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, 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 months ended April 30, 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.
Recently Issued
In June 2016, the FASB issued an accounting standards update that introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. This includes loan commitments, accounts receivable, trade receivables and certain off-balance sheet credit exposures. The guidance also modifies the impairment model for available-for-sale debt securities. The update will be effective for the Company on February 1, 2020 and early adoption is permitted. The Company has concluded that this update will not have a material impact on its consolidated financial statements and related disclosures.
6
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 three month period ended April 30, 2019, the opening and closing balance of contract receivables, net of allowance for doubtful accounts, was $80,461 and $88,390, respectively. For the three month period ended April 30, 2018, the opening and closing balance of contract receivables, net of allowance for doubtful accounts, was $76,962 and $88,936, 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 three month period ended April 30, 2019, the opening and closing balances of contract liabilities were $49,747 and $43,187, respectively. For the three month period ended April 30, 2018, the opening and closing balances of contract liabilities were $56,637 and $34,543, respectively. Contract liabilities are included in “Accrued expenses, accrued compensation and other current liabilities” in the Condensed Consolidated Balance Sheets. During the three month period ended April 30, 2019, the Company recognized $15,289 of revenue that was included in the contract liability balance at the beginning of the period.
7
4. Marketable Securities
During all periods shown, marketable securities are classified as available-for-sale. The amortized cost, gross unrealized gains (losses) and fair value of available-for-sale securities by major security type and class of security as of April 30, 2019, January 31, 2019 and April 30, 2018 were as follows:
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
As of April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
169,627
|
|
|
$
|
72
|
|
|
$
|
(70
|
)
|
|
$
|
169,629
|
|
Municipal and pre-refunded municipal bonds
|
|
|
52,131
|
|
|
|
23
|
|
|
|
(6
|
)
|
|
|
52,148
|
|
Federal government agencies
|
|
|
2,735
|
|
|
|
4
|
|
|
|
—
|
|
|
|
2,739
|
|
Certificates of deposit
|
|
|
1,650
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,650
|
|
Commercial paper
|
|
|
2,997
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,997
|
|
|
|
|
229,140
|
|
|
|
99
|
|
|
|
(76
|
)
|
|
|
229,163
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
71,105
|
|
|
|
95
|
|
|
|
(46
|
)
|
|
|
71,154
|
|
Municipal and pre-refunded municipal bonds
|
|
|
11,035
|
|
|
|
11
|
|
|
|
(8
|
)
|
|
|
11,038
|
|
Mutual funds, held in rabbi trust
|
|
|
7,733
|
|
|
|
208
|
|
|
|
|
|
|
|
7,941
|
|
Federal government agencies
|
|
|
2,351
|
|
|
|
7
|
|
|
|
—
|
|
|
|
2,358
|
|
Certificates of deposit
|
|
|
1,403
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,403
|
|
|
|
|
93,627
|
|
|
|
321
|
|
|
|
(54
|
)
|
|
|
93,894
|
|
|
|
$
|
322,767
|
|
|
$
|
420
|
|
|
$
|
(130
|
)
|
|
$
|
323,057
|
|
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
|
|
Federal government agencies
|
|
|
1,458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,458
|
|
Certificates of deposit
|
|
|
1,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,050
|
|
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
|
|
Federal government agencies
|
|
|
6,603
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
6,604
|
|
Certificates of deposit
|
|
|
2,143
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,143
|
|
|
|
|
56,866
|
|
|
|
493
|
|
|
|
(67
|
)
|
|
|
57,292
|
|
|
|
$
|
336,292
|
|
|
$
|
532
|
|
|
$
|
(300
|
)
|
|
$
|
336,524
|
|
8
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
As of April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
110,657
|
|
|
$
|
—
|
|
|
$
|
(294
|
)
|
|
$
|
110,363
|
|
Municipal and pre-refunded municipal bonds
|
|
|
54,659
|
|
|
|
—
|
|
|
|
(47
|
)
|
|
|
54,612
|
|
Certificates of deposit
|
|
|
1,392
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,392
|
|
|
|
|
166,708
|
|
|
|
—
|
|
|
|
(341
|
)
|
|
|
166,367
|
|
Long-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
18,137
|
|
|
|
—
|
|
|
|
(212
|
)
|
|
|
17,925
|
|
Municipal and pre-refunded municipal bonds
|
|
|
7,873
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
7,843
|
|
Mutual funds, held in rabbi trust
|
|
|
6,453
|
|
|
|
33
|
|
|
|
(3
|
)
|
|
|
6,483
|
|
Certificates of deposit
|
|
|
2,828
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,828
|
|
|
|
|
35,291
|
|
|
|
33
|
|
|
|
(245
|
)
|
|
|
35,079
|
|
|
|
$
|
201,999
|
|
|
$
|
33
|
|
|
$
|
(586
|
)
|
|
$
|
201,446
|
|
Proceeds from the sales and maturities of available-for-sale securities were $151,761 and $57,400 for the three months ended April 30, 2019 and 2018, respectively. The Company included in “Other income, net,” in the Condensed Consolidated Statements of Income, a net realized gain
of $7 for the three months ended April 30, 2019, and a net realized loss of $13 for the three months ended April 30, 2018. Amortization of discounts and premiums, net, resulted in a reduction of “Other income, net” of $119 and $634 for the three months ended April 30, 2019 and 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.
