The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2021, filed with the United States Securities and Exchange Commission on April 1, 2021.
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, 2021 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 2022 will end on January 31, 2022.
Historically and for the six months ended July 31, 2021, the Company has calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate for the full year "ordinary" income or loss for the respective reporting period. For the six months ended July 31, 2020, however, the Company computed its provision for income taxes under the discrete method which allowed the Company to calculate its tax provision based upon the actual effective tax rate for the year-to-date. The discrete method was determined to be an appropriate method for estimating the tax provision for the six months ended July 31, 2020 as it provided a reliable estimate as opposed to changes in estimated "ordinary" income or loss which would have resulted in significant fluctuations when estimating the annual effective tax rate.
Recent Accounting Pronouncements
The Company has considered all new accounting standards updates issued by the Financial Accounting Standards Board (“FASB”) and has concluded that there are no recent accounting standard updates that will have a material impact on its consolidated financial statements and related disclosures.
2. Impact of the Coronavirus Pandemic
Impact on Fiscal 2021
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. On March 14, 2020, the Company announced that it temporarily closed all stores, offices and showrooms globally. The Company’s distribution and fulfillment centers remained open to support the digital business and the Wholesale segment operations but did so with additional safety procedures and enhanced cleaning measures in place to protect the health of employees. All other corporate and showroom employees worked remotely.
In response to the COVID-19 pandemic, the Company took many measures to protect its financial position and increase financial flexibility. For details of all such material measures taken during fiscal 2021, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on April 1, 2021. See Note 6, “Debt,” for discussion of the Company’s borrowings and subsequent repayments under its Amended Credit Facility during fiscal 2021.
7
As a result of the COVID-19 pandemic, during fiscal 2021, the Company recorded certain additional reserves, including inventory obsolescence reserves and an allowance for doubtful accounts for Wholesale segment customer accounts receivables, and non-cash charges, primarily store impairment charges. For further discussion of such reserves and non-cash charges for the first six months of fiscal 2021 and the full year impact on fiscal 2021, see the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2020, filed with the SEC on September 9, 2020, and the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021.
Beginning April 25, 2020, the Company reopened stores in select states and countries in accordance with local government guidelines. As of July 31, 2020, substantially all of the Company’s stores had reopened. Where opening was permitted, the Company followed newly established health protocols, provided personal protective equipment to its employees, and implemented social distancing working practices. Additionally, the Company implemented occupancy limits, reduced operating hours, and instituted new cleaning regimens. As a result, the Company incurred incremental costs for personal protective equipment and additional payroll and other costs associated with implementing these health protocols in its stores, distribution and fulfillment centers, and corporate offices. During the fourth quarter of fiscal 2021, certain store operations were again impacted by an additional round of temporary store closures and occupancy restrictions, primarily in Europe and Canada.
As a result of the COVID-19 pandemic, certain governments implemented programs (some of which expired in fiscal 2021) to encourage companies to retain and pay employees that were unable to work or were limited in the work they could perform in light of closures or a significant decline in sales. The Company qualified for certain of these programs during the second quarter and remainder of fiscal 2021 and recorded the benefit as an offset to selling, general and administrative expenses or to store occupancy expenses in cost of sales based on the nature of the related expenses offset by such programs.
Impact on Fiscal 2022
The COVID-19 pandemic continued to negatively impact the Company’s store operations during the first half of fiscal 2022 due to reduced store traffic as closures and occupancy restrictions continued primarily in Europe and Canada. During the second quarter of fiscal 2022, all remaining COVID-19 related store closures in Europe and Canada expired, although some capacity restrictions remain continued in certain European and Canadian stores.
The Company continued to qualify for certain government assistance programs that partially offset related expenses in locations impacted by closures during fiscal 2022, but as of July 31, 2021, the Company no longer qualified for such programs in the United States and Canada. The Company recorded the benefit of the government assistance programs as an offset to selling, general and administrative expenses or store occupancy expenses in cost of sales based on the nature of the related expenses offset by such programs.
