, white and print, wash, sanded, sliced and destroyed, yoga and active, leggings, jeggings and stretch. Today, the customer has a closet full of various skinny bottoms and she has many, many long tops and sweaters to go over them.
Without a fashion need to drive her purchases, customer can easily defer her apparel spend. Surely, a major fashion shift is secure for the current apparel malaise. I'm not predicting exactly when that change will come, but I'm certain it will. Meanwhile, the good news is I see more fashion excitement this spring than I've seen in quite a few years. Given the headwinds and assuming new fashion emerges, what is Urban's growth strategy?
How do we operate 3 strong omnichannel lifestyle brands, adapt to the environment and continue to grow? While there are differences by brand, the essential strategy hasn't changed. We plan to invest in category growth, channel growth and geographic expansion. I'll begin with category expansion. All brands have experienced strong growth in their expansion categories and this will remain a primary area of focus.
Developing categories that fit the customer's lifestyle and also complement the core product is a way to leverage the equity of our brands without the enormous cost of launching a completely separate business. We believe that all brands have the opportunity to show significant sales growth, especially in the direct channel by doing nothing more than fully developing the following categories. 1st, home. We've already seen success at the Anthropologie and Urban brands with home category expansion. As I said earlier, David believes Anthro Home could easily become a $500,000,000 business within the next 5 years.
That alone could drive mid single digit growth for Anthropologie. Intimates. All brands are currently producing double digit sales growth in intimates. This category is trending strongly and has enormous opportunity. We expect continued double digit growth across all of our channels, including wholesale.
Beauty. This category worked very well for the Anthropologie and Urban brands this past holiday season. We know it's an important business, but it's too early to know how big the business can be for our brands. Shoes. Each brand now has its own internal development team producing shoes.
The products they're creating are differentiating and selling very well, including the Free People wholesale shoe offering, which continues to show solid growth in both sales dollars and number of doors sold. Active. Free People has championed this category with their FP Movement line of feminine activewear. The 1st wholesale shipment left the last week of January to 132 accounts and 200 doors, including 30 Nordstrom doors. Obviously, the potential for this category is huge, judging by the size of the main players in the space.
And finally, Beholden and Terrain. Both of these Anthropologie sub brands continue to produce excellent year over year sales gains, and we believe both have the potential to be at least $100,000,000 brands. Proper category development requires significant upfront investments. Since our goal is to develop each category with proprietary product, we must invest in talent and infrastructure to create, produce and market products that can compete favorably alongside national brands. Much of our growth and expenses over the past few years has been aimed at creating the capabilities to help drive category growth.
As these categories mature and sales increase, we should begin to leverage these investments. Channel growth is the next strategic element. Our goal here is to expand each channel distribution retail, wholesale and hybrid like concession. Omnichannel retail can further be subdivided into stores and direct. Let me briefly discuss our position on stores because there has been much discussion about their future.
To paraphrase Mark Twain, the death of the retail store has been greatly exaggerated. Granted North America is overstored and many retailers underperforming units will have to close. And it certainly is true that the role of the store in the digital age is changing. But I envision the brick and mortar store as an equal partner with the virtual store in this new omnichannel world. There is no better proof of this than the current rush by most pure play retailers to open their own retail stores.
Staying on the subject of stores, as we've discussed many times, both the Urban and Anthropologie brands are approaching what we believe to be maximum unit potential in North America. Long before the Internet was a selling vehicle, we calculated full penetration for both brands at 200 to 2 50 units. The store fleet in North America now numbers 209197 for Anthropologie and Urban respectively. Going forward, therefore, you will see minimum unit growth in North America for Bose brand. Although Anthropologie will continue to increase square footage as they plan to open 4 expanded format stores in FY 2017.
All of these larger Anthropologie stores will house bigger assortments of their expanded category. After proof of concept, the brand expects to expand additional stores by relocating or enlarging existing locations. Unlike its larger siblings, the Free People brand currently operates a smaller fleet of stores in North America. The brand will continue to selectively open more domestic stores and expand some existing smaller units. Given how the customers have embraced the brand's newly expanded stores in Dallas and Denver, future stores, both new and expanded, will cluster around 4000 to 6000 Square Feet where the brand can offer a wider, more representative range of Free People products.