|
9
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
|
|
|
|
April 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
240,783
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
240,783
|
|
Municipal and pre-refunded municipal bonds
|
|
|
—
|
|
|
|
63,186
|
|
|
|
—
|
|
|
|
63,186
|
|
Mutual funds, held in rabbi trust
|
|
|
7,941
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,941
|
|
Federal government agencies
|
|
|
5,097
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,097
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
3,053
|
|
|
|
—
|
|
|
|
3,053
|
|
Commercial paper
|
|
|
—
|
|
|
|
2,997
|
|
|
|
—
|
|
|
|
2,997
|
|
|
|
$
|
253,821
|
|
|
$
|
69,236
|
|
|
$
|
—
|
|
|
$
|
323,057
|
|
|
|
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
|
|
Federal government agencies
|
|
|
8,062
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,062
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
3,193
|
|
|
|
—
|
|
|
|
3,193
|
|
Commercial paper
|
|
|
—
|
|
|
|
2,979
|
|
|
|
—
|
|
|
|
2,979
|
|
Treasury bills
|
|
|
2,974
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,974
|
|
|
|
$
|
279,120
|
|
|
$
|
57,404
|
|
|
$
|
—
|
|
|
$
|
336,524
|
|
|
|
Marketable Securities Fair Value as of
|
|
|
|
April 30, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
128,288
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,288
|
|
Municipal and pre-refunded municipal bonds
|
|
|
—
|
|
|
|
62,455
|
|
|
|
—
|
|
|
|
62,455
|
|
Mutual funds, held in rabbi trust
|
|
|
6,483
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,483
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
4,220
|
|
|
|
—
|
|
|
|
4,220
|
|
|
|
$
|
134,771
|
|
|
$
|
66,675
|
|
|
$
|
—
|
|
|
$
|
201,446
|
|
Financial assets
Level 1 assets consist of financial instruments whose value has been based on inputs that use, as their basis, readily observable market data that are actively quoted and are validated through external sources, including third-party pricing services and brokers.
Level 2 assets consist of financial instruments whose value has been based on quoted prices for similar assets and liabilities in active markets as well as quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 assets consist of financial instruments where there has been no active market. The Company held no Level 3 financial instruments as of April 30, 2019, January 31, 2019 and April 30, 2018.
10
The fair value of cash and cash equivalents (Level 1) approximates carrying value since cash and cash equivalents consist of short-term highly liquid investments with maturities of less than three months at the time of purchase. As of
April 30, 2019
,
Janua
ry 31, 2019
and
April 30, 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 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. 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 months ended April 30, 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 April 30, 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 $13,603.
Additionally, the Company has borrowing agreements with two separate financial institutions under which the Company may borrow an aggregate of $130,000 for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial
11
institutions. As of
April 30, 2019
, the Company had outstandin
g trade letters of credit of $
76,362
and available trade letters of credit of $
53,638
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 and variable lease costs were $66,248 and $17,939, respectively, during the three months ended April 30, 2019. Short-term lease costs and sublease income were not material during the three months ended April 30, 2019.