Impact on Future Operations
The COVID-19 pandemic continues to impact the Company’s operations and related government and private sector responsive actions could continue to affect its business operations. Additionally, the Company is experiencing some COVID-19 supply chain disruptions from sourcing and inventory receipt delays, as well as an increase in inbound freight costs. The Company cannot reasonably estimate the duration and severity of the COVID-19 pandemic, which has had and may continue to have a material impact on its business. As a result, current financial information may not be necessarily indicative of future operating results and the Company’s plans to address the impact of the COVID-19 pandemic may change.
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 the Company’s Wholesale segment customers and franchisees. For the six month period ended July 31, 2021, the opening and closing balances of contract receivables, net of allowance for doubtful accounts, was $89,952 and $94,402, respectively. For the six month period ended July 31, 2020, the opening and closing balances of contract receivables, net of allowance for doubtful accounts, was $88,288 and $60,441, respectively. During the three month period ended July 31, 2020, the Company reduced the allowance for doubtful accounts by $2,200 due to the collection of certain outstanding
8
receivable balances for Wholesale segment customer accounts, resulting in a net increase in the allowance for doubtful accounts of $3,600 for the six months ended July 31, 2020. During the remainder of fiscal 2021 and the first quarter of fiscal 2022, the Company continued to reduce the allowance for doubtful accounts due to the collection of certain outstanding accounts receivables. 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, 2021, the opening and closing balances of contract liabilities were $61,986 and $63,375, respectively. For the six month period ended July 31, 2020, the opening and closing balances of contract liabilities were $52,926 and $47,709, 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, 2021, the Company recognized $21,325 of revenue that was included in the contract liability balance at the beginning of the period. During the six month period ended July 31, 2020, the Company recognized $18,781 of revenue that was included in the contract liability balance at the beginning of the period.
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, 2021, January 31, 2021 and July 31, 2020 were as follows:
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
As of July 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
122,173
|
|
|
$
|
14
|
|
|
$
|
(87
|
)
|
|
$
|
122,100
|
|
Corporate bonds
|
|
|
28,808
|
|
|
|
2
|
|
|
|
(24
|
)
|
|
|
28,786
|
|
Commercial paper
|
|
|
6,096
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,096
|
|
|
|
|
157,077
|
|
|
|
16
|
|
|
|
(111
|
)
|
|
|
156,982
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
|
40,069
|
|
|
|
34
|
|
|
|
(56
|
)
|
|
$
|
40,047
|
|
Corporate bonds
|
|
|
61,646
|
|
|
|
4
|
|
|
|
(159
|
)
|
|
|
61,491
|
|
Mutual funds, held in rabbi trust
|
|
|
11,610
|
|
|
|
143
|
|
|
|
(42
|
)
|
|
|
11,711
|
|
|
|
|
113,325
|
|
|
|
181
|
|
|
|
(257
|
)
|
|
|
113,249
|
|
|
|
$
|
270,402
|
|
|
$
|
197
|
|
|
$
|
(368
|
)
|
|
$
|
270,231
|
|
As of January 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
127,097
|
|
|
$
|
11
|
|
|
$
|
(53
|
)
|
|
$
|
127,055
|
|
Corporate bonds
|
|
|
38,695
|
|
|
|
1
|
|
|
|
(48
|
)
|
|
|
38,648
|
|
Commercial paper
|
|
|
8,992
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,992
|
|
|
|
|
174,784
|
|
|
|
12
|
|
|
|
(101
|
)
|
|
|
174,695
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
|
53,134
|
|
|
|
17
|
|
|
|
(46
|
)
|
|
|
53,105
|
|
Corporate bonds
|
|
|
59,890
|
|
|
|
3
|
|
|
|
(129
|
)
|
|
|
59,764
|
|
