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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File No. 000-22754

 

Urban Outfitters, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Pennsylvania

23-2003332

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

5000 South Broad Street, Philadelphia, PA

19112-1495

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (215) 454-5500

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, par value $.0001 per share

 

URBN

 

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common shares, $0.0001 par value—97,975,343 shares outstanding on September 3, 2019.

 

 

 


TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of July 31, 2019, January 31, 2019 and July 31, 2018

1

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended July 31, 2019 and 2018

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 31, 2019 and 2018

3

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended July 31, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2019 and 2018

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

PART II

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and the Use of Proceeds

29

 

 

 

Item 6.

Exhibits

30

 

 

 

 

Signatures

31

 

 


 

PART I

FINANCIAL INFORMATION

Item  1.

Financial Statements

URBAN OUTFITTERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

  

 

 

July 31,

 

 

January 31,

 

 

July 31,

 

 

 

2019

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

162,018

 

 

$

358,260

 

 

$

405,727

 

Marketable securities

 

 

171,398

 

 

 

279,232

 

 

 

198,166

 

Accounts receivable, net of allowance for doubtful accounts of

   $939, $1,499 and $1,613, respectively

 

 

95,131

 

 

 

80,461

 

 

 

90,646

 

Inventory

 

 

440,087

 

 

 

370,507

 

 

 

375,657

 

Prepaid expenses and other current assets

 

 

131,763

 

 

 

114,296

 

 

 

131,572

 

Total current assets

 

 

1,000,397

 

 

 

1,202,756

 

 

 

1,201,768

 

Property and equipment, net

 

 

867,434

 

 

 

796,029

 

 

 

807,084

 

Operating lease right-of-use assets

 

 

1,085,543

 

 

 

 

 

 

 

Marketable securities

 

 

78,857

 

 

 

57,292

 

 

 

45,514

 

Deferred income taxes and other assets

 

 

105,814

 

 

 

104,438

 

 

 

104,169

 

Total Assets

 

$

3,138,045

 

 

$

2,160,515

 

 

$

2,158,535

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

181,955

 

 

$

144,414

 

 

$

149,947

 

Current portion of operating lease liabilities

 

 

209,072

 

 

 

 

 

 

 

Accrued expenses, accrued compensation and other current liabilities

 

 

235,106

 

 

 

242,230

 

 

 

279,991

 

Total current liabilities

 

 

626,133

 

 

 

386,644

 

 

 

429,938

 

Non-current portion of operating lease liabilities

 

 

1,090,623

 

 

 

 

 

 

 

Deferred rent and other liabilities

 

 

59,885

 

 

 

284,773

 

 

 

284,925

 

Total Liabilities

 

 

1,776,641

 

 

 

671,417

 

 

 

714,863

 

Commitments and contingencies (see Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares; $.0001 par value, 10,000,000 shares authorized,

   none issued

 

 

 

 

 

 

 

 

 

Common shares; $.0001 par value, 200,000,000 shares authorized,

   97,965,012, 105,642,283 and 108,951,308 shares issued and

   outstanding, respectively

 

 

10

 

 

 

11

 

 

 

11

 

Additional paid-in-capital

 

 

 

 

 

 

 

 

18,770

 

Retained earnings

 

 

1,398,681

 

 

 

1,516,190

 

 

 

1,451,492

 

Accumulated other comprehensive loss

 

 

(37,287

)

 

 

(27,103

)

 

 

(26,601

)

Total Shareholders’ Equity

 

 

1,361,404

 

 

 

1,489,098

 

 

 

1,443,672

 

Total Liabilities and Shareholders’ Equity

 

$

3,138,045

 

 

$

2,160,515

 

 

$

2,158,535

 

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

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

962,329

 

 

$

992,454

 

 

$

1,826,742

 

 

$

1,848,142

 

Cost of sales

 

 

646,454

 

 

 

636,610

 

 

 

1,241,811

 

 

 

1,211,638

 

Gross profit

 

 

315,875

 

 

 

355,844

 

 

 

584,931

 

 

 

636,504

 

Selling, general and administrative expenses

 

 

237,814

 

 

 

238,992

 

 

 

466,850

 

 

 

465,756

 

Income from operations

 

 

78,061

 

 

 

116,852

 

 

 

118,081

 

 

 

170,748

 

Other income, net

 

 

3,498

 

 

 

1,746

 

 

 

6,178

 

 

 

1,826

 

Income before income taxes

 

 

81,559

 

 

 

118,598

 

 

 

124,259

 

 

 

172,574

 

Income tax expense

 

 

21,239

 

 

 

25,789

 

 

 

31,354

 

 

 

38,505

 

Net income

 

$

60,320

 

 

$

92,809

 

 

$

92,905

 

 

$

134,069

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.85

 

 

$

0.91

 

 

$

1.23

 

Diluted

 

$

0.61

 

 

$

0.84

 

 

$

0.91

 

 

$

1.22

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

99,095,562

 

 

 

108,831,399

 

 

 

101,722,244

 

 

 

108,663,990

 

Diluted

 

 

99,602,465

 

 

 

110,433,840

 

 

 

102,427,040

 

 

 

110,091,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

60,320

 

 

$

92,809

 

 

$

92,905

 

 

$

134,069

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(6,771

)

 

 

(7,881

)

 

 

(10,571

)

 

 

(15,850

)

Change in unrealized gains (losses) on marketable securities, net of tax

 

 

201

 

 

 

(7

)

 

 

387

 

 

 

(100

)

Total other comprehensive loss

 

 

(6,570

)

 

 

(7,888

)

 

 

(10,184

)

 

 

(15,950

)

Comprehensive income

 

$

53,750

 

 

$

84,921

 

 

$

82,721

 

 

$

118,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

URBAN OUTFITTERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances as of April 30, 2019

 

 

103,599,364

 

 

$

10

 

 

$

 

 

$

1,478,678

 

 

$

(30,717

)

 

$

1,447,971

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

60,320

 

 

 

(6,570

)

 

 

53,750

 

Share-based compensation

 

 

 

 

 

 

 

 

5,908

 

 

 

 

 

 

 

 

 

5,908

 

Share-based awards

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

 

(5,639,352

)

 

 

 

 

 

(5,908

)

 

 

(140,317

)

 

 

 

 

 

(146,225

)

Balances as of July 31, 2019

 

 

97,965,012

 

 

$

10

 

 

$

 

 

$

1,398,681

 

 

$

(37,287

)

 

$

1,361,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances as of April 30, 2018

 

 

108,670,688

 

 

$

11

 

 

$

6,434

 

 

$

1,358,683

 

 

$

(18,713

)

 

$

1,346,415

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

92,809

 

 

 

(7,888

)

 

 

84,921

 

Share-based compensation

 

 

 

 

 

 

 

 

5,466

 

 

 

 

 

 

 

 

 

5,466

 

Share-based awards

 

 

300,328

 

 

 

 

 

 

7,747

 

 

 

 

 

 

 

 

 

7,747

 

Share repurchases

 

 

(19,708

)

 

 

 

 

 

(877

)

 

 

 

 

 

 

 

 

(877

)

Balances as of July 31, 2018

 

 

108,951,308

 

 

$

11

 

 

$

18,770

 

 

$

1,451,492

 

 

$

(26,601

)

 

$

1,443,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

URBAN OUTFITTERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances as of January 31, 2019

 

 

105,642,283

 

 

$

11

 

 

$

 

 

$

1,516,190

 

 

$

(27,103

)

 

$

1,489,098

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

92,905

 

 

 

(10,184

)

 

 

82,721

 

Share-based compensation

 

 

 

 

 

 

 

 

11,461

 

 

 

 

 

 

 

 

 

11,461

 

Share-based awards

 

 

568,989

 

 

 

 

 

 

974

 

 

 

 

 

 

 

 

 

974

 

Share repurchases

 

 

(8,246,260

)

 

 

(1

)

 

 

(12,435

)

 

 

(210,414

)

 

 

 

 

 

(222,850

)

Balances as of July 31, 2019

 

 

97,965,012

 

 

$

10

 

 

$

 

 

$

1,398,681

 

 

$

(37,287

)

 

$

1,361,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances as of January 31, 2018

 

 

108,248,568

 

 

$

11

 

 

$

684

 

 

$

1,310,859

 

 

$

(10,651

)

 

$

1,300,903

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

134,069

 

 

 

(15,950

)

 

 

118,119

 

Share-based compensation

 

 

 

 

 

 

 

 

10,990

 

 

 

 

 

 

 

 

 

10,990

 

Share-based awards

 

 

860,758

 

 

 

 

 

 

13,020

 

 

 

 

 

 

 

 

 

13,020

 

Cumulative effect of change in

     accounting pronouncements

 