Turning to direct. In order to drive additional direct and omnichannel sales, we will continue to make investments in technology, marketing and new infrastructure. Consumers' expectations continue to rise with regard to functionality and experience in the direct and omnichannel worlds. She wants to shop anytime, any place and on any device and have an equally compelling and seamless experience. She wants product information, including what is available and where it is in the size she needs.
Once her purchase is made, she expects her shipments fastened free, delivered where and when it's most convenient for her. To live up to these expectations, we are in the process of improving our functionality around checkout, payment, search, inventory visibility and speed on all of our brands' web platforms. Additional site functionality that is scheduled to be rolled out later this year includes in store pickup, ship through store and enhanced mobile application capability. Other technology investments this year include new software to mine our current data and provide our brand teams with more predictive analytics to improve demand forecasting for purchasing and allocation and new programs that will allow for better customer segmentation and personalization. The final element of our growth strategy is geographic expansion.
If our store count is approaching full penetration in North America, certainly the same cannot be said for other areas of the world. International expansion provides an exciting and fertile opportunity for all three brands. Almost 90% of our sales still come from North America and yet only 30% of overall sales in the developed world comes from our region. This implies we could triple sales if we could match global penetration to that which we enjoy in North America. There are many robust markets in Asia and Mideast where our brands have almost no distribution and still many in Europe that are untapped or underpenetrated.
We already sell and shipped over 130 different countries through the Internet. In order to increase our international penetration and help augment the DTC business, we will begin to utilize our other channels of distribution. Different countries, however, will have different approaches ranging from cell phones and operated stores to concessions and traditional wholesale arrangements to licensing and partnership relationships. Developing the global expansion strategy, which country center first and what structure to use, will be a top priority for David in his newly announced role. He will discuss his vision for that role shortly.
In conclusion, despite many macro headwinds and a low in new fashion trend, our brands have done well and remain highly desirable and competitive. We have successfully developed many new and expanded product categories that complement our core apparel businesses. Customers responded positively to these categories across all of our brands and channels. We believe each brand has significant growth opportunities to more fully develop these categories and reach many new customers in areas beyond North America. Now before turning the call over to questions, I would like to make 2 personnel announcements.
First, it's my pleasure to announce that Trish Donnelly has been promoted to the role of CEO of the Urban Outfitters Group. In this role, she will be responsible for overseeing the brand across all channels and geographies. Trish joined Urban Outfitters brand as North American President 2 years ago and has done a terrific job at moving the brand forward and navigating the brand through from very choppy waters. Additionally, as previously announced, David McCrae has been promoted and will assume the role of President of URBN. In addition to his current responsibilities as CEO of The Anthropology Group, David will now also oversee Strategic International Development and Global Direct to Consumer Initiatives for URBN.
David, perhaps you could discuss your vision for this new role.
Thank you, Dick. I'd like to thank you, Meg and the leadership team for the support in becoming President of URBN. I believe our portfolio of global lifestyle brand contains some of the strongest, most differentiated brands in the industry. And while continuing the Anthropologie Group's growth will remain my main priority, I am excited by the opportunities to help shape URBN's strategy for DTC and international expansion. We are in an environment where the pace of soft and hardware innovation has engendered more and evolving ways to shape brands.
And with a point of influence and transaction shifting, it makes sense that we align our resources across brands to ensure that our investments are strategic and coordinated. Of course, the brands will remain the customer and creative experts, but well executed, this approach will help the brands and URBN perform at an even higher level with greater resources than if each brand were researching and investing on their own. Regarding our geographic distribution, we plan to more aggressively expand all channels and brands into underdeveloped markets globally, explore launching new digital platforms, opening stores, creating partnerships or entering into licensing agreements for our brands and products in regions and countries where we have little or no presence currently. While the plan is still being developed and similar to the DTC initiative, I will be hiring a leader to help us coordinate activities in a new and more impactful way across all brands. I look forward to updating you on our progress with these important initiatives over the coming season.
Thank you.
Thank you, David. I'm confident your involvement in these new areas will allow each URBN brand to succeed in reaching and pleasing many new customers. I hope all of you will join me in congratulating both Trish and David on their well earned promotions. Finally, in closing, I thank our brand leaders and their team, Meg and her creative teams and our shared service teams for building and maintaining the infrastructure that allows the brands to succeed. I thank our 23,000 associates worldwide for their inspiring dedication, drive and creativity.