Mutual funds, held in rabbi trust
|
|
|
10,827
|
|
|
|
20
|
|
|
|
(54
|
)
|
|
|
10,793
|
|
|
|
|
123,851
|
|
|
|
40
|
|
|
|
(229
|
)
|
|
|
123,662
|
|
|
|
$
|
298,635
|
|
|
$
|
52
|
|
|
$
|
(330
|
)
|
|
$
|
298,357
|
|
9
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
As of July 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
210
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
210
|
|
Corporate bonds
|
|
|
291
|
|
|
|
—
|
|
|
|
—
|
|
|
|
291
|
|
|
|
|
501
|
|
|
|
—
|
|
|
|
—
|
|
|
|
501
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
|
53
|
|
|
|
1
|
|
|
|
—
|
|
|
|
54
|
|
Corporate bonds
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
Mutual funds, held in rabbi trust
|
|
|
8,767
|
|
|
|
365
|
|
|
|
—
|
|
|
|
9,132
|
|
|
|
|
8,850
|
|
|
|
366
|
|
|
|
—
|
|
|
|
9,216
|
|
|
|
$
|
9,351
|
|
|
$
|
366
|
|
|
$
|
—
|
|
|
$
|
9,717
|
|
Proceeds from the sales and maturities of available-for-sale securities were $148,582 and $383,056 for the six months ended July 31, 2021 and 2020, respectively. The Company initially liquidated its marketable securities portfolio in the six months ended July 31, 2020 primarily to preserve financial flexibility and maintain liquidity in response to the COVID-19 pandemic, but reinvested in a marketable securities portfolio by January 31, 2021. The Company included in “Other loss, net,” in the Condensed Consolidated Statements of Operations, a net realized gain of $4 for the three and six months ended July 31, 2021, and a net realized gain of $34 and a net realized loss of $420 for the three and six months ended July 31, 2020, respectfully. Amortization of discounts and premiums, net, resulted in a reduction of “Other loss, net” of $1,398 and $2,736 for the three and six months ended July 31, 2021, respectively, and $208 and $617 for the three and six months ended July 31, 2020, respectfully. 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 loss, net” in the Condensed Consolidated Statements of Operations.
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, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
—
|
|
|
$
|
162,147
|
|
|
$
|
—
|
|
|
$
|
162,147
|
|
Corporate bonds
|
|
|
—
|
|
|
|
90,277
|
|
|
|
—
|
|
|
|
90,277
|
|
Mutual funds, held in rabbi trust
|
|
|
11,711
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,711
|
|
Commercial paper
|
|
|
—
|
|
|
|
6,096
|
|
|
|
—
|
|
|
|
6,096
|
|
|
|
$
|
11,711
|
|
|
$
|
258,520
|
|
|
$
|
—
|
|
|
$
|
270,231
|
|
|
|
Marketable Securities Fair Value as of
|
|
|
|
January 31, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
—
|
|
|
$
|
180,160
|
|
|
$
|
—
|
|
|
$
|
180,160
|
|
Corporate bonds
|
|
|
—
|
|
|
|
98,412
|
|
|
|
—
|
|
|
|
98,412
|
|
Mutual funds, held in rabbi trust
|
|
|
10,793
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,793
|
|
Commercial paper
|
|
|
—
|
|
|
|
8,992
|
|
|
|
—
|
|
|
|
8,992
|
|
|
|
$
|
10,793
|
|
|
$
|
287,564
|
|
|
$
|
—
|
|
|
$
|
298,357
|
|
|
|
Marketable Securities Fair Value as of
|
|
|
|
July 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and pre-refunded municipal bonds
|
|
$
|
264
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
264
|
|
Corporate bonds
|
|
|
321
|
|
|
|
—
|
|
|
|
—
|
|
|
|
321
|
|
Mutual funds, held in rabbi trust
|
|
|
9,132
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,132
|
|
|
|
|
9,717
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,717
|
|
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, 2021, January 31, 2021 and July 31, 2020.
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, 2021, January 31, 2021 and July 31, 2020, cash and cash equivalents included cash on hand, cash in banks, money market accounts and marketable securities with maturities of less than three months at the time of purchase. The fair value of debt approximates its carrying value as it is all variable rate debt.