 

 

 

 

 

 

 

 

 

 

6,564

 

 

 

 

 

 

6,564

 

Share repurchases

 

 

(158,018

)

 

 

 

 

 

(5,924

)

 

 

 

 

 

 

 

 

(5,924

)

Balances as of July 31, 2018

 

 

108,951,308

 

 

$

11

 

 

$

18,770

 

 

$

1,451,492

 

 

$

(26,601

)

 

$

1,443,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

URBAN OUTFITTERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

  

 

 

For the Six Months Ended

 

 

 

July 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

92,905

 

 

$

134,069

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

55,395

 

 

 

60,158

 

Right-of-use asset amortization

 

 

94,173

 

 

 

 

Provision (benefit) for deferred income taxes

 

 

1,107

 

 

 

(9,506

)

Share-based compensation expense

 

 

11,461

 

 

 

10,990

 

Loss on disposition of property and equipment, net

 

 

593

 

 

 

2,452

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(15,032

)

 

 

(14,196

)

Inventory

 

 

(71,899

)

 

 

(26,807

)

Prepaid expenses and other assets

 

 

(23,121

)

 

 

(10,086

)

Payables, accrued expenses and other liabilities

 

 

16,009

 

 

 

71,728

 

Operating lease liabilities

 

 

(100,338

)

 

 

 

Net cash provided by operating activities

 

 

61,253

 

 

 

218,802

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(116,465

)

 

 

(55,642

)

Cash paid for marketable securities

 

 

(235,094

)

 

 

(168,823

)

Sales and maturities of marketable securities

 

 

320,411

 

 

 

130,029

 

Net cash used in investing activities

 

 

(31,148

)

 

 

(94,436

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

974

 

 

 

13,020

 

Share repurchases related to share repurchase program

 

 

(217,421

)

 

 

 

Share repurchases related to taxes for share-based awards

 

 

(5,429

)

 

 

(5,924

)

Net cash (used in) provided by financing activities

 

 

(221,876

)

 

 

7,096

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(4,471

)

 

 

(7,955

)

(Decrease) increase in cash and cash equivalents

 

 

(196,242

)

 

 

123,507

 

Cash and cash equivalents at beginning of period

 

 

358,260

 

 

 

282,220

 

Cash and cash equivalents at end of period

 

$

162,018

 

 

$

405,727

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Income taxes

 

$

37,839

 

 

$

39,698

 

Non-cash investing activities—Accrued capital expenditures

 

$

22,325

 

 

$

15,002

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

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 “Company’s”) Annual Report on Form 10-K for the fiscal year ended January 31, 2019, filed with the United States Securities and Exchange Commission on April 1, 2019.

The Company’s 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 and six months ended July 31, 2019 are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year ends on January 31. All references in these notes to the Company’s fiscal years refer to the fiscal years ended on January 31 in those years. For example, the Company’s fiscal year 2020 will end on January 31, 2020.

2. Recent Accounting Pronouncements

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“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 both operating and finance leases. The Company adopted the new guidance on February 1, 2019 using a modified retrospective approach at the beginning of the period of adoption. The Company elected the “package of three” practical expedients and did not reassess expired or existing leases as of the effective date. The Company also elected the practical expedient to not separate non-lease components from lease components as it pertains to real estate leases. Adoption on February 1, 2019 resulted in the recognition of approximately $1.3 billion of lease liabilities based on the present value of the remaining minimum rental payments using discount rates as of the effective date. Corresponding right-of-use assets of approximately $1.1 billion were recognized, with the offsetting balance representing a reduction in the previously recognized deferred rent balance. Adoption did not result in a material impact on the Company’s Consolidated Statements of Income or Consolidated Statements of Cash Flows.

7


 

3. Revenue from Contracts with Customers

Contract receivables occur when the Company satisfies all of its performance obligations under a contract and recognizes revenue prior to billing or receiving consideration from a customer for which it has an unconditional right to payment. Contract receivables arise from credit card transactions and sales to Wholesale segment customers and franchisees. For the six month period ended July 31, 2019, the opening and closing balances of contract receivables, net of allowance for doubtful accounts, were $80,461 and $95,131, respectively. For the six month period ended July 31, 2018, the opening and closing balances of contract receivables, net of allowance for doubtful accounts, were $76,962 and $90,646, respectively. Contract receivables are included in “Accounts receivable, net of allowance for doubtful accounts” in the Condensed Consolidated Balance Sheets.

Contract liabilities represent unearned revenue and result from the Company receiving consideration in a contract with a customer for which it has not satisfied all of its performance obligations. The Company’s contract liabilities result from customer deposits, customer loyalty programs and the issuance of gift cards. Gift cards are expected to be redeemed within two years of issuance, with the majority of redemptions occurring in the first year. For the six month period ended July 31, 2019, the opening and closing balances of contract liabilities were $49,747 and $41,585, respectively. For the six month period ended July 31, 2018, the opening and closing balances of contract liabilities were $56,637 and $32,013, respectively. Contract liabilities are included in “Accrued expenses, accrued compensation and other current liabilities” in the Condensed Consolidated Balance Sheets. During the six month period ended July 31, 2019, the Company recognized $23,081 of revenue that was included in the contract liability balance at the beginning of the period.

 

 

8


 

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 July 31, 2019, January 31, 2019 and July 31, 2018 were as follows:

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

(Losses)

 

 

Value

 

As of July 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

125,943

 

 

$

190

 

 

$

(31

)

 

$

126,102

 

Municipal and pre-refunded municipal bonds

 

 

42,023

 

 

 

40

 

 

 

(9

)

 

 

42,054

 

Certificates of deposit

 

 

1,745

 

 

 

 

 

 

 

 

 

1,745

 

Federal government agencies

 

 

1,495

 

 

 

2

 

 

 

 

 

 

1,497

 

 

 

 

171,206

 

 

 

232

 

 

 

(40

)

 

 

171,398

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

49,385

 

 

 

174

 

 

 

(33

)

 

 

49,526

 

Municipal and pre-refunded municipal bonds

 

 

19,526

 

 

 

6

 

 

 

(50

)

 

 

19,482

 

Mutual funds, held in rabbi trust

 

 

7,826

 

 

 

56

 

 

 

(7

)

 

 

7,875

 

Certificates of deposit

 

 

1,847

 

 

 

 

 

 

 

 

 

1,847

 

Federal government agencies

 

 

126

 

 

 

1

 

 

 

 

 

 

127

 

 

 

 

78,710

 

 

 

237

 

 

 

(90

)

 

 

78,857

 

 

 

$

249,916

 

 

$

469

 

 

$

(130

)

 

$

250,255

 

As of January 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

227,287

 

 

$

24

 

 

$

(214

)

 

$

227,097

 

Municipal and pre-refunded municipal bonds

 

 

43,677

 

 

 

15

 

 

 

(18

)

 

 

43,674

 

Certificates of deposit

 

 

1,050

 

 

 

 

 

 

 

 

 

1,050

 

Federal government agencies

 

 

1,458

 

 

 

 

 

 

 

 

 

1,458

 

Commercial paper

 

 

2,979

 

 

 

 

 

 

 

 

 

2,979

 

Treasury bills

 

 

2,975

 

 

 

 

 

 

(1

)

 

 

2,974

 

 

 

 

279,426

 

 

 

39

 

 

 

(233

)

 

 

279,232

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

34,265

 

 

 

34

 

 

 

(63

)

 

 

34,236

 

Municipal and pre-refunded municipal bonds

 

 

7,554

 

 

 

7

 

 

 

(3

)

 

 

7,558

 

Mutual funds, held in rabbi trust

 

 

6,301

 

 

 

450

 

 

 

 

 

 

6,751

 

Certificates of deposit

 

 

2,143

 

 

 

 

 

 

 

 

 

2,143

 

Federal government agencies

 

 

6,603

 

 

 

2

 

 

 

(1

)

 

 

6,604

 

 

 

 

56,866

 

 

 

493

 

 

 

(67

)

 

 

57,292

 

 

 

$

336,292

 

 

$

532

 

 

$

(300

)

 

$

336,524

 

9


 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

(Losses)

 

 

Value

 

As of July 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

150,648

 

 

$

 

 

$

(261

)

 

$

150,387

 

Municipal and pre-refunded municipal bonds

 

 

46,904

 

 

 

10

 

 

 

(43

)

 

 

46,871

 

Certificates of deposit

 

 

908

 

 

 

 

 

 

 

 

 

908

 

 

 

 

198,460

 

 

 

10

 

 

 

(304

)

 

 

198,166

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

34,333

 

 

 

 

 

 

(213

)

 

 

34,120

 

Municipal and pre-refunded municipal bonds

 

 

2,130

 

 

 

1

 

 

 

(7

)

 

 

2,124

 

Mutual funds, held in rabbi trust

 

 

6,401

 

 

 

171

 

 

 

(1

)

 

 

6,571

 

Certificates of deposit

 

 

2,699

 

 

 

 

 

 

 

 

 

2,699

 

 

 

 

45,563

 

 

 

172

 

 

 

(221

)

 

 

45,514

 

 

 

$

244,023

 

 

$

182

 

 

$

(525

)

 

$

243,680

 

 

Proceeds from the sales and maturities of available-for-sale securities were $320,411 and $130,029 for the six months ended July 31, 2019 and 2018, respectively. The Company included in “Other income, net,” in the Condensed Consolidated Statements of Income, net realized gains of $19 and $26 for the three and six months ended July 31, 2019, respectively, and net realized losses of $0 and $13 for the three and six months ended July 31, 2018, respectively. Amortization of discounts and premiums, net, resulted in a reduction of “Other income, net” of $152 and $271 for the three and six months ended July 31, 2019, respectively, and $517 and $1,151 for the three and six months ended July 31, 2018, respectively. Mutual funds represent assets held in an irrevocable rabbi trust for the Company’s 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 Company’s 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, 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 Company’s own assumptions.

