Item 1.
|
Financial Statements
|
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
252,484
|
|
|
$
|
248,140
|
|
|
$
|
228,144
|
|
Marketable securities
|
|
|
118,493
|
|
|
|
111,067
|
|
|
|
59,564
|
|
Accounts receivable, net of allowance for doubtful accounts of $578, $588 and $1,063,
respectively
|
|
|
83,949
|
|
|
|
54,505
|
|
|
|
72,165
|
|
Inventory
|
|
|
359,493
|
|
|
|
338,590
|
|
|
|
359,865
|
|
Prepaid expenses and other current assets
|
|
|
110,431
|
|
|
|
129,095
|
|
|
|
89,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
924,850
|
|
|
|
881,397
|
|
|
|
809,531
|
|
Property and equipment, net
|
|
|
851,259
|
|
|
|
867,786
|
|
|
|
871,504
|
|
Marketable securities
|
|
|
38,451
|
|
|
|
44,288
|
|
|
|
18,710
|
|
Deferred income taxes and other assets
|
|
|
113,515
|
|
|
|
109,166
|
|
|
|
115,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,928,075
|
|
|
$
|
1,902,637
|
|
|
$
|
1,814,894
|
|
|
|
|
|
|
|
|
|
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|
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|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
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|
|
|
|
|
|
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|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
157,153
|
|
|
$
|
119,537
|
|
|
$
|
151,983
|
|
Accrued expenses, accrued compensation and other current liabilities
|
|
|
196,328
|
|
|
|
233,391
|
|
|
|
190,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
353,481
|
|
|
|
352,928
|
|
|
|
342,361
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
Deferred rent and other liabilities
|
|
|
241,904
|
|
|
|
236,625
|
|
|
|
223,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
595,385
|
|
|
|
589,553
|
|
|
|
640,841
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Commitments and contingencies (see Note 11)
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|
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|
|
Shareholders equity:
|
|
|
|
|
|
|
|
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|
Preferred shares; $.0001 par value, 10,000,000 shares authorized, none issued
|
|
|
|
|
|
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|
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|
|
|
|
Common shares; $.0001 par value, 200,000,000 shares authorized, 116,290,358, 116,233,781 and
117,116,520 shares issued and outstanding, respectively
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
Additional paid-in-capital
|
|
|
6,628
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
1,358,319
|
|
|
|
1,347,141
|
|
|
|
1,187,906
|
|
Accumulated other comprehensive loss
|
|
|
(32,269
|
)
|
|
|
(34,069
|
)
|
|
|
(13,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
1,332,690
|
|
|
|
1,313,084
|
|
|
|
1,174,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
1,928,075
|
|
|
$
|
1,902,637
|
|
|
$
|
1,814,894
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share and per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
$
|
761,190
|
|
|
$
|
762,577
|
|
Cost of sales
|
|
|
521,410
|
|
|
|
500,686
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
239,780
|
|
|
|
261,891
|
|
Selling, general and administrative expenses
|
|
|
218,744
|
|
|
|
211,408
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
21,036
|
|
|
|
50,483
|
|
Other income (expense), net
|
|
|
319
|
|
|
|
(1,577
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
21,355
|
|
|
|
48,906
|
|
Income tax expense
|
|
|
9,417
|
|
|
|
19,344
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,938
|
|
|
$
|
29,562
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
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|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,276,289
|
|
|
|
117,304,736
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
116,539,305
|
|
|
|
117,587,009
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
2
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
11,938
|
|
|
$
|
29,562
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
1,788
|
|
|
|
9,590
|
|
Change in unrealized gains (losses) on marketable securities, net of tax
|
|
|
12
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
1,800
|
|
|
|
9,586
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
13,738
|
|
|
$
|
39,148
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(amounts in thousands, except share data)
(unaudited)
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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Common Shares
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Compre-
hensive
Loss
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Par
Value
|
|
|
|
|
|
Balances as of January 31, 2017
|
|
|
116,233,781
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
1,347,141
|
|
|
$
|
(34,069
|
)
|
|
$
|
1,313,084
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
|
|
1,800
|
|
|
|
13,738
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,163
|
|
|
|
|
|
|
|
|
|
|
|
6,163
|
|
Stock options and awards
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting pronouncement
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
|
|
(760
|
)
|
|
|
|
|
|
|
847
|
|
Share repurchases
|
|
|
(43,423
|
)
|
|
|
|
|
|
|
(1,142
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of April 30, 2017
|
|
|
116,290,358
|
|
|
$
|
12
|
|
|
$
|
6,628
|
|
|
$
|
1,358,319
|
|
|
$
|
(32,269
|
)
|
|
$
|
1,332,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,938
|
|
|
$
|
29,562
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
32,136
|
|
|
|
34,844
|
|
Benefit for deferred income taxes
|
|
|
(3,872
|
)
|
|
|
(3,107
|
)
|
Share-based compensation expense
|
|
|
6,163
|
|
|
|
5,760
|
|
Loss on disposition of property and equipment, net
|
|
|
528
|
|
|
|
780
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(29,308
|
)
|
|
|
3,812
|
|
Inventory
|
|
|
(20,365
|
)
|
|
|
(27,357
|
)
|
Prepaid expenses and other assets
|
|
|
2,356
|
|
|
|
13,240
|
|
Payables, accrued expenses and other liabilities
|
|
|
13,454
|
|
|
|
12,573
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
13,030
|
|
|
|
70,107
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash paid for property and equipment
|
|
|
(23,541
|
)
|
|
|
(31,111
|
)
|
Cash paid for marketable securities
|
|
|
(50,272
|
)
|
|
|
(37,328
|
)
|
Sales and maturities of marketable securities
|
|
|
64,903
|
|
|
|
57,219
|
|
Acquisition of business
|
|
|
|
|
|
|
(15,325
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,910
|
)
|
|
|
(26,545
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
|
|
|
|
(75,000
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
2,472
|
|
Share repurchases related to share repurchase program
|
|
|
|
|
|
|
(10,704
|
)
|
Share repurchases related to taxes for share-based awards
|
|
|
(1,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,142
|
)
|
|
|
(83,232
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,366
|
|
|
|
2,538
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,344
|
|
|
|
(37,132
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
248,140
|
|
|
|
265,276
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
252,484
|
|
|
$
|
228,144
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,865
|
|
|
$
|
10,106
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activitiesAccrued capital expenditures
|
|
$
|
7,961
|
|
|
$
|
15,507
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
(unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted
accounting principles in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. These condensed financial statements should be read in conjunction with Urban Outfitters, Inc.s (the Companys) Annual Report on Form 10-K
for the fiscal year ended January 31, 2017, filed with the United States Securities and Exchange Commission on April 3, 2017.