11
Non-financial assets
The Company’s non-financial assets, primarily consisting of property and equipment and lease-related right-of-use assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
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. During the three months ended July 31, 2020, impairment charges were zero, however, during the six months ended July 31, 2020, the Company determined that certain long-lived assets at the Company’s retail locations were unable to recover their carrying value primarily due to the impact of the mandated store closures and anticipated reduced store net sales during the remainder of fiscal 2021 as a result of the COVID-19 pandemic. These assets were written down to a fair value resulting in impairment charges of $14,528 across 39 retail locations, with a carrying value after impairment of $96,523 related to the right-of-use assets.
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, 2021, the Company had $0 in borrowings under the Amended Credit Facility. The Company borrowed $220,000 during the first quarter of fiscal 2021 in order to preserve financial flexibility and maintain liquidity and flexibility in response to the COVID-19 pandemic. The Company repaid $100,000 during the three months ended July 31, 2020 and repaid the remaining $120,000 during the three months ended October 31, 2020. As of May 31, 2020, the availability under the Amended Credit Agreement had been reduced to a level that triggered measurement of the Company’s Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio covenant was not met as of May 31, 2021. The Company obtained a waiver effective through September 15, 2020 to cure the technical default. As of July 31, 2021, the Company was in compliance with the terms of the Amended Credit Agreement. The Company expects to remain in compliance with all terms, including covenants, of the Amended Credit Agreement. Outstanding stand-by letters of credit, which reduce the funds available under the Amended Credit
12
Facility, were $13,501. Interest expense for the Amended Credit Facility for the six months ended July 31, 2021 and July 31, 2020, was $520 and $1,976, respectively, which was included in “Other loss, net,” in the Condensed Consolidated Statements of Income.
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.
Total operating lease costs were $67,794 and $136,502 during the three and six months ended July 31, 2021, respectively, and $69,183 and $137,193 during the three and six months ended July 31, 2020, respectively. Total variable lease costs were $28,179 and $48,681 during the three and six months ended July 31, 2021, respectively, and $23,154 and $51,594 during the three and six months ended July 31, 2020, respectively. Short-term lease costs and sublease income were not material during the three and six months ended July 31, 2021 and July 31, 2020.
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, 2021:
|
|
Operating
|
|
|
|
Leases
|
|
Fiscal Year
|
|
|
|
|
2022 (excluding the six months ended July 31, 2021)
|
|
$
|
174,494
|
|
2023
|
|
|
266,195
|
|
2024
|
|
|
227,951
|
|
2025
|
|
|
193,491
|
|
2026
|
|
|
152,539
|
|
Thereafter
|
|
|
408,528
|
|
Total undiscounted future minimum lease payments
|
|
|
1,423,198
|
|
Less imputed interest
|
|
|
(149,648
|
)
|
Total discounted future minimum lease payments
|
|
$
|
1,273,550
|
|
|
|
|
|
|
As of July 31, 2021, the Company had commitments of approximately $3,007 not included in the amounts above related to two executed but not yet commenced leases.
In response to the COVID-19 pandemic and mandated store closures, the Company withheld certain minimum lease payments due to landlords. The amounts withheld at July 31, 2021 and 2020 were included in “Current portion of operating lease liabilities” in the Condensed Consolidated Balance Sheets.
During the six months ended July 31, 2021, the Company received rent concessions for a number of stores and continue to negotiate for additional rent concessions at various other store locations. To the extent the rent concessions do not result in a substantial increase in total payments in the existing lease, the Company has accounted for such rent concessions as negative variable rent. To the extent the rent concessions do result in a substantial increase in total payments in the existing lease, the Company has accounted for such rent concessions as a lease modification. Rent concessions recorded by the Company in fiscal 2022 and 2021 as either negative variable rent or lease modifications have not had a material impact on the Company’s Condensed Consolidated Financial Statements.