10


 

Management’s 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 Company’s 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

 

 

 

July 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

175,628

 

 

$

 

 

$

 

 

$

175,628

 

Municipal and pre-refunded municipal bonds

 

 

 

 

 

61,536

 

 

 

 

 

 

61,536

 

Mutual funds, held in rabbi trust

 

 

7,875

 

 

 

 

 

 

 

 

 

7,875

 

Certificates of deposit

 

 

 

 

 

3,592

 

 

 

 

 

 

3,592

 

Federal government agencies

 

 

1,624

 

 

 

 

 

 

 

 

 

1,624

 

 

 

$

185,127

 

 

$

65,128

 

 

$

 

 

$

250,255

 

 

 

 

Marketable Securities Fair Value as of

 

 

 

January 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

261,333

 

 

$

 

 

$

 

 

$

261,333

 

Municipal and pre-refunded municipal bonds

 

 

 

 

 

51,232

 

 

 

 

 

 

51,232

 

Mutual funds, held in rabbi trust

 

 

6,751

 

 

 

 

 

 

 

 

 

6,751

 

Certificates of deposit

 

 

 

 

 

3,193

 

 

 

 

 

 

3,193

 

Federal government agencies

 

 

8,062

 

 

 

 

 

 

 

 

 

8,062

 

Commercial paper

 

 

 

 

 

2,979

 

 

 

 

 

 

2,979

 

Treasury bills

 

 

2,974

 

 

 

 

 

 

 

 

 

2,974

 

 

 

$

279,120

 

 

$

57,404

 

 

$

 

 

$

336,524

 

 

 

 

Marketable Securities Fair Value as of

 

 

 

July 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

184,507

 

 

$

 

 

$

 

 

$

184,507

 

Municipal and pre-refunded municipal bonds

 

 

 

 

 

48,995

 

 

 

 

 

 

48,995

 

Mutual funds, held in rabbi trust

 

 

6,571

 

 

 

 

 

 

 

 

 

6,571

 

Certificates of deposit

 

 

 

 

 

3,607

 

 

 

 

 

 

3,607

 

 

 

$

191,078

 

 

$

52,602

 

 

$

 

 

$

243,680

 

 

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 July 31, 2019, January 31, 2019 and July 31, 2018.

11


 

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 July 31, 2019, January 31, 2019 and July 31, 2018, 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.

Non-financial assets

The Company’s non-financial assets, primarily consisting of property and equipment, lease-related right-of-use assets and goodwill, are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable and, in the case of goodwill, an annual assessment is performed.

The fair value of property and equipment was determined using a discounted cash-flow model that utilized Level 3 inputs. The Company’s retail locations are reviewed for impairment at the retail location 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 retail location is located. Right-of-use assets are tested for impairment in the same manner as property and equipment. Goodwill has been assigned to reporting units for purposes of impairment testing. The Company evaluates goodwill to determine if the carrying value exceeds the fair value of the reporting unit. For the three and six months ended July 31, 2019 and 2018, impairment charges were zero.

6. Debt

On June 29, 2018, the Company and its domestic subsidiaries entered into an amended and restated credit agreement (the “Amended Credit Agreement”) that amended the Company’s asset-based revolving credit facility with certain lenders, including JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as joint lead arrangers and co-book managers.

The Amended Credit Agreement extended the maturity date of the senior secured revolving credit facility to June 2023 (the “Amended Credit Facility”). The Amended Credit Facility provides for loans and letters of credit up to $350,000, subject to a borrowing base that is comprised of the Company’s eligible accounts receivable and inventory. The Amended 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 Amended Credit Facility may be used for working capital and other general corporate purposes.

The Amended Credit Facility provides for interest on borrowings, at the Company’s option, at either (i) adjusted LIBOR, CDOR or EURIBOR plus an applicable margin ranging from 1.125% to 1.375%, or (ii) an adjusted ABR plus an applicable margin ranging from 0.125% to 0.375%, each such applicable margin depending on the level of availability under the Amended Credit Facility. Depending on the type of borrowing, interest on the Amended Credit Agreement is payable monthly, quarterly or at the end of the interest period. A commitment fee of 0.20% is payable quarterly on the unused portion of the Amended Credit Facility.

All obligations under the Amended Credit Facility are unconditionally guaranteed by the Company and certain of its U.S. subsidiaries. The obligations under the Amended Credit Facility are secured by a first-priority security interest in inventory, accounts receivable and certain other assets of the Company and certain of its U.S. subsidiaries. The obligations of URBN Canada Retail, Inc. are secured by a first-priority security interest in its inventory, accounts receivable and certain other assets. The Amended Credit Agreement contains customary representations and warranties, negative and affirmative covenants and provisions relating to events of default.

As of July 31, 2019, the Company was in compliance with all terms of the Amended Credit Agreement and borrowings under the Amended Credit Facility totaled $0. Outstanding stand-by letters of credit, which reduce the funds available under the Amended Credit Facility, were $13,704.

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

12


 

of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions. As of July 31, 2019, the Company had outstanding trade letters of credit of $83,875 and available trade letters of credit of $46,125 under these facilities.

7. Leases

The Company has operating leases for stores, distribution and fulfillment centers, corporate offices and equipment. The Company subleases certain properties to third parties. The Company has elected not to record a lease liability and right-of-use asset for leases with original terms of 12 months or less. The Company has elected the practical expedient to not separate non-lease components from lease components as it pertains to real estate leases.

Store leases have remaining lease terms that range from less than one year up to 15 years, some of which contain options to extend the lease for one or two 5-year periods. Payments related to a renewal period are included in the lease liability and right-of-use asset only when the Company is reasonably certain that it will exercise the option to renew the lease for an extended period of time. Certain leases may contain variable lease payments such as rent based on a percentage of net sales. Variable lease payments may be subject to a breakpoint threshold of fixed rent. Variable lease payments, other than those that depend on an index or a rate, are not included in the measurement of the lease liability. The lease liability is calculated at the present value of certain future payments, discounted using the Company’s incremental borrowing rate, which approximates the rate of interest the Company would pay to borrow an amount equal to the lease payments on a fully collateralized basis over a similar term. Significant judgment is used in determining the incremental borrowing rate.

Total operating lease costs were $67,827 and $134,075 during the three and six months ended July 31, 2019, respectively. Total variable lease costs were $16,770 and $34,709 during the three and six months ended July 31, 2019, respectively. Short-term lease costs and sublease income were not material during the three and six months ended July 31, 2019.

Other information related to leases was as follows:

 

 

Six Months Ended

 

 

 

July 31, 2019

 

Other information

 

 

 

 

Cash paid for amounts included in the measurement

   of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

144,380

 

Right-of-use assets obtained in exchange for new

   operating lease liabilities

 

$

34,274

 

Weighted-average remaining lease term - operating leases

 

7.5 years

 

Weighted-average discount rate - operating leases

 

 

6.5

%

 

 

 

 

 

The following is a schedule by year of the maturities of operating lease liabilities with original terms in excess of one year, as of July 31, 2019:

 

 

Operating

 

 

 

Leases

 

Fiscal Year

 

 

 

 

2020 (excluding the six months ended July 31, 2019)

 

$

147,926

 

2021

 

 

275,325

 

2022

 

 

241,618

 

2023

 

 

214,691

 

2024

 

 

181,685

 

Thereafter

 

 

673,472

 

Total undiscounted future minimum lease payments

 

 

1,734,717

 

Less imputed interest

 

 

(435,022

)

Total discounted future minimum lease payments

 

$

1,299,695

 

 

 

 

 

 

13


 

As of July 31, 2019, the Company had commitments of approximately $32,736 not included in the amounts above related to eight executed but not yet commenced store leases.