The Companys business experiences seasonal fluctuations in net sales and net income, with a more significant portion typically realized
in the second half of each year predominantly due to the year-end holiday period. Historically, and consistent with the retail industry, this seasonality also impacts our working capital requirements, particularly with regard to inventory.
Accordingly, the results of operations for the three months ended April 30, 2017 are not necessarily indicative of the results to be expected for the full year.
The Companys fiscal year ends on January 31. All references in these notes to the Companys fiscal years refer to the fiscal
years ended on January 31 in those years. For example, the Companys fiscal year 2018 will end on January 31, 2018.
2. Recent
Accounting Pronouncements
Recently Adopted
In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standards update that simplifies several
aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company
adopted the new guidance on February 1, 2017 and recorded a cumulative effect reduction to beginning retained earnings of $(984) related to the Companys election to record forfeitures as they occur and $224 related to the recognition of
previously unrecognized excess tax benefits. In addition, the Company elected to retrospectively adopt the provision regarding the presentation of excess tax benefits (deficits) in the statement of cash flows, which resulted in an increase in net
cash provided by operating activities and a decrease in net cash used in financing activities of $150 for the three months ended April 30, 2016. The provision requiring the inclusion of excess tax benefits (deficits) as a component of the provision
for income taxes in the consolidated results of operations will be applied prospectively. The Company recorded excess tax deficits of $442 during the three months ended April 30, 2017.
Recently Issued
In October 2016, the FASB issued an accounting standards update that amends the existing guidance on the income tax effects of intra-entity
asset transfers with the exception of transfers of inventory. The update requires the recognition of tax expense when an intra-entity asset transfer occurs as opposed to being deferred under the existing guidance. The update will be effective for
the Company on February 1, 2018 and early adoption is permitted in the first interim period of a fiscal year. The update requires a modified retrospective transition approach, with a cumulative-effect adjustment to retained earnings. The
Company is currently assessing the potential effects this update may have on its consolidated financial statements and related disclosures.
6
In June 2016, the FASB issued an accounting standards update that introduces a new model for
recognizing credit losses on financial instruments based on an estimate of current expected credit losses. This includes loan commitments, accounts receivable, trade receivables, and certain off-balance sheet credit exposures. The guidance also
modifies the impairment model for available-for-sale debt securities. The update will be effective for the Company on February 1, 2020 and early adoption is permitted. The Company is currently assessing the potential effects this update may
have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued an accounting standards update
that amends the existing accounting standards for lease accounting. This update requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting
policy election to not recognize the asset and liability for leases with a term of 12 months or less. The update will be effective for the Company on February 1, 2019 and early adoption is permitted. The update requires a modified retrospective
transition approach, which includes a number of practical expedients. While the Company expects adoption to result in a significant increase in the assets and liabilities recorded on its balance sheet, the Company is currently assessing the overall
impact on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued an accounting standards update that
clarifies the principles for recognizing revenue from contracts with customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The update states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods and services. Entities are required to apply the following steps when recognizing revenue under the update: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The update allows for a full retrospective adoption, meaning the update is applied to all periods presented, or a modified retrospective adoption, meaning the update is applied only to the most current periods presented in
the financial statements. In August 2015, the FASB issued an accounting standards update which approved a one-year deferral of the effective date that allows the Company to defer the effective date to February 1, 2018, but still permits the
Company to adopt the update as of the original February 1, 2017 effective date. The Company has determined it will adopt this update on February 1, 2018 and has concluded that the effects of this update will not have a material impact on
its consolidated financial statements and related disclosures.
3. Acquisition
On February 1, 2016, the Company acquired certain assets of the Vetri Family group of restaurants, headquartered in Philadelphia, PA, for
a total aggregate purchase price of approximately $18,937, of which $15,325 was paid in cash, $2,687 was satisfied through the settlement of a note receivable and up to an additional $925 that will be paid in cash in fiscal 2018. No liabilities were
assumed. Pro forma information related to this acquisition is not included because the impact on the Companys Condensed Consolidated Statements of Income is not considered to be material.
7
4. Marketable Securities
During all periods shown, marketable securities are classified as available-for-sale. The amortized cost, gross unrealized gains (losses) and
fair value of available-for-sale securities by major security type and class of security as of April 30, 2017, January 31, 2017 and April 30, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
As of April 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
77,313
|
|
|
$
|
4
|
|
|
$
|
(58
|
)
|
|
$
|
77,259
|
|
Municipal and pre-refunded municipal bonds
|
|
|
40,788
|
|
|
|
24
|
|
|
|
(3
|
)
|
|
|
40,809
|
|
Certificates of deposit
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,526
|
|
|
|
28
|
|
|
|
(61
|
)
|
|
|
118,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
27,586
|
|
|
|
3
|
|
|
|
(36
|
)
|
|
|
27,553
|
|
Municipal and pre-refunded municipal bonds
|
|
|
4,758
|
|
|
|
17
|
|
|
|
|
|
|
|
4,775
|
|
Mutual funds, held in rabbi trust
|
|
|
5,011
|
|
|
|
62
|
|
|
|
(1
|
)
|
|
|
5,072
|
|
Certificates of deposit
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,406
|
|
|
|
82
|
|
|
|
(37
|
)
|
|
|
38,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,932
|
|
|
$
|
110
|
|
|
$
|
(98
|
)
|
|
$
|
156,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
59,403
|
|
|
$
|
7
|
|
|
$
|
(90
|
)
|
|
$
|
59,320
|
|
Municipal and pre-refunded municipal bonds
|
|
|
51,731
|
|
|
|
28
|
|
|
|
(12
|
)
|
|
|
51,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,134
|
|
|
|
35
|
|
|
|
(102
|
)
|
|
|
111,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
19,102
|
|
|
|
9
|
|
|
|
(33
|
)
|
|
|
19,078
|
|
Municipal and pre-refunded municipal bonds
|
|
|
19,488
|
|
|
|
35
|
|
|
|
(9
|
)
|
|
|
19,514
|
|
Mutual funds, held in rabbi trust
|
|
|
4,583
|
|
|
|
91
|
|
|
|
(1
|
)
|
|
|
4,673
|
|
Certificates of deposit
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,196
|
|
|
|
135
|
|
|
|
(43
|
)
|
|
|
44,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