Other information related to leases was as follows:
|
|
Three Months Ended
|
|
|
|
April 30, 2019
|
|
Other information
|
|
|
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
70,615
|
|
Right-of-use assets obtained in exchange for new
operating lease liabilities
|
|
$
|
2,719
|
|
Weighted-average remaining lease term - operating leases
|
|
7.4 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 April 30, 2019:
|
|
Operating
|
|
|
|
Leases
|
|
Fiscal Year
|
|
|
|
|
2020 (excluding the three months ended April 30, 2019)
|
|
$
|
223,251
|
|
2021
|
|
|
272,836
|
|
2022
|
|
|
238,298
|
|
2023
|
|
|
210,378
|
|
2024
|
|
|
176,982
|
|
Thereafter
|
|
|
635,363
|
|
Total undiscounted future minimum lease payments
|
|
|
1,757,108
|
|
Less imputed interest
|
|
|
(450,485
|
)
|
Total discounted future minimum lease payments
|
|
$
|
1,306,623
|
|
|
|
|
|
|
As of April 30, 2019, the Company had commitments of approximately $56,890 not included in the amounts above related to nine executed but not yet commenced leases for stores and a fulfillment center.
12
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 6 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 the PSU’s awarded during fiscal 2020 equaled the fair value of 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 months ended April 30, 2019 and 2018 was as follows:
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Stock Options
|
|
$
|
585
|
|
|
$
|
217
|
|
Stock Appreciation Rights
|
|
|
—
|
|
|
|
4
|
|
Performance Stock Units
|
|
|
1,077
|
|
|
|
2,021
|
|
Restricted Stock Units
|
|
|
3,891
|
|
|
|
3,282
|
|
Total
|
|
$
|
5,553
|
|
|
$
|
5,524
|
|
13
Share-based awards granted and the weighted-average fair value of such awards for the three months ended
April 30, 2019
was as follows:
|
|
|
|
|
|
April 30, 2019
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Awards
|
|
|
Average Fair
|
|
|
|
Granted
|
|
|
Value
|
|
Stock Options
|
|
|
—
|
|
|
$
|
—
|
|
Stock Appreciation Rights
|
|
|
—
|
|
|
$
|
—
|
|
Performance Stock Units
|
|
|
140,000
|
|
|
$
|
30.19
|
|
Restricted Stock Units
|
|
|
832,000
|
|
|
$
|
30.19
|
|
Total
|
|
|
972,000
|
|
|
|
|
|
During the three months ended April 30, 2019, 40,000 stock options were exercised, 139,999 PSU’s vested and 383,990 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 April 30, 2019 was as follows:
|
|
April 30, 2019
|
|
|
|
Unrecognized
|
|
|
Weighted-
|
|
|
|
Compensation
|
|
|
Average
|
|
|
|
Cost
|
|
|
Years
|
|
Stock Options
|
|
$
|
236
|
|
|
|
0.1
|
|
Stock Appreciation Rights
|
|
|
—
|
|
|
|
—
|
|
Performance Stock Units
|
|
|
8,079
|
|
|
|
2.2
|
|
Restricted Stock Units
|
|
|
39,174
|
|
|
|
2.5
|
|
Total
|
|
$
|
47,489
|
|
|
|
|
|
9
.
Shareholders’ Equity
Share repurchase activity under the Company’s share repurchase programs was as follows:
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Number of common shares repurchased and subsequently retired
|
|
|
2,430,827
|
|
|
|
—
|
|
Total cost
|
|
$
|
71,242
|
|
|
$
|
—
|
|
Average cost per share, including commissions
|
|
$
|
29.31
|
|
|
$
|
—
|
|
On August 22, 2017, the Company’s Board of Directors authorized the repurchase of 20,000,000 common shares under a share repurchase program, of which 11,971,326 common shares were remaining as of April 30, 2019.
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.
Subsequent to April 30, 2019, the Company repurchased and subsequently retired a total of 5,637,369 common shares for approximately $146,180, at an average price of $25.93 per share, including commissions. All fiscal 2020 share repurchases were funded with available cash, cash equivalents and marketable securities.
During the three months ended April 30, 2019, the Company acquired and subsequently retired 176,081 common shares at a total cost of $5,383 from employees to meet minimum statutory tax withholding requirements.