I also recognize and thank our many partners around the world. And finally, I thank our shareholders for their continued support. That concludes my prepared remarks. I now turn the call over for your questions.
Thank you.
Your first question comes from the line of Kimberly Greenberger with Morgan Stanley. Your line is open.
Great. Thank you so much. Congratulations Congratulations to David and Trish on your new promotions. We're looking forward to seeing your impact on the business. And my question is actually for David.
As you think about expanding your the various brands internationally, I don't know if you have any initial thoughts on whether your preference might be to move initially in the digital form, in other words, e commerce around the world or if you think that it's better to do e commerce with some brands, but partnership with other brands and stores with yet a different brand. Can you talk about your initial thoughts here? And or do you think at this point you just don't have enough information to give a view and you'll be updating us on that strategy over time?
Hi, Kimberly. Yes, right now, we're as you know, as Dick mentioned, we're trading in over 130 markets digitally. We have been in international markets of our own branded stores for several decades. So we've learned a great deal. In terms of developing the plan for all URBN brands, we're in the early stages yet.
We'll be looking for a leader to help craft and work with the brand leaders to chart that path as we move forward. But we're very confident that we've got opportunity. We know our brands resonate in many of those larger marketplaces already based on the number of people looking to partner with us to explore these markets. So you'll hear more about it in the near future.
Your next question comes from the line of Paul Lejuez with Citigroup. Your line is open.
Hey, thanks guys. Can you maybe talk about inventory management as we move throughout the year? Is there any differences by concept? And also curious about merch margin, how should we think when we look at 2016 as a whole, how are you thinking about each of the brands in terms of the direction on the merch margin line? Thanks guys.
Hi, Paul. This is Frank. I'll take that one. As it relates to inventory management, I think we've done a pretty good job here at effectively lowering our weeks of supply and putting a faster turn into the business. And we anticipate continuing to do so into fiscal 'seventeen.
I think all of the brands have opportunity to keep inventory basically at, if not below their total comp sales growth rate as they manage through a faster turn into fiscal 'seventeen. As it relates to merch margin opportunity for the full year, I think we're going to defer on talking about the full year right now. As we enter into the Q1, the Q4 is an awful long way away. As of right now, it is obviously very early in the quarter, but we have seen some improvement in our business from where the quarter started. We did we do believe with the strength of the Urban Outfitters business and how that business is trending right now that we do believe we can drive gross profit margin improvement in the Q1 through improved markdowns or lower markdown rate at the Urban Outfitters brand, which we think would more than offset some risk in a higher markdown rate at the Free People brand.
And as it relates to the Anthropologie brand, right now, we are starting to see some early reads of some improving women's apparel and women's accessories business. And we do think that their maintained margin could be flat to even slightly better in the Q1. Also, there's a lot of moving pieces in there. You've got store occupancy that could continue to deleverage if store comp remains negative. You've got deleverage related to delivery expense as the direct to consumer channel continues to increase in overall penetration.
With all that being said, those things happened in the Q4. And had it not been for the impairment charges that we recorded in the Q4, we would have had over 50 basis points of improvement in our gross profit margin in our most recent quarter. And we think we can do something similar in the Q1 of this year.
Your next question comes from the line of Lindsey Druckerman with Goldman Sachs. Your line is open.
Thanks. I wanted to follow-up on that question on Anthropologie. I think it was really great to hear that it sounds like you've, good line of sight for UO improving as it relates to the strength in reg price selling, etcetera, and some of those other metrics that you talked about. Could you give a little bit more detail, and Frank, you alluded to a little bit on the early signs of life you're seeing that the business is actually moving in the right direction? Any kind of specifics that you can hang your hat on would be great.
And just as a quick follow-up on international. International is something that, David as you mentioned you guys have been doing for a long time, but never as aggressively as it sounds like you're pushing currently. I was just curious why now? Thanks.