155,330
|
|
|
$
|
170
|
|
|
$
|
(145
|
)
|
|
$
|
155,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
As of April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
18,972
|
|
|
$
|
5
|
|
|
$
|
(7
|
)
|
|
$
|
18,970
|
|
Municipal and pre-refunded municipal bonds
|
|
|
40,569
|
|
|
|
27
|
|
|
|
(2
|
)
|
|
|
40,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,541
|
|
|
|
32
|
|
|
|
(9
|
)
|
|
|
59,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
5,356
|
|
|
|
2
|
|
|
|
(10
|
)
|
|
|
5,348
|
|
Municipal and pre-refunded municipal bonds
|
|
|
9,060
|
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
9,079
|
|
Mutual funds, held in rabbi trust
|
|
|
3,907
|
|
|
|
30
|
|
|
|
(3
|
)
|
|
|
3,934
|
|
Certificates of deposit
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,672
|
|
|
|
52
|
|
|
|
(14
|
)
|
|
|
18,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,213
|
|
|
$
|
84
|
|
|
$
|
(23
|
)
|
|
$
|
78,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sales and maturities of available-for-sale securities were $64,903 and $57,219 for the three
months ended April 30, 2017 and 2016, respectively. The Company included in Other income (expense), net, in the Condensed Consolidated Statements of Income, net realized gains of $14 and $13 for the three months ended April 30,
2017 and 2016, respectively. Amortization of discounts and premiums, net, resulted in a reduction of Other income (expense), net of $803 and $594 for the three months ended April 30, 2017 and 2016, respectively. Mutual funds
represent assets held in an irrevocable rabbi trust for the Companys Non-qualified Deferred Compensation Plan (NQDC). These assets are a source of funds to match the funding obligations to participants in the NQDC but are subject
to the Companys general creditors. The Company elected the fair value option for financial assets for the mutual funds held in the rabbi trust resulting in all unrealized gains and losses being recorded in Other income (expense),
net in the Condensed Consolidated Statements of Income.
5. Fair Value
The Company utilizes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation
techniques (market approach, income approach and cost approach that relate to its financial assets and financial liabilities). The levels of the hierarchy are described as follows:
|
|
|
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices
for identical or similar assets or liabilities in markets that are not active.
|
|
|
|
Level 3: Unobservable inputs that reflect the Companys own assumptions.
|
9
Managements assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy. The Companys financial assets that are accounted for at fair value on a recurring basis are
presented in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities Fair Value as of
April 30, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
104,812
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
104,812
|
|
Municipal and pre-refunded municipal bonds
|
|
|
|
|
|
|
45,584
|
|
|
|
|
|
|
|
45,584
|
|
Mutual funds, held in rabbi trust
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
|
5,072
|
|
Certificates of deposit
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,884
|
|
|
$
|
47,060
|
|
|
$
|
|
|
|
$
|
156,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities Fair Value as of
January 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
78,398
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
78,398
|
|
Municipal and pre-refunded municipal bonds
|
|
|
|
|
|
|
71,261
|
|
|
|
|
|
|
|
71,261
|
|
Mutual funds, held in rabbi trust
|
|
|
4,673
|
|
|
|
|
|
|
|
|
|
|
|
4,673
|
|
Certificates of deposit
|
|
|
|
|
|
|
1,023
|
|
|
|
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,071
|
|
|
$
|
72,284
|
|
|
$
|
|
|
|
$
|
155,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities Fair Value as of
April 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
24,318
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,318
|
|
Municipal and pre-refunded municipal bonds
|
|
|
|
|
|
|
49,673
|
|
|
|
|
|
|
|
49,673
|
|
Mutual funds, held in rabbi trust
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
3,934
|
|
Certificates of deposit
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,252
|
|
|
$
|
50,022
|
|
|
$
|
|
|
|
$
|
78,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
Level 1 assets consist of financial instruments whose value has been based on inputs that use, as their basis, readily observable market data
that are actively quoted and are validated through external sources, including third-party pricing services and brokers.
Level 2 assets
consist of financial instruments whose value has been based on quoted prices for similar assets and liabilities in active markets as well as quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 assets consist of financial instruments where there has been no active market. The Company held no Level 3 financial instruments as of
April 30, 2017, January 31, 2017 and April 30, 2016.
The fair value of cash and cash equivalents (Level 1)
approximates carrying value since cash and cash equivalents consist of short-term highly liquid investments with maturities of less than three months at the time of purchase. As of April 30, 2017 and 2016, cash and cash equivalents included
cash on hand, cash in banks, money market accounts and marketable securities with maturities of less than three months at the time of purchase. The fair value of debt approximates its carrying value as it is all variable rate debt.
10
Non-financial assets
The Companys non-financial assets, primarily consisting of property and equipment, are periodically tested for impairment whenever events
or changes in circumstances indicate that the carrying value may not be recoverable.
The fair value of the non-financial assets was
determined using a discounted cash-flow model that utilized Level 3 inputs. The Companys stores are reviewed for impairment at the store level, which is the lowest level at which individual cash flows can be identified. In calculating future
cash flows, the Company makes estimates regarding future operating results based on its experience and knowledge of market factors in which the store is located. For the three months ended April 30, 2017 and 2016, impairment charges were zero.
6. Debt
On July 1, 2015, the
Company and its domestic subsidiaries entered into a five-year asset-based revolving Credit Agreement (Credit Agreement) with certain lenders, including JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC
and Wells Fargo Bank, National Association, as joint lead arrangers and co-book managers.
The Credit Agreement provides senior secured
revolving credit for loans and letters of credit up to $400,000 (the Credit Facility), subject to a borrowing base that is comprised of the Companys eligible accounts receivable and inventory. The Credit Facility includes a
swing-line sub-facility, a multicurrency sub-facility and the option to expand the facility by up to $150,000. The funds available under the Credit Facility may be used for working capital and other general corporate purposes.
The Credit Facility provides for interest on borrowings, at the Companys option, at either (i) adjusted LIBOR, CDOR or EURIBOR plus
an applicable margin ranging from 1.125% to 1.625%, or (ii) an adjusted ABR plus an applicable margin ranging from 0.125% to 0.625%, each such rate depending on the level of availability under the Credit Facility and the Companys adjusted
leverage ratio. Interest is payable either monthly or quarterly depending on the type of borrowing. A commitment fee is payable quarterly on the unused portion of the Credit Facility based on the Companys adjusted leverage ratio.