14
During the three months ended
April 30, 2018
, the Company acquired and subsequently retired
138,310
common shares at a total cost of $
5,047
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 months ended April 30, 2019 and 2018:
|
|
Three Months Ended April 30, 2019
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
Foreign
|
|
|
and (Losses) on
|
|
|
|
|
|
|
|
Currency
|
|
|
Available-for-
|
|
|
|
|
|
|
|
Translation
|
|
|
Sale Securities
|
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
(26,925
|
)
|
|
$
|
(178
|
)
|
|
$
|
(27,103
|
)
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(3,800
|
)
|
|
|
179
|
|
|
|
(3,621
|
)
|
Amounts reclassified from
accumulated other comprehensive
income (loss)
|
|
|
—
|
|
|
|
7
|
|
|
|
7
|
|
Net current-period other
comprehensive income (loss)
|
|
|
(3,800
|
)
|
|
|
186
|
|
|
|
(3,614
|
)
|
Balance at end of period
|
|
$
|
(30,725
|
)
|
|
$
|
8
|
|
|
$
|
(30,717
|
)
|
|
|
Three Months Ended April 30, 2018
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
Foreign
|
|
|
and (Losses) on
|
|
|
|
|
|
|
|
Currency
|
|
|
Available-for-
|
|
|
|
|
|
|
|
Translation
|
|
|
Sale Securities
|
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
(10,340
|
)
|
|
$
|
(311
|
)
|
|
$
|
(10,651
|
)
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(7,969
|
)
|
|
|
(80
|
)
|
|
|
(8,049
|
)
|
Amounts reclassified from
accumulated other comprehensive
income (loss)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Net current-period other
comprehensive income (loss)
|
|
|
(7,969
|
)
|
|
|
(93
|
)
|
|
|
(8,062
|
)
|
Balance at end of period
|
|
$
|
(18,309
|
)
|
|
$
|
(404
|
)
|
|
$
|
(18,713
|
)
|
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
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic weighted-average common shares
outstanding
|
|
|
104,437,460
|
|
|
|
108,490,926
|
|
Effect of dilutive options, stock appreciation
rights, performance stock units and restricted
stock units
|
|
|
902,688
|
|
|
|
1,252,751
|
|
Diluted weighted-average shares outstanding
|
|
|
105,340,148
|
|
|
|
109,743,677
|
|
15
For the three months ended April 30, 2019 and 2018, awards to purchase 380,000 common shares ranging in price from $35.85 to $46.42 and 267,500 common shares ranging in price from $37.02 to $46.02, respectively, were excluded from the calculation of diluted net income per common share because the impact would be anti-dilutive.
Excluded from the calculation of diluted net income per common share as of April 30, 2019 and 2018 were 711,418 and 1,713,773 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 has 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 Anthropologie, Bhldn and Terrain brands make up the “Anthropologie Group.” As of April 30, 2019, there were 245 Urban Outfitters stores, 228 Anthropologie Group stores, 136 Free People stores, 12 restaurants under the Food and Beverage division, four Urban Outfitters franchisee-owned stores, one Anthropologie Group franchisee-owned store and one Free People franchisee-owned store. Each of Urban Outfitters, the Anthropologie Group and Free People, including their Company-owned and franchisee-owned stores and digital channels, and the restaurants operated under the Company’s Food and Beverage division, are considered an operating segment. Net sales from the Retail segment accounted for approximately 90.5% and 90.6% of total consolidated net sales for the three months ended April 30, 2019 and 2018, respectively. The remaining net sales are derived from the Company’s Wholesale segment which consists of the Free People, Anthropologie and Urban Outfitters brands that sell through approximately 2,200 department and specialty stores worldwide, digital businesses and the Company’s 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. The Subscription segment consists of the “Nuuly” brand and is a monthly women’s apparel subscription rental service that is planned to launch in the summer of 2019.
The Company has aggregated its brands into the Retail segment based upon their shared management, customer base and economic characteristics. Reporting in this format provides management with the financial information necessary to evaluate the success of the segments and the overall business. The Company evaluates the performance of the segments based on the net sales and pre-tax income from operations (excluding intercompany charges) of the segment. Corporate expenses include expenses incurred and directed by the corporate office that are not allocated to segments. The principal identifiable assets for each reporting segment are inventory and property and equipment.
Other assets are comprised primarily of general corporate assets, which principally consist of cash and cash equivalents, marketable securities, deferred taxes and prepaid expenses, and are typically not allocated to the Company’s segments. The Company accounts for intersegment sales and transfers as if the sales and transfers were made to third parties making similar volume purchases.
The Company’s omni-channel strategy enhances its customers’ brand experience by providing a seamless approach to the customer shopping experience. All available Company-owned shopping channels are fully integrated, including stores, websites, mobile applications, catalogs and customer contact centers. The Company’s investments in areas such as marketing campaigns and technology advancements are designed to generate demand
16
for the omni-channel and not the separate store or digital channels. Store sales are primarily fulfilled from that store’s inventory but may also be shipped from any of the Company’s fulfillment centers or from a different store locat
ion if an item is not available at the original store. Digital orders are primarily shipped to the Company’s customers through its fulfillment centers but may also be shipped from any store or a combination of fulfillment centers and stores depending on th
e availability of particular item
s
.