The following is a schedule by year of the future minimum lease payments for operating leases with original terms in excess of one year, as of January 31, 2019:

 

 

Operating

 

 

 

Leases

 

Fiscal Year

 

 

 

 

2020

 

$

294,527

 

2021

 

 

263,209

 

2022

 

 

228,596

 

2023

 

 

200,776

 

2024

 

 

167,130

 

Thereafter

 

 

558,655

 

Total minimum lease payments

 

$

1,712,893

 

 

 

 

 

 

The Company, through its wholly-owned subsidiary, Anthropologie, Inc., is party to a ground lease (the “Lease”) with Waterloo Devon, L.P. (the “Landlord”). Wade L. McDevitt was a minority owner of the Landlord and its general partner and is the brother-in-law of Scott Belair, one of the Company’s former directors. Pursuant to the Lease, the Company rented approximately six acres located in Devon, Pennsylvania to develop a lifestyle center, which includes an expanded format Anthropologie store, a Terrain store, several restaurant concepts under the Food and Beverage division and a boutique event space. The Lease, which commenced on June 14, 2017, has an initial term of 40 years with two options to extend, each for an additional ten-year term. The initial rental rate is $1,087 per year, and rent increases 10% every five years during the initial term. The aggregate amount of rental payments payable under the initial term of the Lease is approximately $62,135. Real estate taxes, insurance, construction costs and other third-party expenses will also be paid by the Company. If the Company exercises its option to extend the Lease, rental payments during such extension term will be 90% of the market rental rate. An independent committee of the Board of Directors retained a national commercial real estate services firm to provide an appraisal of the initial market rental value of a portion of the property, which confirmed that the proposed initial rental rate per acre was consistent with market rates. The Lease and appraisal were reviewed by a committee of disinterested members of the Company’s Board of Directors and the Lease was approved by such committee and by the Company’s Board of Directors.

8. 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 (“RSU’s”), performance stock units (“PSU’s”) or stock appreciation rights (“SAR’s”). A Black-Scholes model was used to estimate the fair value of stock options. The fair value of RSU’s is equal to the stock price on the date of the grant. The fair value of the PSU’s awarded during fiscal 2020 equaled the stock price on the date of the grant. The fair value of the PSU’s awarded during fiscal 2019 was determined using a Monte Carlo simulation. A different methodology was used to value fiscal 2020 grants due to the removal of market-based conditions in the grant provisions. Share-based compensation expense included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Income, for the three and six months ended July 31, 2019 and 2018 was as follows:

  

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Stock Options

 

$

453

 

 

$

429

 

 

$

1,038

 

 

$

646

 

Stock Appreciation Rights

 

 

 

 

 

 

 

 

 

 

 

4

 

Performance Stock Units

 

 

1,134

 

 

 

1,549

 

 

 

2,211

 

 

 

3,570

 

Restricted Stock Units

 

 

4,321

 

 

 

3,488

 

 

 

8,212

 

 

 

6,770

 

Total

 

$

5,908

 

 

$

5,466

 

 

$

11,461

 

 

$

10,990

 

 

14


 

Share-based awards granted and the weighted-average fair value of such awards for the six months ended July 31, 2019 was as follows:

 

 

 

Six Months Ended

 

 

 

July 31, 2019

 

 

 

 

 

 

 

Weighted-

 

 

 

Awards

 

 

Average Fair

 

 

 

Granted

 

 

Value

 

Stock Options

 

 

160,000

 

 

$

8.67

 

Stock Appreciation Rights

 

 

 

 

$

 

Performance Stock Units

 

 

140,000

 

 

$

30.19

 

Restricted Stock Units

 

 

855,000

 

 

$

30.02

 

Total

 

 

1,155,000

 

 

 

 

 

 

During the six months ended July 31, 2019, 40,000 stock options were exercised, 139,999 PSU’s vested and 388,990 RSU’s vested.

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 July 31, 2019 was as follows:

 

 

 

July 31, 2019

 

 

 

Unrecognized

 

 

Weighted-

 

 

 

Compensation

 

 

Average

 

 

 

Cost

 

 

Years

 

Stock Options

 

$

1,171

 

 

 

0.8

 

Stock Appreciation Rights

 

 

 

 

 

 

Performance Stock Units

 

 

6,794

 

 

 

2.1

 

Restricted Stock Units

 

 

33,436

 

 

 

2.3

 

Total

 

$

41,401

 

 

 

 

 

 

 

9. Shareholders’ Equity  

Share repurchase activity under the Company’s share repurchase programs was as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Number of common shares repurchased and subsequently retired

 

 

5,637,369

 

 

 

 

 

 

8,068,196

 

 

 

 

Total cost

 

$

146,180

 

 

$

 

 

$

217,422

 

 

$

 

Average cost per share, including commissions

 

$

25.93

 

 

$

 

 

$

26.95

 

 

$

 

 

On August 22, 2017, the Company’s Board of Directors authorized the repurchase of 20,000,000 common shares under a share repurchase program. On June 4, 2019, the Company’s Board of Directors authorized the repurchase of 20,000,000 common shares under a new share repurchase program. As of July 31, 2019, 26,333,957 common shares were remaining under the programs.

During the six months ended July 31, 2019, the Company acquired and subsequently retired 178,064 common shares at a total cost of $5,429 from employees to meet minimum statutory tax withholding requirements. During the six months ended July 31, 2018, the Company acquired and subsequently retired 158,018 common shares at a total cost of $5,924 from employees to meet minimum statutory tax withholding requirements.

15


 

10. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

The following tables present the changes in “Accumulated other comprehensive loss,” by component, net of tax, for the three and six months ended July 31, 2019 and 2018:

 

 

 

Three Months Ended July 31, 2019

 

 

Six Months Ended July 31, 2019

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

Foreign

 

 

and (Losses) on

 

 

 

 

 

 

Foreign

 

 

and (Losses) on

 

 

 

 

 

 

 

Currency

 

 

Available-for-

 

 

 

 

 

 

Currency

 

 

Available-for-

 

 

 

 

 

 

 

Translation

 

 

Sale Securities

 

 

Total

 

 

Translation

 

 

Sale Securities

 

 

Total

 

Balance at beginning of period

 

$

(30,725

)

 

$

8

 

 

$

(30,717

)

 

$

(26,925

)

 

$

(178

)

 

$

(27,103

)

Other comprehensive income (loss)

   before reclassifications

 

 

(6,771

)

 

 

182

 

 

 

(6,589

)

 

 

(10,571

)

 

 

361

 

 

 

(10,210

)

Amounts reclassified from

   accumulated other comprehensive

   income (loss)

 

 

 

 

 

19

 

 

 

19

 

 

 

 

 

 

26

 

 

 

26

 

Net current-period other

   comprehensive income (loss)

 

 

(6,771

)

 

 

201

 

 

 

(6,570

)

 

 

(10,571

)

 

 

387

 

 

 

(10,184

)

Balance at end of period

 

$

(37,496

)

 

$

209

 

 

$

(37,287

)

 

$

(37,496

)

 

$

209

 

 

$

(37,287

)

 

 

 

 

Three Months Ended July 31, 2018

 

 

Six Months Ended July 31, 2018

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

Foreign

 

 

and (Losses) on

 

 

 

 

 

 

Foreign

 

 

and (Losses) on

 

 

 

 

 

 

 

Currency

 

 

Available-for-

 

 

 

 

 

 

Currency

 

 

Available-for-

 

 

 

 

 

 

 

Translation

 

 

Sale Securities

 

 

Total

 

 

Translation

 

 

Sale Securities

 

 

Total

 

Balance at beginning of period

 

$

(18,309

)

 

$

(404

)

 

$

(18,713

)

 

$

(10,340

)

 

$

(311

)

 

$

(10,651

)

Other comprehensive income (loss)

   before reclassifications

 

 

(7,881

)

 

 

(7

)

 

 

(7,888

)

 

 

(15,850

)

 

 

(87

)

 

 

(15,937

)

Amounts reclassified from

   accumulated other comprehensive

   income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Net current-period other

   comprehensive income (loss)

 

 

(7,881

)

 

 

(7

)

 

 

(7,888

)

 

 

(15,850

)

 

 

(100

)

 

 

(15,950

)

Balance at end of period

 

$

(26,190

)

 

$

(411

)

 

$

(26,601

)

 

$

(26,190

)

 

$

(411

)

 

$

(26,601

)

 

All unrealized gains and losses on available-for-sale securities reclassified from accumulated other comprehensive loss were recorded in “Other income, net” in the Condensed Consolidated Statements of Income.