All obligations under the Credit Facility are unconditionally guaranteed by the Company and its domestic subsidiaries. The obligations under
the Credit Facility are secured by a first-priority security interest in inventory, accounts receivable, and certain other assets of the borrowers and guarantors. The Credit Agreement contains customary representations and warranties, negative and
affirmative covenants and provisions relating to events of default.
As of April 30, 2017, the Company was in compliance with all
terms of the Credit Agreement and borrowings under the Credit Facility totaled $0. Outstanding stand-by letters of credit, which reduce the funds available under the Credit Facility, were $8,922.
Additionally, the Company has borrowing agreements with two separate financial institutions under which the Company may borrow an aggregate of
$130,000 for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions. As of April 30, 2017, the
Company had outstanding trade letters of credit of $50,441, and available trade letters of credit of $79,559 under these facilities.
11
7. Share-Based Compensation
The Company maintains stock incentive plans pursuant to which it can grant restricted shares, unrestricted shares, incentive stock options,
non-qualified stock options, restricted stock units (RSUs), performance stock units (PSUs) or stock appreciation rights (SARs). A lattice binomial pricing model was used to estimate the fair
values of stock options and SARs. The fair value of each of the PSUs was determined using a Monte Carlo simulation. Share-based compensation expense included in Selling, general and administrative expenses in the Condensed
Consolidated Statements of Income, for the three months ended April 30, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Stock Options
|
|
$
|
249
|
|
|
$
|
209
|
|
Stock Appreciation Rights
|
|
|
61
|
|
|
|
59
|
|
Performance Stock Units
|
|
|
4,018
|
|
|
|
4,592
|
|
Restricted Stock Units
|
|
|
1,835
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,163
|
|
|
$
|
5,760
|
|
|
|
|
|
|
|
|
|
|
Share-based awards granted and the weighted-average fair value for the three months ended April 30, 2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30, 2017
|
|
|
|
Awards Granted
|
|
|
Weighted-
Average Fair
Value
|
|
Stock Options
|
|
|
|
|
|
$
|
|
|
Stock Appreciation Rights
|
|
|
|
|
|
$
|
|
|
Performance Stock Units
|
|
|
290,000
|
|
|
$
|
25.14
|
|
Restricted Stock Units
|
|
|
596,000
|
|
|
$
|
26.03
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
886,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended April 30, 2017, 100,000 PSUs vested. No stock options or SARs
were exercised and no RSUs vested during the three months ended April 30, 2017.
The total unrecognized compensation cost
related to outstanding share-based awards and the weighted-average period in which the cost is expected to be recognized as of April 30, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
|
|
Unrecognized
Compensation
Cost
|
|
|
Weighted-
Average
Years
|
|
Stock Options
|
|
$
|
67
|
|
|
|
0.1
|
|
Stock Appreciation Rights
|
|
|
85
|
|
|
|
0.6
|
|
Performance Stock Units
|
|
|
28,066
|
|
|
|
2.2
|
|
Restricted Stock Units
|
|
|
22,912
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
8
.
Shareholders Equity
Share repurchase activity under the Companys share repurchase programs was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
2017
|
|
|
2016
|
|
Number of common shares repurchased and subsequently retired
|
|
|
|
|
|
|
324,700
|
|
Total cost
|
|
$
|
|
|
|
$
|
10,704
|
|
Average cost per share, including commissions
|
|
$
|
|
|
|
$
|
32.97
|
|
On February 23, 2015, the Companys Board of Directors authorized the repurchase of 20,000,000
common shares under a share repurchase program, of which 5,995,059 common shares were remaining as of April 30, 2017.
Subsequent to
April 30, 2017, the Company repurchased and subsequently retired a total of 500,000 common shares for approximately $9,455, at an average price of $18.91 per share, including commissions, which the Company funded with available cash, cash
equivalents and marketable securities.
During the three months ended April 30, 2017, the Company acquired and subsequently retired
43,423 common shares at a total cost of $1,142 from employees to meet minimum statutory tax withholding requirements. During the three months ended April 30, 2016, the Company did not acquire any common shares from employees to meet minimum
statutory tax withholding requirements.
9
.
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The following tables present the changes in Accumulated other comprehensive income (loss), by component, net of tax, for the three
months ended April 30, 2017 and 2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2017
|
|
|
Foreign
Currency
Translation
|
|
|
Unrealized Gains
and (Losses) on
Available-for-
Sale Securities
|
|
|
Total
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(34,012
|
)
|
|
$
|
(57
|
)
|
|
$
|
(34,069
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
1,788
|
|
|
|
(2
|
)
|
|
|
1,786
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
1,788
|
|
|
|
12
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(32,224
|
)
|
|
$
|
(45
|
)
|
|
$
|
(32,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2016
|
|
|
Foreign
Currency
Translation
|
|
|
Unrealized Gains
and (Losses) on
Available-for-
Sale Securities
|
|
|
Total
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(23,479
|
)
|
|
$
|
28
|
|
|
$
|
(23,451
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
9,590
|
|
|
|
(17
|
)
|
|
|
9,573
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
9,590
|
|
|
|
(4
|
)
|
|
|
9,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(13,889
|
)
|
|
$
|
24
|
|
|
$
|
(13,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All unrealized gains and losses on available-for-sale securities reclassified from accumulated other
comprehensive loss were recorded in Other income (expense), net in the Condensed Consolidated Statements of Income.
10. Net Income per
Common Share
The following is a reconciliation of the weighted-average common shares outstanding used for the computation of basic and
diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Basic weighted-average common shares outstanding
|
|
|
116,276,289
|
|
|
|
117,304,736
|
|
Effect of dilutive options, stock appreciation rights, performance stock units and restricted
stock units
|
|
|
263,016
|
|
|
|
282,273
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
116,539,305
|
|
|
|
117,587,009
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2017 and 2016, awards to purchase 1,128,400 common shares ranging in
price from $25.60 to $46.02 and 918,000 common shares ranging in price from $29.92 to $46.02, respectively, were excluded from the calculation of diluted net income per common share because the impact would be anti-dilutive.
Excluded from the calculation of diluted net income per common share as of April 30, 2017 and 2016 were 2,941,727 and 4,034,213
performance-based equity awards, respectively, since they did not meet the required performance criteria.
11. Commitments and Contingencies
The Company is party to various legal proceedings arising from normal business activities. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the Companys financial position, results of operations or cash flows.