13
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 PSU’s and RSU’s is equal to the stock price on the date of the grant. Share-based compensation expense included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations, for the three and six months ended July 31, 2021 and 2020, was as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock Options
|
|
$
|
—
|
|
|
$
|
129
|
|
|
$
|
—
|
|
|
$
|
471
|
|
Performance Stock Units
|
|
|
1,527
|
|
|
|
894
|
|
|
|
1,926
|
|
|
|
1,044
|
|
Restricted Stock Units
|
|
|
5,871
|
|
|
|
5,362
|
|
|
|
10,042
|
|
|
|
9,742
|
|
Total
|
|
$
|
7,398
|
|
|
$
|
6,385
|
|
|
$
|
11,968
|
|
|
$
|
11,257
|
|
Share-based awards granted and the weighted-average fair value of such awards for the six months ended July 31, 2021 was as follows:
|
|
Six Months Ended
|
|
|
|
July 31, 2021
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Awards
|
|
|
Average Fair
|
|
|
|
Granted
|
|
|
Value
|
|
Stock Options
|
|
|
—
|
|
|
$
|
—
|
|
Performance Stock Units
|
|
|
213,750
|
|
|
$
|
38.15
|
|
Restricted Stock Units
|
|
|
1,010,250
|
|
|
$
|
37.58
|
|
Total
|
|
|
1,224,000
|
|
|
|
|
|
During the six months ended July 31, 2021, 100,000 stock options were exercised, 70,001 PSU’s vested and 593,635 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, 2021 was as follows:
|
|
July 31, 2021
|
|
|
|
Unrecognized
|
|
|
Weighted-
|
|
|
|
Compensation
|
|
|
Average
|
|
|
|
Cost
|
|
|
Years
|
|
Stock Options
|
|
$
|
—
|
|
|
|
—
|
|
Performance Stock Units
|
|
|
8,812
|
|
|
|
2.5
|
|
Restricted Stock Units
|
|
|
45,839
|
|
|
|
2.3
|
|
Total
|
|
$
|
54,651
|
|
|
|
|
|
14
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Number of common shares repurchased and subsequently retired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
482,003
|
|
Total cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,036
|
|
Average cost per share, including commissions
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14.60
|
|
The shares repurchased during the six months ended July 31, 2020, were prior to the known spread of the COVID-19 pandemic in the United States, which forced the Company to close its stores for an extended period of time. The Company temporarily suspended all share repurchase activity under the programs during fiscal 2021.
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 an additional 20,000,000 common shares under a share repurchase program. As of July 31, 2021, 25,851,954 common shares were remaining under the programs.
During the six months ended July 31, 2021, the Company acquired and subsequently retired 222,531 common shares at a total cost of $7,562 from employees to meet minimum statutory tax withholding requirements. During the six months ended July 31, 2020, the Company acquired and subsequently retired 155,734 common shares at a total cost of $3,742 from employees to meet minimum statutory tax withholding requirements.
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, 2021 and 2020:
|
|
Three Months Ended July 31, 2021
|
|
|
Six Months Ended July 31, 2021
|
|
|
|
|
|
|
|
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
|
|
$
|
(11,528
|
)
|
|
$
|
(213
|
)
|
|
$
|
(11,741
|
)
|
|
$
|
(16,950
|
)
|
|
$
|
(170
|
)
|
|
$
|
(17,120
|
)
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(1,394
|
)
|
|
|
43
|
|
|
|
(1,351
|
)
|
|
|
4,028
|
|
|
|
—
|
|
|
|
4,028
|
|
Amounts reclassified from
accumulated other comprehensive
income (loss)
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
Net current-period other
comprehensive income (loss)
|
|
|
(1,394
|
)
|
|
|
47
|
|
|
|
(1,347
|
)
|
|
|
4,028
|
|
|
|
4
|
|
|
|
4,032
|
|
Balance at end of period
|
|
$
|
(12,922
|
)
|
|
$
|
(166
|
)
|
|
$
|
(13,088
|
)
|
|
$
|
(12,922
|
)
|
|
$
|
(166
|
)
|
|
$
|
(13,088
|
)
|
15
|
|
Three Months Ended July 31, 2020
|
|
|
Six Months Ended July 31, 2020
|
|
|
|
|
|
|
|
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
|
|
$
|
(40,945
|
)
|
|
$
|
20
|
|
|
$
|
(40,925
|
)
|
|
$
|
(28,328
|
)
|
|
$
|
324
|
|
|
$
|
(28,004
|
)
|
Other comprehensive income (loss)
before reclassifications
|
|
|
11,765
|
|
|
|
(77
|
)
|
|
|
11,688
|
|
|
|
(852
|
)
|
|
|
73
|
|
|
|
(779
|
)
|
Amounts reclassified from
accumulated other comprehensive
income (loss)
|
|
|
—
|
|
|
|
34
|
|
|
|
34
|
|
|
|
—
|
|
|
|
(420
|
)
|
|
|
(420
|
)
|
Net current-period other
comprehensive income (loss)
|
|
|
11,765
|
|
|
|
(43
|
)
|
|
|
11,722
|
|
|
|
(852
|
)
|
|
|
(347
|
)
|
|
|
(1,199
|
)
|
Balance at end of period
|
|
$
|
(29,180
|
)
|
|
$
|
(23
|
)
|
|
$
|
(29,203
|
)
|
|
$
|
(29,180
|
)
|
|
$
|
(23
|
)
|
|
$
|
(29,203
|
)
|
All unrealized gains and losses on available-for-sale securities reclassified from accumulated other comprehensive loss were recorded in “Other loss, net” in the Condensed Consolidated Statements of Operations.