11. 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

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Basic weighted-average common shares

   outstanding

 

 

99,095,562

 

 

 

108,831,399

 

 

 

101,722,244

 

 

 

108,663,990

 

Effect of dilutive options, stock appreciation

   rights, performance stock units and restricted

   stock units

 

 

506,903

 

 

 

1,602,441

 

 

 

704,796

 

 

 

1,427,596

 

Diluted weighted-average shares outstanding

 

 

99,602,465

 

 

 

110,433,840

 

 

 

102,427,040

 

 

 

110,091,586

 

 

16


 

For the three months ended July 31, 2019 and 2018, awards to purchase 420,000 common shares ranging in price from $28.47 to $46.42 and 240,000 common shares ranging in price from $46.02 to $46.42, respectively, were excluded from the calculation of diluted net income per common share because the impact would be anti-dilutive. For the six months ended July 31, 2019 and 2018, awards to purchase 400,000 common shares ranging in price from $28.47 to $46.42 and 253,750 common shares ranging in price from $37.02 to $46.42, 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 July 31, 2019 and 2018 were 780,264 and 1,451,382 performance-based equity awards, respectively, because they did not meet the required performance criteria.

12. 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 Company’s financial position, results of operations or cash flows.

13. Segment Reporting

The Company offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands. The Company operates three reportable segments – “Retail,” “Wholesale” and “Subscription.”

The Company’s Retail segment consists of the “Anthropologie,” “Bhldn,” “Free People,” “Terrain” and “Urban Outfitters” brands and the Food and Beverage division. 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’s Retail segment omni-channel strategy enhances its customers’ brand experience by providing a seamless approach to the customer shopping experience. All available Company-owned Retail segment shopping channels are fully integrated, including stores, websites, mobile applications, catalogs and customer contact centers.

The Company’s Wholesale segment consists of the Free People, Anthropologie and Urban Outfitters brands. The Wholesale segment sells through department and specialty stores worldwide, digital businesses and the Retail segment. The Urban Outfitters wholesale division was established in the third quarter of fiscal 2019.

The Subscription segment, consisting of the “Nuuly” brand, is a monthly women’s apparel subscription rental service that launched on July 30, 2019. Expenses classified as “General corporate expenses” in the prior fiscal year have been reclassified to the Subscription segment as a result of the establishment of the Subscription segment in the first quarter of fiscal 2020. Property and equipment related to the Subscription segment have also been reclassified from the Retail segment.

The Company evaluates the performance of each segment based on the net sales and pre-tax income from operations (excluding intercompany charges) of the segment. The Company accounts for intersegment sales and transfers as if the sales and transfers were made to third parties making similar volume purchases. 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.

17


 

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 Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2019. Both the Retail and Wholesale segments are highly diversified. No one customer constitutes more than 10% of the Company’s total consolidated net sales. A summary of the information about the Company’s operations by segment is as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail operations

 

$

878,693

 

 

$

902,027

 

 

$

1,661,256

 

 

$

1,677,591

 

Wholesale operations

 

 

86,153

 

 

 

93,293

 

 

 

170,518

 

 

 

176,234

 

Intersegment elimination

 

 

(2,517

)

 

 

(2,866

)

 

 

(5,032

)

 

 

(5,683

)

Total net sales

 

$

962,329

 

 

$

992,454

 

 

$

1,826,742

 

 

$

1,848,142

 

Income from operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail operations

 

$

78,997

 

 

$

106,423

 

 

$

113,691

 

 

$

158,295

 

Wholesale operations

 

 

15,354

 

 

 

19,815

 

 

 

32,115

 

 

 

34,620

 

Subscription operations

 

 

(3,536

)

 

 

(550

)

 

 

(5,637

)

 

 

(550

)

Intersegment elimination

 

 

312

 

 

 

48

 

 

 

249

 

 

 

82

 

Total segment operating income

 

 

91,127

 

 

 

125,736

 

 

 

140,418

 

 

 

192,447

 

General corporate expenses

 

 

(13,066

)

 

 

(8,884

)

 

 

(22,337

)

 

 

(21,699

)

Total income from operations

 

$

78,061

 

 

$

116,852

 

 

$

118,081

 

 

$

170,748

 

 

 

 

July 31,

 

 

January 31,

 

 

July 31,

 

 

 

2019

 

 

2019

 

 

2018

 

Inventory

 

 

 

 

 

 

 

 

 

 

 

 

Retail operations

 

$

376,050

 

 

$

328,783

 

 

$

328,551

 

Wholesale operations

 

 

64,037

 

 

 

41,724

 

 

 

47,106

 

Total inventory

 

$

440,087

 

 

$

370,507

 

 

$

375,657

 

Property and equipment, net

 

 

 

 

 

 

 

 

 

 

 

 

Retail operations

 

$

841,013

 

 

$

791,648

 

 

$

804,625

 

Wholesale operations

 

 

2,637

 

 

 

2,389

 

 

 

2,459

 

Subscription operations

 

 

23,784

 

 

 

1,992

 

 

 

 

Total property and equipment, net

 

$

867,434

 

 

$

796,029

 

 

$

807,084

 

 

18


 

The following tables summarize net sales and percentage of net sales from contracts with customers by merchandise category:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apparel (1)

 

$

642,914

 

 

$

690,447

 

 

$

1,231,640

 

 

$

1,290,135

 

Home (2)

 

 

144,962

 

 

 

135,262

 

 

 

269,510

 

 

 

249,610

 

Accessories (3)

 

 

116,613

 

 

 

118,335

 

 

 

216,881

 

 

 

217,110

 

Other (4)

 

 

57,840

 

 

 

48,410

 

 

 

108,711

 

 

 

91,287

 

Total net sales

 

$

962,329

 

 

$

992,454

 

 

$

1,826,742

 

 

$

1,848,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apparel (1)

 

 

67

%

 

 

70

%

 

 

67

%

 

 

70

%

Home (2)

 

 

15

%

 

 

13

%

 

 

15

%

 

 

13

%

Accessories (3)

 

 

12

%

 

 

12

%

 

 

12

%

 

 

12

%

Other (4)

 

 

6

%

 

 

5

%

 

 

6

%

 

 

5

%

Total net sales

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Apparel includes intimates and activewear

 

 

 

 

 

 

 

 

 

(2)   Home includes home furnishings, electronics, gifts and decorative items

 

 

 

 

 

 

 

 

 

(3)   Accessories includes footwear, jewelry and handbags

 

 

 

 

 

 

 

 

 

(4)   Other includes beauty, shipping and handling revenues and the Food and Beverage division

 

 

Apparel, Home, and Accessories are sold through both the Retail and Wholesale segments. Revenue recognized from the Other category is primarily attributable to the Retail segment.

The Company has foreign operations primarily in Europe and Canada. Revenues and long-lived assets, based upon the Company’s domestic and foreign operations, are as follows:

 

 

 

July 31,

 

 

January 31,

 

 

July 31,

 

 

 

2019

 

 

2019

 

 

2018

 

Property and equipment, net

 

 

 

 

 

 

 

 

 

 

 

 

Domestic operations

 

$

774,378

 

 

$

723,400

 

 

$

730,024

 

Foreign operations

 

 

93,056

 

 

 

72,629

 

 

 

77,060

 

Total property and equipment, net

 

$

867,434

 

 

$

796,029

 

 

$

807,084

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic operations

 

$

840,316

 

 

$

865,517

 

 

$

1,603,405

 

 

$

1,612,668

 

Foreign operations

 

 

122,013

 

 

 

126,937

 

 

 

223,337

 

 

 

235,474

 

Total net sales

 

$

962,329

 

 

$

992,454

 

 

$

1,826,742

 

 

$

1,848,142

 

 

19


 

Item 2.

Management’s 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, the effects of the implementation of the United Kingdom's referendum to withdraw membership from the European Union (commonly referred to as “Brexit”), including currency fluctuations, economic conditions, and legal or regulatory changes, any effects of war, terrorism and civil unrest, natural disasters or severe or unseasonable weather conditions, increases in labor costs, increases in raw material 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 digital sales, our ability to maintain and expand our digital sales channels, 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, the impact of the U.S. Tax Cuts and Jobs Act, 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, 2019, filed on April 1, 2019. 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 under three reportable segments – Retail, Wholesale and Subscription. 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 and franchised or third-party operated stores and digital businesses. The Wholesale segment consists of our Free People, Anthropologie and Urban Outfitters brands that sell through department and specialty stores worldwide, digital businesses and our Retail segment. The Wholesale segment primarily designs, develops and markets apparel, intimates, activewear and home goods. Our Subscription segment consists of the Nuuly brand, which is a monthly women’s apparel subscription rental service that launched on July 30, 2019.