14
12. Segment Reporting
The Company offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands. The
Company operates two reportable segments Retail and Wholesale. The Companys Retail segment consists of the Anthropologie, Bhldn, Free People, Terrain and Urban
Outfitters brands and the Food and Beverage division. The Anthropologie, Bhldn and Terrain brands make up the Anthropologie Group. As of April 30, 2017, there were 242 Urban Outfitters stores, 225 Anthropologie Group stores,
130 Free People stores and 12 restaurants under the Food and Beverage division. Urban Outfitters, the Anthropologie Group and Free People, including their stores and direct-to-consumer channels, and restaurants are each considered an operating
segment. Net sales from the Retail segment accounted for approximately 90.7% and 91.8% of total consolidated net sales for the three months ended April 30, 2017 and 2016, respectively. The remaining net sales are derived from the Companys
Wholesale segment that consists of the Free People wholesale division that primarily designs, develops and markets young womens contemporary casual apparel, including intimates and activewear, and shoes sold through approximately 1,900
department and specialty stores worldwide, third-party websites and the Retail segment.
The Company has aggregated its brands into the
Retail segment based upon their shared management, customer base and economic characteristics. Reporting in this format provides management with the financial information necessary to evaluate the success of the segments and the overall business.
The Company evaluates the performance of the segments based on the net sales and pre-tax income from operations (excluding intercompany charges) of the segment. Corporate expenses include expenses incurred and directed by the corporate office that
are not allocated to segments. The principal identifiable assets for each reporting segment are inventory and property and equipment.
Other assets are comprised primarily of general corporate assets, which principally consist of cash and cash equivalents, marketable
securities, deferred taxes and prepaid expenses, which are typically not allocated to the Companys segments. The Company accounts for intersegment sales and transfers as if the sales and transfers were made to third parties making similar
volume purchases.
The Companys omni-channel strategy enhances its customers brand experience by providing a seamless approach
to the customer shopping experience. All available shopping channels are fully integrated, including stores, websites, mobile applications, catalogs and customer contact centers. The Companys investments in areas such as marketing campaigns
and technology advancements are designed to generate demand for the omni-channel and not the separate store or direct-to-consumer channels. Store sales are primarily fulfilled from that stores inventory, but may also be shipped from any of the
Companys fulfillment centers or from a different store location if an item is not available at the original store. The Company also allows customers to view in-store inventory from its websites and mobile applications. Direct-to-consumer
orders are primarily shipped to the Companys customers through its fulfillment centers, but may also be shipped from any store, or a combination of fulfillment centers and stores depending on the availability of a particular item.
Direct-to-consumer orders may also be picked up at a store location. Customers may also return certain merchandise purchased through direct-to-consumer channels at store locations. As the Companys customers continue to shop across multiple
channels, the Company has adapted its approach towards meeting this demand. Due to the availability of like product in a variety of shopping channels, the Company sources these products utilizing single stock keeping units based on the omni-channel
demand rather than the demand of the separate channels. These and other technological capabilities allow the Company to better serve its customers and help it to complete sales that otherwise may not have occurred due to out-of-stock positions. As a
result of changing customer behavior and the substantial integration of the operations of the Companys store and direct-to-consumer channels, the Company manages and analyzes its performance based on a single omni-channel rather than separate
channels and believes that the omni-channel results present the most meaningful and appropriate measure of the Companys performance. Over the next several years the Company plans to continue to shift investment to the direct-to-consumer
channel to align with changing customer preferences.
15
The accounting policies of the reportable segments are the same as the policies described in Note
2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2017. Both the Retail and Wholesale
segments are highly diversified. No one customer constitutes more than 10% of the Companys total consolidated net sales. A summary of the information about the Companys operations by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
324,126
|
|
|
$
|
301,519
|
|
|
$
|
324,940
|
|
Wholesale operations
|
|
|
35,367
|
|
|
|
37,071
|
|
|
|
34,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
359,493
|
|
|
$
|
338,590
|
|
|
$
|
359,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
847,926
|
|
|
$
|
864,396
|
|
|
$
|
867,813
|
|
Wholesale operations
|
|
|
3,333
|
|
|
|
3,390
|
|
|
|
3,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
851,259
|
|
|
$
|
867,786
|
|
|
$
|
871,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
690,352
|
|
|
$
|
700,193
|
|
Wholesale operations
|
|
|
72,949
|
|
|
|
64,488
|
|
Intersegment elimination
|
|
|
(2,111
|
)
|
|
|
(2,104
|
)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
761,190
|
|
|
$
|
762,577
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
19,905
|
|
|
$
|
50,799
|
|
Wholesale operations
|
|
|
16,269
|
|
|
|
9,811
|
|
Intersegment elimination
|
|
|
10
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
36,184
|
|
|
|
60,439
|
|
General corporate expenses
|
|
|
(15,148
|
)
|
|
|
(9,956
|
)
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
21,036
|
|
|
$
|
50,483
|
|
|
|
|
|
|
|
|
|
|
The Company has foreign operations primarily in Europe and Canada. Revenues and long-lived assets, based upon
the Companys domestic and foreign operations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
754,965
|
|
|
$
|
766,419
|
|
|
$
|
749,072
|
|
Foreign operations
|
|
|
96,294
|
|
|
|
101,367
|
|
|
|
122,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
851,259
|
|
|
$
|
867,786
|
|
|
$
|
871,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
677,953
|
|
|
$
|
673,364
|
|
Foreign operations
|
|
|
83,237
|
|
|
|
89,213
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
761,190
|
|
|
$
|
762,577
|
|
|
|
|
|
|
|
|
|
|
16
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Certain matters contained in this filing with the United States Securities and Exchange Commission (SEC) may contain
forward-looking statements and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words project,
believe, plan, will, anticipate, expect and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying
words. Any one, or all, of the following factors could cause actual financial results to differ materially from those financial results mentioned in the forward-looking statements: the difficulty in predicting and responding to shifts in fashion
trends, changes in the level of competitive pricing and promotional activity and other industry factors, overall economic and market conditions and worldwide political events and the resultant impact on consumer spending patterns, any effects of
war, terrorism and civil unrest, natural disasters or severe weather conditions, increases in labor costs, availability of suitable retail space for expansion, timing of store openings, risks associated with international expansion, seasonal
fluctuations in gross sales, the departure of one or more key senior executives, import risks, changes to U.S. and foreign trade policies, including the enactment of tariffs, border adjustment taxes or increases in duties or quotas, the closing or
disruption of, or any damage to, any of our distribution centers, our ability to protect our intellectual property rights, risks associated with internet sales, response to new store concepts, our ability to integrate acquisitions, failure of our
manufacturers and third-party vendors to comply with our social compliance program, changes in our effective income tax rate, changes in accounting standards and subjective assumptions, regulatory changes and legal matters and other risks identified
in our filings with the SEC, including those set forth in Item 1A of our Annual Report on Form
10-K
for the fiscal year ended January 31, 2017, filed on April 3, 2017. We disclaim any intent or
obligation to update forward-looking statements even if experience or future changes make it clear that actual results may differ materially from any projected results expressed or implied therein.