Digital orders may also be picked up at a store location, and customers may also return certain merchandise purchased through digital channels at store locations
. As the Company’s customers continue to shop across multip
le channels, the Company has adapted its approach towards meeting this demand. Due to the availability of like product in a variety of shopping channels, the Company sources these products utilizing single stock keeping units based on the omni-channel dema
nd rather than the demand of the separate channels. These and other technological capabilities allow the Company to better serve its customers and help it to complete a sale that otherwise may not have occurred due to out-of-stock positions. The Company ma
nages and analyzes its performance based on a single omni-channel rather than separate channels and believe that the omni-channel results present the most meaningful and appropriate measure of its performance
.
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
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net sales
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
782,563
|
|
|
$
|
775,564
|
|
Wholesale operations
|
|
|
84,365
|
|
|
|
82,941
|
|
Intersegment elimination
|
|
|
(2,515
|
)
|
|
|
(2,817
|
)
|
Total net sales
|
|
$
|
864,413
|
|
|
$
|
855,688
|
|
Income from operations
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
34,694
|
|
|
$
|
51,872
|
|
Wholesale operations
|
|
|
16,761
|
|
|
|
14,805
|
|
Subscription operations
|
|
|
(2,101
|
)
|
|
|
—
|
|
Intersegment elimination
|
|
|
(63
|
)
|
|
|
34
|
|
Total segment operating income
|
|
|
49,291
|
|
|
|
66,711
|
|
General corporate expenses
|
|
|
(9,271
|
)
|
|
|
(12,815
|
)
|
Total income from operations
|
|
$
|
40,020
|
|
|
$
|
53,896
|
|
|
|
April 30,
|
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
365,554
|
|
|
$
|
328,783
|
|
|
$
|
353,423
|
|
Wholesale operations
|
|
|
42,808
|
|
|
|
41,724
|
|
|
|
51,194
|
|
Total inventory
|
|
$
|
408,362
|
|
|
$
|
370,507
|
|
|
$
|
404,617
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operations
|
|
$
|
819,062
|
|
|
$
|
793,640
|
|
|
$
|
817,277
|
|
Wholesale operations
|
|
|
2,312
|
|
|
|
2,389
|
|
|
|
2,448
|
|
Subscription operations
|
|
|
7,698
|
|
|
|
—
|
|
|
|
—
|
|
Total property and equipment, net
|
|
$
|
829,072
|
|
|
$
|
796,029
|
|
|
$
|
819,725
|
|
17
The following tables summarize net sales and percentage of net sales from contracts with customers by merchandise category:
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net sales
|
|
|
|
|
|
|
|
|
Apparel
(1)
|
|
$
|
588,726
|
|
|
$
|
599,688
|
|
Home
(2)
|
|
|
124,548
|
|
|
|
114,348
|
|
Accessories
(3)
|
|
|
100,268
|
|
|
|
98,775
|
|
Other
(4)
|
|
|
50,871
|
|
|
|
42,877
|
|
Total net sales
|
|
$
|
864,413
|
|
|
$
|
855,688
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales
|
|
|
|
|
|
|
|
|
Apparel
(1)
|
|
|
68
|
%
|
|
|
70
|
%
|
Home
(2)
|
|
|
14
|
%
|
|
|
13
|
%
|
Accessories
(3)
|
|
|
12
|
%
|
|
|
12
|
%
|
Other
(4)
|
|
|
6
|
%
|
|
|
5
|
%
|
Total net sales
|
|
|
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:
|
|
April 30,
|
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
758,794
|
|
|
$
|
723,400
|
|
|
$
|
735,473
|
|
Foreign operations
|
|
|
70,278
|
|
|
|
72,629
|
|
|
|
84,252
|
|
Total property and equipment, net
|
|
$
|
829,072
|
|
|
$
|
796,029
|
|
|
$
|
819,725
|
|
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Domestic operations
|
|
$
|
763,089
|
|
|
$
|
747,151
|
|
Foreign operations
|
|
|
101,324
|
|
|
|
108,537
|
|
Total net sales
|
|
$
|
864,413
|
|
|
$
|
855,688
|
|
18