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 2020 will end on January 31, 2020.

Retail Segment

Our Retail segment omni-channel strategy enhances our customers’ brand experience by providing a seamless approach to the customer shopping experience. All available Company-owned Retail segment 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 Retail segment omni-channel and not the separate store or digital channels. We manage and analyze our performance based on a single Retail segment omni-channel rather than separate channels and believe that the Retail segment omni-channel results present the most meaningful and appropriate measure of our performance.

20


 

Our comparable Retail segment net sales data is equal to the sum of our comparable store and comparable digital 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 digital channel is considered to be comparable if it has been operational for at least 12 full months. Sales from stores and digital channels that do not fall within the definition of comparable store or channel are considered to be non-comparable. Franchise net sales and the effects of foreign currency translation are also considered non-comparable.

We monitor customer traffic, average unit selling price, transactions and average units per transaction at our stores, and we monitor customer sessions, average order value, conversion rates and average units per transaction 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 campaigns, circulation of our catalogs and an overall growth in brand recognition.

Urban Outfitters targets young adults aged 18 to 28 through a unique merchandise mix, compelling store environment, websites and mobile applications through a product offering that includes women’s and men’s fashion apparel, activewear, intimates, footwear, accessories, home goods, electronics and beauty. A large portion of our merchandise is exclusive to Urban Outfitters, consisting of an assortment of products designed internally and designed in collaboration with third-party brands. Urban Outfitters stores are in street locations in large metropolitan areas and select university communities, specialty centers and enclosed malls that accommodate our customers’ propensity not only to shop, but also to congregate with their peers. 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, offers a catalog in Europe offering select merchandise, most of which is also available in its stores, sells merchandise through franchisee-owned stores in Israel, and partners with third-party digital businesses to offer a limited selection of merchandise, which is available globally. Urban Outfitters’ North American and European Retail segment net sales accounted for approximately 29.0% and 7.7% of consolidated net sales, respectively, for the six months ended July 31, 2019, compared to 29.8% and 8.2%, respectively, for the comparable period in fiscal 2019.

The Anthropologie Group consists of the Anthropologie, Bhldn and Terrain brands. Merchandise at the Anthropologie brand is tailored to sophisticated and contemporary women aged 28 to 45. The product assortment includes women’s casual apparel, accessories, intimates, shoes, home furnishings, a diverse array of gifts and decorative items and beauty and wellness. 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. In addition to individual brand stores, we operate expanded format stores that include multiple Anthropologie Group brands, which allows us to present an expanded assortment of products in certain categories. Anthropologie Group stores are located in specialty centers, upscale street locations and enclosed malls. 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, offers catalogs in North America and Europe that market select merchandise, most of which is also available in Anthropologie brand stores, sells merchandise through franchisee-owned stores in Israel, and partners with third-party digital businesses to offer a limited selection of merchandise, which is available globally. The Anthropologie Group’s North American and European Retail segment net sales accounted for approximately 39.2% and 1.6% of consolidated net sales, respectively, for the six months ended July 31, 2019, compared to 38.6% and 1.7%, respectively, for the comparable period in fiscal 2019.

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 women’s apparel, intimates, FP Movement activewear, shoes, accessories, home products, gifts and beauty and wellness. Free People stores are located in enclosed malls, upscale street locations and specialty centers. 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, sells

21


 

merchandise through franchisee-owned stores in Israel, and partners with third-party digital businesses to offer a limited selection of merchandise, which is available globally. We plan to open additional Free People stores in Europe that will allow us to expand the presence of the brand internationally. Free People’s North American Retail segment net sales accounted for approximately 12.6% of consolidated net sales for the six months ended July 31, 2019, compared to approximately 11.9% for the comparable period in fiscal 2019. Free People opened its first European retail stores in the fourth quarter of fiscal 2019. European Retail segment net sales accounted for less than 1.0% of consolidated net sales for the six months ended July 31, 2019.

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 six months ended July 31, 2019 and the comparable period in fiscal 2019.

Store data for the six months ended July 31, 2019 was as follows:

 

 

 

January 31,

 

 

Stores

 

 

Stores

 

 

July 31,

 

 

 

2019

 

 

Opened

 

 

Closed

 

 

2019

 

Urban Outfitters

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

178

 

 

 

 

 

 

 

 

 

178

 

Canada

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Europe

 

 

50

 

 

 

1

 

 

 

 

 

 

51

 

Urban Outfitters Global Total

 

 

245

 

 

 

1

 

 

 

 

 

 

246

 

Anthropologie Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

204

 

 

 

 

 

 

(1

)

 

 

203

 

Canada

 

 

12

 

 

 

 

 

 

(1

)

 

 

11

 

Europe

 

 

11

 

 

 

3

 

 

 

 

 

 

14

 

Anthropologie Group Global Total

 

 

227

 

 

 

3

 

 

 

(2

)

 

 

228

 

Free People

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

127

 

 

 

2

 

 

 

(1

)

 

 

128

 

Canada

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Europe

 

 

2

 

 

 

1

 

 

 

 

 

 

3

 

Free People Global Total

 

 

135

 

 

 

3

 

 

 

(1

)

 

 

137

 

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

13

 

 

 

 

 

 

(2

)

 

 

11

 

Food and Beverage Total

 

 

13

 

 

 

 

 

 

(2

)

 

 

11

 

Total Company-Owned Stores

 

 

620

 

 

 

7

 

 

 

(5

)

 

 

622

 

Franchisee-Owned Stores (1)

 

 

5

 

 

 

1

 

 

 

 

 

 

6

 

Total URBN

 

 

625

 

 

 

8

 

 

 

(5

)

 

 

628

 

 

(1)

Franchisee-owned stores are located in Israel.

 

 

22


 

Selling square footage by brand as of July 31, 2019 and 2018 was as follows:

 

 

 

July 31,

 

 

July 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

Selling square footage (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Urban Outfitters

 

 

2,203

 

 

 

2,208

 

 

 

-0.2

%

Anthropologie Group

 

 

1,782

 

 

 

1,750

 

 

 

1.8

%

Free People

 

 

306

 

 

 

298

 

 

 

2.7

%

Total URBN (1)

 

 

4,291

 

 

 

4,256

 

 

 

0.8

%

 

(1)

Food and Beverage restaurants and franchisee-owned stores are not included in selling square footage.

Within the United States and Canada, we are at or close to our desired maximum store count for the Urban Outfitters, Anthropologie and Free People brands. We plan for future store growth for all three brands to come from expansion internationally, which may include opening stores in new and existing markets or entering into additional franchise or joint venture agreements. We plan for future digital channel growth to come from expansion domestically and internationally, including enhancing our presence in third-party digital marketplaces, such as Tmall in China and through our franchise partners. The Company is currently party to a franchise agreement for franchise locations in Israel and in fiscal 2019 signed a second franchise agreement to open stores in other Middle Eastern countries in fiscal 2020.

Projected openings and closings for fiscal 2020 are as follows:

 

 

 

January 31,

 

 

Projected

 

 

Projected

 

 

January 31,

 

 

 

2019

 

 

Openings

 

 

Closings

 

 

2020

 

Urban Outfitters

 

 

245

 

 

 

8

 

 

 

(4

)

 

 

249

 

Anthropologie Group

 

 

227

 

 

 

8

 

 

 

(7

)

 

 

228

 

Free People

 

 

135

 

 

 

10

 

 

 

(1

)

 

 

144

 

Food and Beverage

 

 

13

 

 

 

 

 

 

(2

)

 

 

11

 

Total Company-Owned Stores

 

 

620

 

 

 

26

 

 

 

(14

)

 

 

632

 

Franchisee-Owned Stores

 

 

5

 

 

 

2

 

 

 

 

 

 

7

 

Total URBN

 

 

625

 

 

 

28

 

 

 

(14

)

 

 

639

 

Wholesale Segment

Our Wholesale segment consists of the Free People, Anthropologie and Urban Outfitters brands that sell through approximately 2,200 department and specialty stores worldwide, third-party digital businesses and our Retail segment. The Wholesale segment primarily designs, develops and markets young women’s contemporary casual apparel, intimates, FP Movement activewear and shoes under the Free People brand, home goods including gifts, tabletop and textiles under the Anthropologie brand and the BDG apparel collection under the Urban Outfitters brand. The Urban Outfitters wholesale division was established in the third quarter of fiscal 2019. Our Wholesale segment net sales accounted for approximately 9.1% of consolidated net sales for the six months ended July 31, 2019, compared to 9.2% for the comparable period in fiscal 2019.