Okay, Lindsey, let me take the first actually I'll take both of them, first part. As it relates to Anthropologie Reads, as Dick mentioned, we continue to see real strength in the expanded categories and brands we have. In fact, home business with the recent launch is comping last year's book quite handsomely, very good response to that. We're seeing even the accessory business, beauty business, all track and move ahead as well as Intimates, Terrain and Beholden continued their multi quarter performance. We've been focusing on apparel.
Meg, Barb and the merchant team at Anthropologie have done a good job starting to make traction with the new approaches, as Meg mentioned earlier, the concept to customer approach. We are seeing nice movement in dresses. That being said, we're still early stages, and we want to see the rest of the offer round out. We are seeing some interesting reads as it relates to fashion. And her appetite for specialness, we're selling even higher quantities than we'd recognized before when the product is right.
We are working on our inventory management. We've had several years of good inventory management, and we still believe there's more opportunity in the future to improve margins there. And one of the healthier indications we have go forward is that the own brand design had improved, and it's been growing in penetration year over year quite strong. So we'll look to see though. It's still very early in the season, but we are seeing some interesting reads that help us look towards the back half of spring and early fall.
As it relates to international, as one always wants to focus in on the customer you know best, which is the domestic market, and we still have much opportunity in all brands to grow domestically. But we also know that international takes time to learn and to scale across all markets. And so we want to make sure we're starting that while we're understanding the maturing store base we have in North America.
Your next question comes from the line of Adrienne Yih with Wolfe Research. Your line is open.
Good afternoon. Nice end to the year and Dave and Trish congrats on your respective promotion. Nice job. Dick, I guess my first question is a little bit more for longer term. When we were at the Analyst Day several years ago, that Vision 2020, Can you talk about the elements of that 5 year plan, the long range plan that are on track, the DTC potentially and those that have differed from where you initially thought?
And then for Frank, just in that plan, is the assumption that brick and mortar traffic remains negative in the first half of the year offset by positive at DTC? Thank you.
Hello, Adrienne. I think that a lot of the things we talk about in Vision 2020 are actually have come true and have been quite positive for the brands. We spent a lot of time at Vision 2020 talking about the different concepts that we were going to expand and enlarge and we have done that and the reaction with the customer has been, I think, extraordinarily strong. We think that there's lots of opportunity to develop it further. And to that end, if you recall, we talked about the importance of having an omnichannel strategy, because not only did we want to have larger stores that house some of these enlarged concepts, but we wanted those stores to be marketing vehicles to help drive traffic to the web.
And as we put these enhanced concepts and categories up online, we have seen exactly that happen. And I think nowhere have we seen a better example of this than in Free People. Free People's apparel sales probably have been slowing for the better part of 2 years and they continue to have great comps because their other categories are really doing quite well. And that's the intimates, The shoes are doing extremely well. And now we're pretty confident the movement is going to start taking some of that those sales and pushing them forward as well.
So it was a strategy that not only talked about how we're going to grow, but it was a strategy to spread some of the risks in case there were issues around any one of our larger categories. And as it turns out, I think we didn't know that this was going to happen. But as it turns out, I think it was the right play because there are what we just went through over the last 12 months has been a fairly significant downturn or as I called it a low in the fashion apparel business. I don't expect that to continue. I've seen it happen before.
I've seen it come out and I think it will come out at some point in the future. But I think it's very good that we embarked on these expanded categories.
Adrian, this is Frank. Just to jump in to answer the second part of your question. The margin opportunity for the Q1 does contemplate negative store comps.
Your next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open.
Hi, good afternoon, everyone. Frank, just a question for you on the fulfillment center transition that took place last year. Can you just kind of remind us maybe just first half, back half what kind of the drags were? And I think you mentioned that you were expecting to start to see some margin recapture as you lap that. Can you just help us think about that as we model 2016?
Sure, Ike. So for the full year, it was about 40 basis points of a drag on gross profit margin, the most significant of those being in the second and third. So the Q1 and the Q4 were about 20 basis points with the second and the third being about double that. We do believe that we're going to recapture much of that in fiscal 2017 and all of it within the next 18 months.
Your next question comes from the line of Brian Tuncay with Royal Bank of Canada. Your line is open.
Thanks. Good afternoon. Question, I guess, on the IMU side. Over the last year or 2, there's been a lot of volatility, I guess. Can you maybe update us on your thoughts of the IMU recapture opportunity?