11. Net Income (Loss) 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 (loss) per common share:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Basic weighted-average common shares
outstanding
|
|
|
98,315,441
|
|
|
|
97,778,749
|
|
|
|
98,213,555
|
|
|
|
97,843,796
|
|
Effect of dilutive options, stock appreciation
rights, performance stock units and restricted
stock units
|
|
|
1,285,851
|
|
|
|
326,169
|
|
|
|
1,249,913
|
|
|
|
—
|
|
Diluted weighted-average shares outstanding
|
|
|
99,601,292
|
|
|
|
98,104,918
|
|
|
|
99,463,468
|
|
|
|
97,843,796
|
|
For the three months ended July 31, 2021 and 2020, awards to purchase 160,000 common shares ranging in price from $38.09 to $46.42 and 560,000 common shares ranging in price from $18.81 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, 2021, awards to purchase 180,000 common shares ranging in price from $35.85 to $46.42 were excluded from the calculation of diluted net income per common share because the impact would be anti-dilutive. As a result of the net loss for the six months ended July 31, 2020, all share-based awards were excluded from the calculation of diluted loss per share and therefore there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
Excluded from the calculation of diluted net income per common share as of July 31, 2021 and July 31, 2020, were 30,001 and 706,794 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.
16
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, FP Movement, Terrain, Urban Outfitters and Menus & Venues brands. 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 retail locations, websites, mobile applications, catalogs and customer contact centers.
The Company’s Wholesale segment consists of the Free People, FP Movement and Urban Outfitters brands. The Wholesale segment sells through department and specialty stores worldwide, digital businesses and the Retail segment.
The Subscription segment consists of the “Nuuly” brand, which is a monthly women’s apparel subscription rental service that launched on July 30, 2019.
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 the Retail and Wholesale segments are inventory and property and equipment. The principal identifiable assets for the Subscription segment are rental product 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, 2021. All of the Company’s 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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
1,089,022
|
|
|
$
|
757,471
|
|
|
$
|
1,946,508
|
|
|
$
|
1,318,703
|
|
Wholesale operations
|
|
|
61,985
|
|
|
|
49,877
|
|
|
|
128,563
|
|
|
|
75,589
|
|
Subscription operations
|
|
|
9,939
|
|
|
|
4,672
|
|
|
|
17,759
|
|
|
|
10,942
|
|
Intersegment elimination
|
|
|
(3,221
|
)
|
|
|
(8,754
|
)
|
|
|
(7,690
|
)
|
|
|
(13,485
|
)
|
Total net sales
|
|
$
|
1,157,725
|
|
|
$
|
803,266
|
|
|
$
|
2,085,140
|
|
|
$
|
1,391,749
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
176,829
|
|
|
$
|
58,405
|
|
|
$
|
250,874
|
|
|
$
|
(77,096
|
)
|
Wholesale operations
|
|
|
9,099
|
|
|
|
14,161
|
|
|
|
23,279
|
|
|
|
(31,467
|
)
|
Subscription operations
|
|
|
(3,618
|
)
|
|
|
(4,611
|
)
|
|
|
(6,900
|
)
|
|
|
(10,575
|
)
|
Intersegment elimination
|
|
|
264
|
|
|
|
(84
|
)
|
|
|
345
|
|
|
|
(494
|
)
|
Total segment operating income (loss)
|
|
|
182,574
|
|
|
|
67,871
|
|
|
|
267,598
|
|
|
|
(119,632
|
)
|
General corporate expenses
|
|
|
(16,721
|
)
|
|
|
1,548
|
|
|
|
(28,242
|
)
|
|
|
(9,684
|
)
|
Total income (loss) from operations
|
|
$
|
165,853
|
|
|
$
|
69,419
|
|
|
$
|
239,356
|
|
|
$
|
(129,316
|
)
|
|
(1)
|
General corporate expenses during the three and six months ended July 31, 2020 benefitted from the recognition of COVID-19 related government relief packages in the three months ended July 31, 2020.