Unless the context otherwise requires, all references to the Company, we, us or our refer
to Urban Outfitters, Inc., together with its subsidiaries.
Overview
We operate two reportable segments: a leading lifestyle specialty Retail segment and a Wholesale segment. Our Retail segment consists of our
Anthropologie, Bhldn, Free People, Terrain and Urban Outfitters brands and our Food and Beverage division. Our Retail segment consumer products and services are sold directly to our customers through our stores, websites, mobile applications,
catalogs and customer contact centers. Our Wholesale segment consists of the Free People wholesale division that primarily designs, develops and markets young womens contemporary casual apparel, including intimates and activewear, and shoes
sold through department and specialty stores worldwide, third-party websites and the Retail segment.
Our fiscal year ends on
January 31. All references to our fiscal years refer to the fiscal years ended on January 31 in those years. For example, our fiscal year 2018 will end on January 31, 2018.
Retail Segment
Our
omni-channel strategy enhances our customers brand experience by providing a seamless approach to the customer shopping experience. All available shopping channels are fully integrated, including stores, websites, mobile applications, catalogs
and customer contact centers. Our investments in areas such as marketing campaigns and technology advancements are designed to generate demand for the omni-channel and not the separate store or direct-to-consumer channels. Store sales are primarily
fulfilled from that stores inventory, but may also be shipped from any of our fulfillment centers or from a different store location if an item is not available at the original store. We also allow customers to view in-store inventory from our
websites and mobile applications. Direct-to-consumer orders are primarily shipped to our customers through our fulfillment centers, but may also be shipped from any store, or a combination of fulfillment centers and stores depending on the
availability of particular items. Direct-to-consumer orders may also be picked up at a store location. Customers may also return certain merchandise purchased through direct-to-consumer channels at store locations. As our
17
customers continue to shop across multiple channels, we have adapted our approach towards meeting this demand. Due to the availability of like product in a variety of shopping channels, we source
these products utilizing single stock keeping units based on the omni-channel demand rather than the demand of the separate channels. These and other technological capabilities allow us to better serve our customers and help us complete sales that
otherwise may not have occurred due to out-of-stock positions. As a result of changing customer behavior and the substantial integration of the operations of our store and direct-to-consumer channels, we manage and analyze our performance based on a
single omni-channel rather than separate channels and believe that the omni-channel results present the most meaningful and appropriate measure of our performance. Over the next several years we plan to continue to shift investment to the
direct-to-consumer channel to align with changing customer preferences.
Our comparable Retail segment net sales data is equal to the sum
of our comparable store and comparable direct-to-consumer channel net sales. A store is considered to be comparable if it has been open at least 12 full months, unless it was materially expanded or remodeled within that year or was not otherwise
operating at its full capacity within that year. A direct-to-consumer channel is considered to be comparable if it has been operational for at least 12 full months. There is no overlap between comparable store net sales and comparable
direct-to-consumer net sales. Sales from stores and direct-to-consumer channels that do not fall within the definition of comparable store or channel are considered to be non-comparable. The effects of foreign currency translation are also
considered non-comparable.
We monitor customer traffic, average unit selling price, average transactions per store and average units per
transaction at our stores, and customer sessions, average order value and conversion rates on our websites and mobile applications. We believe that changes in any of these metrics may be caused by a response to our brands fashion offerings,
our marketing and digital marketing campaigns, circulation of our catalogs and an overall growth in brand recognition.
As of
April 30, 2017, we operated 242 Urban Outfitters stores of which 181 were located in the United States, 18 were located in Canada and 43 were located in Europe. For the three months ended April 30, 2017, we opened one new Urban
Outfitters store, and we closed one store, both in the United States. Total store selling square footage of 2.2 million square feet was flat compared to the prior year period. Urban Outfitters operates websites and mobile applications in North
America and Europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores. Urban Outfitters offers a catalog in Europe offering select merchandise, most of which is also available in
our Urban Outfitters stores. Urban Outfitters targets young adults aged 18 to 28 through a unique merchandise mix, compelling store environment, websites and mobile applications. Urban Outfitters product offering includes womens and
mens fashion apparel, intimates, footwear, beauty and accessories, home goods, activewear and electronics. A large portion of our merchandise is exclusive to Urban Outfitters, consisting of an assortment of product designed internally and
designed in collaboration with third-party brands. Urban Outfitters North American and European Retail segment net sales accounted for approximately 30.8% and 6.6% of consolidated net sales, respectively, for the three months ended
April 30, 2017, compared to 31.8% and 7.4%, respectively, for the comparable period in fiscal 2017.
The Anthropologie Group consists
of the Anthropologie, Bhldn and Terrain brands. As of April 30, 2017, we operated 225 Anthropologie Group stores, of which 201 were located in the United States, 13 were located in Canada and 11 were located in Europe. For the three months
ended April 30, 2017, we opened one new Anthropologie Group store, and we closed one store, both located in the United States. Total store selling square footage increased 6.8% over the prior year period to 1.7 million square feet driven
mainly by the opening of expanded format stores. The Anthropologie Group operates websites and mobile applications in North America and Europe that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found
in its stores. The Anthropologie brand offers registry services through its website and mobile application and in all of its stores throughout the United States, allowing our customers to create gift registries for any occasion. In addition, the
brand offers catalogs in North America and Europe that market select merchandise, most of which is also available in Anthropologie brand stores. Merchandise at the Anthropologie brand is
18
tailored to sophisticated and contemporary women aged 28 to 45. Product assortment includes womens casual apparel and accessories, intimates, shoes, beauty, home furnishings and a diverse
array of gifts and decorative items. The Bhldn brand emphasizes every element that contributes to a wedding. The Bhldn brand offers a curated collection of heirloom quality wedding gowns, bridesmaid frocks, party dresses, assorted jewelry,
headpieces, footwear, lingerie and decorations. The Terrain brand is designed to appeal to women and men interested in a creative and sophisticated outdoor living and gardening experience. Merchandise includes lifestyle home, garden and outdoor
living products, antiques, live plants, flowers, wellness products and accessories. We plan to open additional Anthropologie Group stores, which will include all Anthropologie Group brands and allow us to present an expanded assortment of products
in certain categories such as petites, jewelry and accessories, footwear, intimates, beauty and home furnishings. The Anthropologie Groups North American and European Retail segment net sales accounted for approximately 39.4% and 1.5% of
consolidated net sales, respectively, for the three months ended April 30, 2017, compared to 40.0% and 1.4%, respectively, for the comparable period in fiscal 2017.