And where are we on the process side? And then the second question is listening to your growth initiatives, a higher CapEx than we thought, maybe can you talk about your priorities for excess cash, just given how aggressive you've been on the buyback over the last 2 years? What kind of minimum cash position are you guys comfortable with? Thanks very much.
Brian, this is Frank. So as it relates to IMU, I think both the Urban and the Anthropologie brand exit the Q4 with nice opportunity for to drive some improvements in IMU. I think both those brands working with Barbara Rosas and the rest of our sourcing team have seen some nice gains in some of the work that they've done around making sure that we're capturing the commodity pricing deflation that's going on, as well as working through some of our near sourcing opportunities in order to put some speed into some additional speed into our supply chain. It's something that I think that we're certainly very proud of. I think we ended the year 1 week faster from a supply chain perspective than we were a year ago.
And able to put that speed into the supply chain is something that's critically important to us and be able to do it while we're still showing IMU gains, I think, is a testament to a lot of the work that has been done. And we think we can continue to show some IMU improvement into the fiscal 'seventeen. As it relates to store capital or as it relates to total capital, the number for fiscal 'seventeen is a little bit higher than what we had originally anticipated. We had about $10,000,000 push out from the current year into the upcoming year. And that number is largely driven to some closeout payments and some additional work that is needed to be done to finish out our East Coast fulfillment center.
The remaining capital is primarily dedicated to the new store growth as well as our expanded stores to support the larger formats at both Anthropologie and Free People. As you know, we repurchased 15,000,000 shares in fiscal 2016. We have 7,300,000 shares remaining on our current authorization. And as free cash flow exists, as you spoke to, we do have some cash, obviously, remaining on our balance sheet as well as the opportunity within our revolver to flex up and down when we see appropriate. We do anticipate continuing with the share repurchase in fiscal 2017, but this is not something that will be linear.
We'll do it at times where we feel appropriate and we have enough free cash flow to be comfortable doing so.
Your next question comes from the line of Oliver Chen with Cowen and Company. Your line is open.
Thanks a lot. Dick, as we think about the long term picture and opportunity for Urban Outfitters and how you think about shopping in the future, where do you think apparel will naturally drift as a percentage of mix over time? It feels like one of the themes of this call is really expanding into kind of answering her wants and desires across many categories. So do you think apparel will become less than half of mix as you think about 5 to 10 years? And then the second question, just a quick follow-up on digital.
Omni channel, you've been really good at omni channel penetration and also the visual presentation inside your stores. What percentage of your digital orders will be fulfilled leveraging your store network either by BOPUS or ship from store? It's at competitors, it's coming up between 20% to 40%. I'm just curious about the bricks and clicks theme and how we should think about where you'll go there? Thank you.
Okay, Oliver. I think in terms of the long term positioning of apparel, David always talks about the fact that his customer and the Anthropologie brand spends just as much money on home as she does on apparel. So we don't I guess the way we look at it is, we have no reason to believe that home can't be as large as apparel. Now of course, when you take a look at a brand like Urban, that's certainly not true. Since this is a very customer that travels around a lot and moves quite a bit, she is much less typically spends much less money on home.
So I think apparel would still be one of the bigger areas of her spend. So I can't give you exact numbers, but I would say at the Anthropologie brand, there's no reason to believe that apparel couldn't be somewhere around the 50% or even possibly below that. I would expect the Urban brand still remain above the 50%. And with Free People, I think it's still above 50% and above would still be the place that I would put apparel. I'm going to have to get back to you on your second question on the omnichannel.
I have to tell you that I really don't have a good handle right now. We've done some experimentation and we found out ship to store is going to be a very good thing for us. Anthropologie was testing it before the holidays during the holiday season, but they didn't call it out on their site. And so we really don't have good information right now and I'd hate to speculate.
And I would just also add, Oliver, this is Frank, that it is different by brand and it also changes from quarter to quarter as we continually look to upgrade our algorithms around how efficient and effective we are on ship through stores or ship from store onto the web. So that number is a bit of a moving target. And like I said, it is different by brand as well.
Your next question comes from the line of Janet Kloppenburg with JJK Research. Your line is open.