Subscription Segment

Our Subscription segment consists of the Nuuly brand, which is a monthly women’s apparel subscription rental service that launched on July 30, 2019. For a monthly fee, Nuuly subscribers can select from a wide selection of the Company’s own brands, third-party labels and one-of-a-kind vintage pieces for rent via a custom-built, digital platform. Subscribers select their styles each month, wear them as often as they like, then swap into new styles the following month, infusing freshness and variety into their wardrobes. Subscribers are also able to purchase the product being rented.

23


 

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, 2019, which are included in our Annual Report on Form 10-K filed with the SEC on April 1, 2019. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s 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 standards related to leases on February 1, 2019, which changed certain accounting policies (see Note 2, “Recent 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 standards, there have been no significant changes to our critical accounting policies during the six months ended July 31, 2019.

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:

 

 

 

Three Month Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of sales

 

 

67.2

 

 

 

64.1

 

 

 

68.0

 

 

 

65.6

 

Gross profit

 

 

32.8

 

 

 

35.9

 

 

 

32.0

 

 

 

34.4

 

Selling, general and administrative expenses

 

 

24.7

 

 

 

24.1

 

 

 

25.5

 

 

 

25.2

 

Income from operations

 

 

8.1

 

 

 

11.8

 

 

 

6.5

 

 

 

9.2

 

Other income, net

 

 

0.4

 

 

 

0.1

 

 

 

0.3

 

 

 

0.1

 

Income before income taxes

 

 

8.5

 

 

 

11.9

 

 

 

6.8

 

 

 

9.3

 

Income tax expense

 

 

2.2

 

 

 

2.5

 

 

 

1.7

 

 

 

2.0

 

Net income

 

 

6.3

%

 

 

9.4

%

 

 

5.1

%

 

 

7.3

%

 

Three Months Ended July 31, 2019 Compared To Three Months Ended July 31, 2018

Net sales in the second quarter of fiscal 2020 were $962.3 million, compared to $992.5 million in the second quarter of fiscal 2019. The $30.2 million decrease was attributable to a $23.3 million, or 2.6%, decrease in Retail segment net sales and a $6.9 million, or 7.5%, decrease in our Wholesale segment net sales. Retail segment net sales for the second quarter of fiscal 2020 accounted for 91.3% of total net sales compared to 90.9% of total net sales in the second quarter of fiscal 2019.

The decrease in our Retail segment net sales during the second quarter of fiscal 2020 was due to a decrease of $25.7 million, or 3.0%, in Retail segment comparable net sales, partially offset by an increase of $2.4 million in non-comparable net sales, including the impact of foreign currency translation and new store net sales. Retail segment comparable net sales increased 5.6% at Free People and decreased 3.3% at the Anthropologie Group and 5.3% at

24


 

Urban Outfitters. The decrease in Retail segment comparable net sales was driven by negative comparable store net sales, partially offset by growth in the digital channel. Retail segment comparable net sales decreased in both North America and Europe. Negative comparable store net sales resulted from a decrease in transactions, average unit selling price and traffic, partially offset by an increase in units per transaction. The digital channel net sales increase was driven by an increase in sessions and conversion rate, while units per transaction and average order value decreased. The increase in net sales attributable to non-comparable sales was primarily due to the impact of opening 21 new Company-owned stores and restaurants and closing 15 Company-owned stores and restaurants since the prior comparable period, partially offset by the impact of foreign currency translation.

The decrease in Wholesale segment net sales in the second quarter of fiscal 2020, as compared to the second quarter of fiscal 2019, was primarily due to a 9.8% decrease for the Free People brand, as a result of lower sales to North American department stores. This decrease was partially offset by an increase of $1.0 million in Anthropologie Home sales and $0.9 million of Urban Outfitters BDG sales. The Urban Outfitters wholesale division was launched in the third quarter of fiscal 2019.

Gross profit percentage for the second quarter of fiscal 2020 decreased to 32.8% of net sales, from 35.9% of net sales in the comparable quarter in fiscal 2019. Gross profit decreased to $315.9 million in the second quarter of fiscal 2020 from $355.8 million in the second quarter of fiscal 2019. The decrease in gross profit percentage was driven by higher markdowns, deleverage in delivery and logistics expenses and store occupancy deleverage. The higher markdowns were largely driven by underperforming women’s apparel at the Anthropologie and Urban Outfitters brands. The deleverage in delivery and logistics expenses was primarily due to the increase in penetration of the digital channel. The deleverage in store occupancy was due to negative store net sales. The Company expects that its gross profit percentage will decline in the third quarter of fiscal 2020 compared to fiscal 2019 as a result of higher markdowns and deleverage in delivery and logistics expenses, as well as from the launch of Nuuly and the transition to managing furniture and nonsortable distribution from a third-party logistics provider to an internal operation.

Total inventory at July 31, 2019 as compared to July 31, 2018, increased by $64.4 million, or 17.2%, to $440.1 million. Comparable Retail segment inventory increased 4.9% at cost, with the remainder of the increase in Retail segment inventory primarily related to an increase in inventory in transit. Wholesale segment inventory increased 35.9%.

Selling, general and administrative expenses decreased by 0.5%, to $237.8 million, in the second quarter of fiscal 2020, compared to $239.0 million in the second quarter of fiscal 2019. Selling, general and administrative expenses as a percentage of net sales increased in the second quarter of fiscal 2020 to 24.7% of net sales, compared to 24.1% of net sales for the second quarter of fiscal 2019. The percentage increase was primarily driven by increased marketing expenses to support our digital sales growth as well as the launch of Nuuly.

Income from operations decreased to 8.1% of net sales, or $78.1 million, for the second quarter of fiscal 2020 compared to 11.8% of net sales, or $116.9 million, for the second quarter of fiscal 2019.

Our effective tax rate for the second quarter of fiscal 2020 was 26.0% of income before income taxes compared to 21.7% of income before income taxes in the second quarter of fiscal 2019. The increase in the effective tax rate was primarily due to the ratio of foreign taxable profits to global taxable profits and the prior year favorable impact of equity activity.

Six Months Ended July 31, 2019 Compared To Six Months Ended July 31, 2018

Net sales for the six months ended July 31, 2019 were $1.83 billion, compared to $1.85 billion in the comparable period of fiscal 2019. The $21.4 million decrease was attributable to a $16.3 million, or 1.0%, decrease in Retail segment net sales and a $5.1 million, or 3.0%, decrease in Wholesale segment net sales. Retail segment net sales for the six months ended July 31, 2019 accounted for 90.9% of total net sales compared to 90.8% of total net sales in the six months ended July 31, 2018.

25


 

The decrease in our Retail segment net sales during the first six months of fiscal 2020 was due to a decrease of $19.8 million, or 1.2%, in Retail segment comparable net sales, partially offset by an increase of $3.5 million in non-comparable net sales, including the impact of foreign currency translation and new store net sales. Retail segment comparable net sales increased 3.9% at Free People and decreased 1.2% at the Anthropologie Group and 2.9% at Urban Outfitters. The decrease in Retail segment comparable net sales was driven by negative comparable store net sales, partially offset by growth in the digital channel. Retail segment comparable net sales decreased in both North America and Europe. Negative comparable store net sales resulted from a decrease in transactions, average unit selling price and traffic, partially offset by an increase in units per transaction. The digital channel net sales increase was driven by an increase in sessions and conversion rate, while units per transaction and average order value decreased. The increase in net sales attributable to non-comparable sales was primarily due to the impact of opening 25 new Company-owned stores and restaurants and closing 16 Company-owned stores and restaurants since the prior comparable period, partially offset by the impact of foreign currency translation.

The decrease in Wholesale segment net sales in the first six months of fiscal 2020, as compared to the first six months of fiscal 2019, was due to a 4.8% decrease for the Free People brand, as a result of lower sales to North American department stores. This decrease was partially offset by an increase of $1.0 million in Anthropologie Home sales and $2.1 million in Urban Outfitters BDG sales. The Urban Outfitters wholesale division was launched in the third quarter of fiscal 2019.

Gross profit percentage for the first six months of fiscal 2020 decreased to 32.0% of net sales, from 34.4% of net sales in the comparable period in fiscal 2019. Gross profit decreased to $584.9 million for the first six months of fiscal 2020 from $636.5 million in the comparable period in fiscal 2019. The decrease in gross profit percentage was driven by higher markdowns, deleverage in delivery and logistics expenses and store occupancy deleverage. The higher markdowns were largely driven by underperforming women’s apparel at the Anthropologie and Urban Outfitters brands. The deleverage in delivery and logistics expenses was primarily due to the increase in penetration of the digital channel. The deleverage in store occupancy was due to negative store net sales.