As of April 30, 2017, we operated 130 Free People stores, of which 124 were located in the United States and six were located in Canada.
For the three months ended April 30, 2017, we opened four new Free People stores, and we closed one store, all located in the United States. Total store selling square footage increased 27.2% over the prior year period to 271,000. The increase
in selling square footage compared to the prior year period was a result of operating 13 net new stores, including expanded format stores, that were not in operation during the prior 12 month period. Free People operates websites and mobile
applications in North America, Europe and Asia that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores, as well as substantially all of the Free People wholesale offerings. Free People
also offers a catalog that markets select merchandise, most of which is also available in our Free People stores. Free People focuses its product offering on private label merchandise targeted to young contemporary women aged 25 to 30 and provides a
unique merchandise mix of casual womens apparel, intimates, shoes, activewear, accessories, beauty and wellness, home products and gifts. We plan to open additional stores over the next several years, some of which will be expanded format
stores that allow us to present an expanded assortment of intimates, shoes, party dresses and activewear. Free Peoples Retail segment net sales accounted for approximately 11.7% of consolidated net sales for the three months ended
April 30, 2017, compared to approximately 10.8% for the comparable period in fiscal 2017.
As of April 30, 2017, we operated 12
restaurants under our Food and Beverage division, all of which were located in the United States. For the three months ended April 30, 2017, we opened one new restaurant, and we closed one restaurant. The Food and Beverage division focuses on a
dining experience that provides excellence in food, beverage and service. The Food and Beverage division net sales accounted for less than 1.0% of consolidated net sales for the three months ended April 30, 2017 and the comparable period in fiscal
2017.
We plan to open approximately 19 new stores during fiscal 2018, including four Urban Outfitters stores, four Anthropologie Group
stores, ten Free People stores and one restaurant. We plan to close approximately eight stores during fiscal 2018, including two Urban Outfitters stores, two Anthropologie Group stores, three Free People stores and one restaurant. Within the United
States and Canada, future new store growth will be driven by the Free People brand, as both Urban Outfitters and Anthropologie brands are at or close to our currently planned total store count. Our growth strategy for the Anthropologie Group will
focus on relocation or the conversion of existing stores into expanded format stores. In the future, we plan for new store growth for the Urban Outfitters, Anthropologie and Free People brands to come from modest expansion internationally.
Wholesale Segment
Our
Wholesale segment consists of the Free People wholesale division that designs, develops and markets young womens contemporary casual apparel. Free Peoples range of tops, bottoms, sweaters, dresses, intimates, shoes and activewear are
sold through approximately 1,900 department and specialty stores worldwide, third-party websites and our own Free People stores. Our Wholesale segment net sales accounted for approximately 9.3% of consolidated net sales for the three months ended
April 30, 2017, compared to 8.2% for the comparable period in fiscal 2017.
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Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United
States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.
Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. Our
significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the Notes to our Consolidated Financial Statements for the fiscal year ended January 31, 2017, which are included in our Annual
Report on Form 10-K filed with the SEC on April 3, 2017. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require managements most
difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be
materially affected. We are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates. We adopted the new accounting standard related to share-based
compensation on February 1, 2017, which changed our accounting policy for forfeitures. (See Note 2, Recently Issued Accounting Pronouncements, of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q). Other than the adoption of the new accounting standard, we believe that there have been no significant changes to our critical accounting policies during the three months ended April 30, 2017.
Results of Operations
As a Percentage of Net Sales
The following table sets forth, for the periods indicated, the percentage of our net sales represented by certain income statement data and the
change in certain income statement data from period to period. This table should be read in conjunction with the discussion that follows:
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Three Months Ended
April 30,
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2017
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2016
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Net sales
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100.0
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%
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100.0
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%
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Cost of sales
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68.5
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65.7
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Gross profit
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31.5
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34.3
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Selling, general and administrative expenses
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28.7
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27.7
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Income from operations
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2.8
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6.6
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Other income (expense), net
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0.0
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(0.2
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)
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Income before income taxes
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2.8
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6.4
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Income tax expense
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1.2
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2.5
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Net income
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1.6
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%
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3.9
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%
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Three Months Ended April 30, 2017 Compared To Three Months Ended April 30, 2016
Net sales in the first quarter of fiscal 2018 were $761.2 million, compared to $762.6 million in the first quarter of fiscal 2017. The $1.4
million decrease was attributable to a $9.8 million, or 1.4%, decrease in Retail segment net sales, offset by an $8.4 million, or 13.6%, increase in our Wholesale segment net sales. Retail segment net sales for the first quarter of fiscal 2018
accounted for 90.7% of total net sales compared to 91.8% of total net sales in the first quarter of fiscal 2017.
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The decline in our Retail segment net sales during the first quarter of fiscal 2018 was due to a
decrease of $20.4 million, or 3.1%, in Retail segment comparable net sales, which includes our direct-to-consumer channel, partially offset by an increase of $10.6 million in non-comparable net sales, including new store net sales. Our sales growth
percentage was negatively impacted by approximately 1.0% related to foreign currency translation. Retail segment comparable net sales increased 1.5% at Free People, but decreased 3.1% at Urban Outfitters and 4.4% at the Anthropologie Group. The
decrease in Retail segment comparable net sales was driven by negative comparable store net sales, which were partially offset by continued growth in the direct-to-consumer channel. Negative comparable store net sales resulted from decreased
transactions and average unit selling price, while units per transaction increased. The direct-to-consumer net sales increase was driven by an increase in sessions and conversion rate, which more than offset a decrease in average order value. The
increase in net sales attributable to non-comparable sales was primarily the result of operating 39 new stores and restaurants during the first quarter of fiscal 2018 that were not in operation for the full comparable quarter in fiscal 2017.
Thus far during the second quarter of fiscal 2018, comparable Retail segment net sales are high single-digit negative.