Good afternoon, everyone, and my congratulations to David and to Trish. Dick, I was wondering if you could talk a little bit about your vision and how it pertains to operating margins. I'm excited that the comps are improving driven by the new categories. And I'm just wondering what that how that may be influencing your mid- to longer term operating margin objectives. And Frank, I was wondering if you could discuss what your comp leverage point would be?
I know that brick and mortar traffic may be down, comps may be down there this year, direct is growing substantially. How does that influence the comp leverage point? And lastly, if you could just tell us what share count we should be using for the Q1 or I guess a better question is what the ending share count was at the end of the year? Thanks so much.
Okay, Janet. Let me talk about the operating margins and all the different categories that we're selling. There's no question that apparel and some other categories like beauty, if you're doing your own beauty, have the highest margins. And a category like home have lower margins, even though typically since there's slower markdowns, they have the same maintain margin. Now having said that, apparel still usually or typically sells faster than home.
So sales per square foot are better. And therefore, you usually have better operating margins with apparel than you do with home. I guess we don't look at the world like that. We look at the world like what is the opportunity for us to please our customer? What is our opportunity to drive the top line?
Let's be as good as we possibly can be in items the products that we produce and how she will respond to them. And if we do all that, I think the margins will take care of themselves and we'll have a very profitable business. We don't have a fixed margin, operating margin objective. Our objective is to be profitable, to be solidly profitable, to be above our peers and to drive the top line.
Jenna, as it relates to leverage points, because the model continues to evolve and more traffic continues to move online and that penetration changes literally from quarter to quarter, we don't give out that metric anymore, because literally as soon as I give it out, it would become stale. And we certainly here anticipate direct to consumer to continue to outpace stores. But in the Q4 alone, when I said it gained almost 400 basis points of penetration, that's not always something that we forecast out in our model. So I hesitate to give out a leverage point that quite frankly could be out of date a quarter from now. And on your question on share count, I think we closed the year around 118,000,000 from a diluted share perspective.
And I think that's a good number just to use going forward.
Your next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.
Thank you. Good afternoon. I just wanted to follow-up on some of the comments around Free People. I know that apparel sales have been slowing for years, but what has changed or accelerated that you expect comps to turn negative in the first half? And then are there any signs of life to allow you to expect that to potentially turn back to positive by year end?
Also the merchandise margin or the maintained margin pressures that you called out, how big might those be at your current comp run rate for Free People?
Hi, this is Meg. Well, as Vic said, we went through 13 consecutive quarters of positive comps. So, P People had a great ride. And it was bound to come to an end at some point and the end, I believe, has come with a fashion shift, which Dick has talked about. So that's sort of difficult for free people to overcome that because part of the customers are wanting new and part of the customers are wanting things that they are really comfortable with.
So when you have a change in fashion and when it's bottom driven, it really affects the top business. So we're seeing the top business affected with this. We have seen great signs of life in the new fashion. I'm very excited about what Free People has and where we're going with these new ideas. It's just not resonating with the total customer base.
So we have parts of the customer adopting and wanting still things that they've known for Free People for quite some time. And then we have the others that have enough of that in the wardrobe that they're looking for the new idea. And I'm extremely excited about the new idea and optimistic that she will come around and we will be able to convert both all of our customers. In terms of how long that will take, when we went through this before, when we went from a wider leg to a skinny leg, it took some time. In fact, we tried skinny leg probably for 1.5 years, 2 years before she finally started to take it on.
And we were really one of the first brands for it to adopt with the big over skinny. So again, pioneering with the fashion and I believe that Free People will come back and the customer will be able to adopt all these new fashion changes.
Thank you.
And Loreen, this is Frank. To answer your question around MMU, I think we expect that pressure to be fairly similar to what we saw in the 4th quarter. And just keep in mind that the improvements at Urban Outfitters, we were able to more than offset that and we believe that is the opportunity we have in Q1 as well.
Your next question comes from the line of Marni Shapiro with The Retail Tracker. Your line is open.
Hi, everybody. Congrats Dave and Trish. So if you guys wouldn't mind following up on the Anthro stores. At the meeting, you highlighted a bunch of new categories and you had a beauty area, even I think a blowout hair salon at the time. And now you're going to open 4 of these expanded stores.