Selling, general and administrative expenses increased by $1.1 million, or 0.2%, in the first six months of fiscal 2020, compared to the first six months of fiscal 2019. Selling, general and administrative expenses as a percentage of net sales increased in the first six months of fiscal 2020 to 25.5% of net sales, compared to 25.2% of net sales for the first six months of fiscal 2019. The percentage increase was primarily driven by increased marketing expenses to support our digital sales growth as well as the launch of Nuuly.

Income from operations decreased to 6.5% of net sales, or $118.1 million, for the first six months of fiscal 2020 compared to 9.2% of net sales, or $170.7 million, for the first six months of fiscal 2019.

Our effective tax rate for the first six months of fiscal 2020 was 25.2% of income before income taxes compared to 22.3% of income before income taxes in the first six months of fiscal 2019. The increase in the effective tax rate was primarily due to the ratio of foreign taxable profits to global taxable profits and the prior year favorable impact of equity activity.

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities were $412.3 million as of July 31, 2019, as compared to $694.8 million as of January 31, 2019 and $649.4 million as of July 31, 2018. During the first six months of fiscal 2020, we generated $61.3 million in cash from operations, invested $116.5 million in property and equipment and repurchased $217.4 million common shares. Our working capital was $374.3 million at July 31, 2019 compared to $816.1 million at January 31, 2019 and $771.8 million at July 31, 2018. Working capital as of July 31, 2019 was negatively impacted by $209.1 million for the current portion of operating lease liabilities due to the February 1, 2019 adoption of an accounting standards update that amended the accounting standards for lease accounting (see Note 2, “Recent Accounting Pronouncements,” of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion). Working capital was also negatively impacted by the use of cash and cash equivalents and marketable securities used to repurchase our common shares in fiscal 2019 and the first six months of fiscal 2020 and fund our capital projects.

26


 

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 repurchase our common shares, open new stores, purchase inventory, fund store operations and expand our home offices and fulfillment centers.

Cash Flows from Operating Activities

Cash provided by operating activities during the first six months of fiscal 2020 decreased by $157.5 million to $61.3 million from $218.8 million in the first six months of fiscal 2019. For both periods, our major source of cash from operations was merchandise sales and our primary outflow of cash from operations was for the payment of operational costs. The period over period decrease in cash flows from operations was primarily due to compensation-related disbursements, higher inventory levels and lower net income.

Cash Flows from Investing Activities

Cash used in investing activities during the first six months of fiscal 2020 decreased by $63.3 million to $31.1 million from $94.4 million in the first six months of fiscal 2019. 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. Net liquidations of our marketable securities portfolio in the first six months of fiscal 2020 were used primarily to fund repurchases of our common shares and purchases of property and equipment. Cash paid for property and equipment in the first six months of fiscal 2020 and 2019 was $116.5 million and $55.6 million, respectively, which was primarily used to construct new fulfillment centers, including the Nuuly fulfillment center, in the first six months of fiscal 2020 and expand our store base in fiscal 2019.

Cash Flows from Financing Activities

Cash used in financing activities during the first six months of fiscal 2020 was a cash outflow of $221.9 million compared to a cash inflow of $7.1 million in the first six months of fiscal 2019. Cash used in financing activities in the first six months of fiscal 2020 primarily related to repurchases of our common shares under our share repurchase programs. Cash provided by financing activities in the first six months of fiscal 2019 related to proceeds from the exercise of stock options, partially offset by share repurchases related to taxes for share-based awards.

Credit Facilities

See Note 6, “Debt,” of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding the Company’s debt.

Capital and Operating Expenditures

During fiscal 2020, we plan to repurchase our common shares, construct new fulfillment centers, open approximately 26 new Company-owned retail locations, expand or relocate certain existing retail locations, invest in new products, markets and brands (including the launch of the apparel subscription rental service Nuuly), open our new European home office, purchase inventory for our new and existing operating segments at appropriate levels to maintain our planned sales growth, upgrade our systems, improve and expand our digital capabilities and invest in omni-channel marketing. We believe that our new brand initiatives, new store openings, merchandise expansion programs, international growth opportunities and our marketing, social media, website and mobile initiatives are significant contributors to our sales growth. During fiscal 2020, we plan to continue our investment in these initiatives for all brands. We anticipate our capital expenditures during fiscal 2020 to be approximately $250 million, a significant portion of which will be to support new fulfillment and distribution centers in Bristol, Pennsylvania, Indiana, Pennsylvania and Europe. All fiscal 2020 capital expenditures 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, including additional franchise and joint venture agreements. We believe that our existing cash and cash equivalents, availability under our current credit facilities and future cash flows provided by operations will be sufficient to fund these initiatives.

27


 

Share Repurchases

See Note 9, “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 Company’s share repurchases.

Off-Balance Sheet Arrangements

As of and for the six months ended July 31, 2019, 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, “Recent 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 adopted and issued accounting pronouncements.

Item  3.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative or qualitative disclosures found in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2019.

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of these disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective.

During the six months ended July 31, 2019, we implemented changes to our controls as part of the adoption of the accounting standards update that amended the existing accounting standards for lease accounting. These changes included new processes to evaluate and account for leases. There were no other changes in our internal controls over financial reporting during the six months ended July 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

28


 

PART II

OTHER INFORMATION

Item 1.

We are 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 our financial position, results of operations or cash flows.

Item  1A.

Risk Factors

There have been no material changes in our risk factors since January 31, 2019. Please refer to our Annual Report on Form 10-K for the fiscal year ended January 31, 2019, filed with the SEC on April 1, 2019, for our risk factors.

Item  2.

Unregistered Sales of Equity Securities and the Use of Proceeds

Issuer Purchase of Equity Securities

 

A summary of the repurchase activity under the Company’s share repurchase programs for the quarter ended July 31, 2019 is as follows:

 

Period

 

Total Number

of Shares Purchased (1)

 

 

Average Price

Paid per share

 

 

Total Number

of Shares Purchased

as Part of

Publicly

Announced

Plans

or Programs

 

 

Maximum

Number of

Shares that

May Yet

Be Purchased

Under the

Plans or

Programs (2)

 

May 1, 2019 through May 31, 2019

 

 

5,637,369

 

 

$

25.93

 

 

 

5,637,369

 

 

 

6,333,957

 

June 1, 2019 through June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

26,333,957

 

July 1, 2019 through July 31, 2019

 

 

 

 

 

 

 

 

 

 

 

26,333,957

 

Total Fiscal 2020 Second Quarter

 

 

5,637,369

 

 

 

 

 

 

 

5,637,369

 

 

 

26,333,957

 

 

(1) 

In addition to the shares repurchased under the share repurchase program, for the quarter ended July 31, 2019, the Company acquired and subsequently retired 1,983 common shares from employees to meet minimum statutory tax withholding requirements. These shares do not reduce the number of shares that may yet be purchased under our publicly announced share repurchase programs.  

(2) 

On August 22, 2017, the Company’s Board of Directors authorized the repurchase of 20,000,000 shares under a share repurchase program. On June 4, 2019, the Company’s Board of Directors authorized the repurchase of 20,000,000 shares under a new share repurchase program.

 

 

 

 

29


 

Item 6.

Exhibits

 

Exhibit

Number

 

Description

 

 

 

 

3.1

 

Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q (file no. 000-22754) filed on September 9, 2004.

 

 

 

3.2

 

Amendment No. 1 to Amended and Restated Articles of Incorporation is incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (file no. 000-22754) filed on September 9, 2004.

 

 

 

3.3

 

Amendment No. 2 to Amended and Restated Articles of Incorporation is incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (file no 000-22754) filed on May 31, 2013.

 

 

 

3.4

 

Amended and Restated By-laws are incorporated by reference to Exhibit 3.4 of the Company’s Quarterly Report on Form 10-Q filed on December 12, 2016.

 

 

 

31.1*

 

Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.

 

 

 

31.2*

 

Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.

 

 

 

32.1**

 

Section 1350 Certification of the Principal Executive Officer.

 

 

 

32.2**

 

Section 1350 Certification of the Principal Financial Officer.

 

 

 

101.INS*

 

Inline XBRL Instance Document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase.

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

  

*

Filed herewith

**

Furnished herewith

Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the three and six months ended July 31, 2019, filed with the Securities and Exchange Commission on September 9, 2019, formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Shareholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

 

30


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

URBAN OUTFITTERS, INC.

 

 

 

 

Date: September 9, 2019

By:

 

/s/ RICHARD A. HAYNE

 

 

 

Richard A. Hayne

 

 

 

Chief Executive Officer

 

 

 

URBAN OUTFITTERS, INC.

  

 

 

 

Date: September 9, 2019

By:

 

/s/ FRANCIS J. CONFORTI

 

 

 

Francis J. Conforti

 

 

 

Chief Financial Officer

 

 

31

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