The increase in
Wholesale segment net sales in the first quarter of fiscal 2018 was primarily due to domestic growth at department stores and specialty stores. Wholesale sales growth was driven by an increase in units that was partially offset by a decrease in
average unit selling price.
Gross profit percentage for the first quarter of fiscal 2018 decreased to 31.5% of net sales, from 34.3% of
net sales in the comparable quarter in fiscal 2017. Gross profit decreased to $239.8 million in the first quarter of fiscal 2018 from $261.9 million in the comparable quarter in fiscal 2017. The decline in gross profit percentage was driven by
higher markdowns due to underperforming womens apparel and accessories at the Anthropologie and Urban Outfitters brands, deleverage in delivery and logistics expenses primarily due to the increased penetration of the direct-to-consumer
channel, and deleverage in store occupancy related to negative comparable store net sales. The dollar decrease in gross profit was due to the decrease in gross profit rate. Total inventory at April 30, 2017 was $359.5 million, flat compared to
$359.9 million at April 30, 2016. Comparable Retail segment inventory decreased 3.3% at cost, which was offset by inventory to stock non-comparable stores.
Selling, general and administrative expenses as a percentage of net sales increased during the first quarter of fiscal 2018 to 28.7% of net
sales, compared to 27.7% of net sales for the first quarter of fiscal 2017. Selling, general and administrative expenses increased by $7.3 million, or 3.5%, to $218.7 million, in the first quarter of fiscal 2018, from $211.4 million in the first
quarter of fiscal 2017. The deleverage and dollar increase versus the prior year quarter primarily related to approximately $5.9 million, or 0.8% of net sales, of nonrecurring expenses related to severance and fees associated with our store
organization project. This project streamlined our store leadership structure starting in the first quarter of fiscal 2018.
Income from
operations decreased to 2.8% of net sales, or $21.0 million, for the first quarter of fiscal 2018 compared to 6.6%, or $50.5 million, for the first quarter of fiscal 2017.
Our effective tax rate for the first quarter of fiscal 2018 was 44.1% of income before income taxes compared to 39.6% of income before income
taxes in the first quarter of fiscal 2017. The increase in the effective tax rate was due to the ratio of foreign taxable losses to global taxable profits in the quarter and the prospective adoption of the new accounting standard related to
share-based compensation (See Note 2, Recently Issued Accounting Pronouncements, of the Notes to our Condensed Consolidated Financial Statement included in this Quarterly Report on Form 10-Q).
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities were $409.4 million as of April 30, 2017, as compared to $403.5 million as of
January 31, 2017 and $306.4 million as of April 30, 2016. Our working capital was $571.4 million at April 30, 2017 compared to $528.5 million at January 31, 2017 and $467.2 million at April 30, 2016. The
increase in working capital as of April 30, 2017 compared to January 31, 2017 was primarily due to
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the increase in accounts receivable related to the timing of credit card receivables settlements. The increase in working capital during the first quarter of fiscal 2018 compared to the first
quarter of fiscal 2017 was primarily due to the increase in cash, cash equivalents and marketable securities.
During the last two years,
we have satisfied our cash requirements primarily through our cash flow from operating activities. Our primary uses of cash have been to repay our long-term debt, open new stores, purchase inventory and expand our fulfillment facilities. We have
also continued to invest in our omni-channel capabilities and technology.
Cash Flows from Operating Activities
Cash provided by operating activities during the first quarter of fiscal 2018 decreased by $57.1 million to $13.0 million from $70.1 million in
the first quarter of fiscal 2017. For both periods, our major source of cash from operations was merchandise sales and our primary outflow of cash for operations was for the payment of operational costs. The period over period decrease in cash flows
from operations was primarily due to lower net income and the timing of credit card receivables settlements.
Cash Flows from Investing
Activities
Cash used in investing activities during the first quarter of fiscal 2018 decreased by $17.6 million to $8.9 million from
$26.5 million in the first quarter of fiscal 2017. Cash used in investing activities in both periods primarily related to purchases of marketable securities and property and equipment, partially offset by the sales and maturities of marketable
securities. Cash used in investing activities in the first quarter of fiscal 2017 also included $15.3 million used to acquire the Vetri Family group of restaurants. Cash paid for property and equipment in the first quarter of fiscal 2018 and 2017
was $23.5 million and $31.1 million, respectively, which was primarily used to expand our store base in fiscal 2018 and to expand our store base and fulfillment facilities in fiscal 2017.
Cash Flows from Financing Activities
Cash used in financing activities during the first quarter of fiscal 2018 decreased by $82.1 million to $1.1 million from $83.2 million in the
first quarter of fiscal 2017. Cash used in financing activities in the first quarter of fiscal 2018 was for share repurchases related to taxes for share-based awards. Cash used in financing activities in the first quarter of fiscal 2017 primarily
related to $75.0 million in debt repayments and $10.7 million of repurchases of our common shares under the Board of Directors approved share repurchase program.
Credit Facilities
See
Note 6, Debt, of the Notes to our Condensed Consolidated Financial Statement included in this Quarterly Report on Form 10-Q for additional information regarding the Companys debt.
Capital and Operating Expenditures
During fiscal 2018, we plan to construct and open approximately 19 new stores, including one restaurant, expand certain existing stores,
repurchase common shares, upgrade our systems, improve our capabilities in the digital channel, invest in omni-channel marketing and purchase inventory for our Retail and Wholesale segments at levels appropriate to maintain our planned sales growth.
We believe that our marketing, social media, merchandise expansion and website and mobile initiatives are a significant contributor to our Retail segment sales growth. During fiscal 2018, we plan to continue our investment in these initiatives for
all brands. We anticipate our capital expenditures during fiscal 2018 to be approximately $90 million, all of which are expected to be financed by cash flow from operating activities. We believe that our new store investments have the potential
to generate positive cash flow within a year. We may also enter into one or more acquisitions or transactions related to the expansion of our brand offerings. We believe that our existing cash and cash equivalents, available credit facilities and
future cash flows from operations will be sufficient to fund these initiatives.
22
Share Repurchases
See Note 8, Shareholders Equity, of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q for additional information regarding the Companys share repurchases.
Off-Balance Sheet Arrangements
As of and for the three months ended April 30, 2017, except for operating leases entered into in the normal course of
business, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or
capital resources.
Other Matters
See Note 2, Recently Issued Accounting Pronouncements, of the Notes to our Condensed Consolidated Financial Statements included in
this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.