If you could just give us an idea as to sort of where those stores landed? Will they have the beauty shop? Or are they going to have a coffee shop? A lot of ideas were talked about. And then if you can also just follow-up, the stores, I think Free People and Anthrone specifically where you have expanded assortments other than just the apparel, have you seen better traffic in those stores or has it just been traffic across the board has been tough?
Hi, Marty. I'll address the Answering commentary. As it relates to the expanded format stores, they are the assortments and the expanded categories will vary by location and market. But some of the sort of tentpole categories that will be in most will be categories like home, beauty, footwear, intimates. And then we will add beholden where it makes sense, add terrain where the location makes sense.
The same thing with Dave Seal and the dining categories. So those will vary. What we have seen is that the categories we've added, so Dick alluded to the beauty shops, they drove what we can tell as incremental comps in the stores despite negative traffic. So again, we were getting, in those instances more of the share of her spend at that time.
Marni, this is Dick. We have seen traffic declines across all the brands, and we have seen those traffic declines on all of our types of stores, be they malls or street front or lifestyle centers. So I don't think that we can say that right now, the larger format stores, which really only have been opened at Free People, I can't I don't think we can say that that has increased traffic. Certainly, the traffic is bigger in the sense that the sales are better. But I don't know that if there if we had the stores from Denver and Dallas before that had less traffic but less sales.
So ratio wise, I don't know. I think as we open the Anthropologie stores, the larger expanded stores, we'll get a little bit more information. And but I still believe that overall street traffic, foot traffic is decreasing relative to the traffic that's going on the web. And I think it's fairly direct, meaning as web goes up, store traffic goes down.
Your next question comes from the line of Simeon Siegel with Nomura Securities. Your line is open.
Hi, this is Julie Kim on for Simeon Siegel. Thanks for taking our question. Regarding the 200 bps of gross margin improvement from decreased markdowns at Urban, should we expect that to continue at similar levels through FY 'seventeen?
Sorry, this is Frank. As it relates to the opportunity for Urban Outfitters brand to improve their markdown rate, they're certainly up against a higher level of markdown in the Q1 and then that starts to subside as the year goes on and get into the second quarter into the back half of the year. We do think that they have opportunity to improve their markdown rate for all of fiscal 2017, but the back half isn't as meaningful as the first half of the year is.
Our final question comes from the line of Omar Saad with Evercore ISI. Your line is open.
Thank you. Good afternoon. Great quarter. My first question, I guess, is for Dick and Meg. Maybe you could expand a little bit on what you're seeing in the marketplace and in the fashion trends that gives you confidence that maybe we might be finally at the end of this apparel low, I think is what you called it?
And then I also have a quick question on the potential maybe for wholesale, small wholesale business for Anthro and Urban, if you'd ever consider that? Thanks.
Okay. Omar, let me take the first question second question first and the answer is yes. We have considered it. We talk about it quite a bit. We haven't acted on it, but that's not to say we won't act on it.
As far as the fashion law, I think it's pretty clear that the fashion is going through a change right now. And I think it's a fashion silhouette change. We've been with Big Over a Little now for the better part of 10 years. And I think it's nearing the end of its life cycle. And when that happens, there's often a lot of staleness or slowness in the innovation in the fashion world.
People lack sort of excitement and inspiration because a number of people are still with the old fashion as Meg talked about, some people are with the new fashion and some people just sort of check on altogether because they don't know what to do. I think that that is always a predictable what happens predictably at the bottom of the cycle. As a new fashion is born and starts to catch on, there is a point at which the innovation starts to ramp up and there is tremendous amount of excitement that surrounds the newness. When that happens, sales typically, if we follow that fashion and give it to her the way she wants it, the sales take off. So in the in between period, the business is a little tougher.
At the very end of the cycle, the business is very slow. And then when it starts to pick up, the business picks up quite rapidly. How long it's going to take to get through that cycle? I really can't tell you. I do see an awful lot of signs out there that would suggest to me that that cycle has begun.
And certainly, we all here hope that sooner than later.
I will now turn the call back over to Mr. Richard Hain for closing comments.
I have no closing comments other than thank you all for attending the conference and we will see you in approximately 3 months.
This concludes today's conference call. You may now disconnect.