|
|
|
July 31,
|
|
|
January 31,
|
|
|
July 31,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
438,144
|
|
|
$
|
348,797
|
|
|
$
|
321,885
|
|
Wholesale operations
|
|
|
45,004
|
|
|
|
40,821
|
|
|
|
29,886
|
|
Total inventory
|
|
$
|
483,148
|
|
|
$
|
389,618
|
|
|
$
|
351,771
|
|
Rental product, net (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription operations
|
|
$
|
10,900
|
|
|
$
|
11,857
|
|
|
$
|
15,764
|
|
Total rental product, net
|
|
$
|
10,900
|
|
|
$
|
11,857
|
|
|
$
|
15,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Rental product, net is included in “Deferred income taxes and other assets” in the Condensed Consolidated Balance Sheets.
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
1,016,644
|
|
|
$
|
938,020
|
|
|
$
|
859,188
|
|
Wholesale operations
|
|
|
1,762
|
|
|
|
2,096
|
|
|
|
2,375
|
|
Subscription operations
|
|
|
29,345
|
|
|
|
27,306
|
|
|
|
27,563
|
|
Total property and equipment, net
|
|
$
|
1,047,751
|
|
|
$
|
967,422
|
|
|
$
|
889,126
|
|
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apparel (1)
|
|
$
|
777,912
|
|
|
$
|
507,930
|
|
|
$
|
1,385,714
|
|
|
$
|
878,277
|
|
Home (2)
|
|
|
188,298
|
|
|
|
156,621
|
|
|
|
361,684
|
|
|
|
266,420
|
|
Accessories (3)
|
|
|
135,620
|
|
|
|
89,751
|
|
|
|
237,274
|
|
|
|
159,944
|
|
Other (4)
|
|
|
55,895
|
|
|
|
48,964
|
|
|
|
100,468
|
|
|
|
87,108
|
|
Total net sales
|
|
$
|
1,157,725
|
|
|
$
|
803,266
|
|
|
$
|
2,085,140
|
|
|
$
|
1,391,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apparel (1)
|
|
|
67
|
%
|
|
|
63
|
%
|
|
|
67
|
%
|
|
|
63
|
%
|
Home (2)
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
17
|
%
|
|
|
19
|
%
|
Accessories (3)
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
Other (4)
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
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, the Menus & Venues brand and the Subscription segment
|
|
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,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
844,912
|
|
|
$
|
768,440
|
|
|
$
|
722,934
|
|
Foreign operations
|
|
|
202,839
|
|
|
|
198,982
|
|
|
|
166,192
|
|
Total property and equipment, net
|
|
$
|
1,047,751
|
|
|
$
|
967,422
|
|
|
$
|
889,126
|
|
19
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
998,580
|
|
|
$
|
709,697
|
|
|
$
|
1,825,375
|
|
|
$
|
1,233,253
|
|
Foreign operations
|
|
|
159,145
|
|
|
|
93,569
|
|
|
|
259,765
|
|
|
|
158,496
|
|
Total net sales
|
|
$
|
1,157,725
|
|
|
$
|
803,266
|
|
|
$
|
2,085,140
|
|
|
$
|
1,391,749
|
|
20