URBAN OUTFITTERS, INC. Certain matters contained in this filing with the
Unless the context otherwise requires, all references to the "Company," "we,"
"us" or "our" refer to
Overview
We operate under three reportable segments - Retail, Wholesale and Subscription.
Our Retail segment consists of our Anthropologie, Bhldn, Free People,
Our fiscal year ends on
Impact of the Coronavirus Pandemic
Impact on Fiscal 2021
On
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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 measures to protect its
financial position and increase financial flexibility. For details of all such
material measures taken during fiscal 2021, refer to our Annual Report on Form
10-K for the fiscal year ended
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
Beginning
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
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
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.
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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 retail locations, 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.
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 due to store specific closures from events such as damage from fire, flood and natural weather events. The Company did not remove stores that were closed or operating for an extended period of time at a reduced capacity due to the COVID-19 pandemic from the comparable stores net sales calculations. 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 Retail segment metrics including customer traffic, conversion rates, average units per transaction at our stores and on our websites and mobile applications and average unit selling price at our stores and average order value 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.
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Group's North American Retail segment net sales accounted for approximately
36.7% of consolidated net sales for the six months ended
The Menus & Venues brand focuses on a dining experience that provides excellence
in food, beverage and service. The Menus & Venues brand net sales accounted for
less than 1.0% of consolidated net sales for the six months ended
Net sales from the Retail segment accounted for approximately 93.4% of
consolidated net sales for the six months ended
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Store data for the six months ended
January 31, Stores Stores July 31,
2021 Opened Closed 2021
Urban Outfitters
United States 174 5 (1 ) 178
Canada 17 1 - 18
Europe 56 3 - 59
Urban Outfitters Global Total 247 9 (1 ) 255
Anthropologie Group
United States 204 2 (2 ) 204
Canada 11 - - 11
Europe 22 2 - 24
Anthropologie Group Global Total 237 4 (2 ) 239
Free People Group
United States (1) 138 14 (1 ) 151
Canada 6 - (1 ) 5
Europe 5 1 - 6
Free People Group Global Total 149 15 (2 ) 162
Menus & Venues
United States 11 - (1 ) 10
Menus & Venues Total 11 - (1 ) 10
Total Company-Owned Stores 644 28 (6 ) 666
Franchisee-Owned Stores (2) 1 2 - 3
Total URBN 645 30 (6 ) 669
(1) 7 FP Movement stores were opened during the six months ended July 31, 2021 .
9 FP Movement stores were open as of July 31, 2021 .
(2) Franchisee-owned stores are located in the United Arab Emirates .
Selling square footage by brand as of
July 31, July 31,
2021 2020 Change
Selling square footage (in thousands):
Urban Outfitters 2,238 2,212 1.2 %
Anthropologie Group 1,820 1,793 1.5 %
Free People Group (1) 352 321 9.7 %
Total URBN (2) 4,410 4,326 1.9 %
(1) Selling square footage for FP Movement was 12 as of July 31, 2021 . There
were no FP Movement stores open as of July 31, 2020 .
(2) Menus & Venues restaurants and franchisee-owned stores are not included in
selling square footage.
We plan for future store growth for all three brands to come from expansion domestically and 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.
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Projected openings and closings for fiscal 2022 are as follows:
January 31, Projected Projected January 31,
2021 Openings Closings 2022
Urban Outfitters 247 17 (4 ) 260
Anthropologie Group 237 9 (9 ) 237
Free People Group (1) 149 28 (3 ) 174
Menus & Venues 11 - (1 ) 10
Total Company-Owned Stores 644 54 (17 ) 681
Franchisee-Owned Stores 1 2 - 3
Total URBN 645 56 (17 ) 684
(1) Includes 16
Wholesale Segment
Our Wholesale segment consists of the Free People,
Subscription Segment
Our Subscription segment consists of the Nuuly brand, which is a monthly women's
apparel subscription rental service that launched on
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles in
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
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Results of Operations As a Percentage ofNet Sales
Because of the material impact COVID-19 had on our business operations in fiscal 2021, including mandated store closures, the following financial highlights have been provided as a comparison of fiscal 2022 results to fiscal 2020. Management views the comparison of fiscal 2022 results to fiscal 2020 as a meaningful measurement of the Company's business performance.
• Total net sales increased 20.3% over the second quarter of fiscal 2020
and increased 14.1% over the first half of fiscal 2020, setting records
for net sales in dollars for the respective periods. Both increases
were driven by an increase in comparable Retail segment net sales,
partially offset by a decline in Wholesale segment net sales.
• Gross profit rate improved to 37.6% for the second quarter of fiscal
2022 and 35.3% for the first half of fiscal 2022, compared to 32.8% for
the second quarter of fiscal 2020 and 32.0% for the first half of
fiscal 2020. The improvement in both periods was primarily driven by
record low merchandise markdowns for the respective periods and
improved leverage in store occupancy expense due to the increased
penetration of the digital channel in Retail segment net sales,
partially offset by an increase in delivery and logistics expenses.
• As of July 31, 2021 , total inventory increased by $43.1 million , or
9.8%, compared to total inventory as of July 31, 2019 .
• Selling, general and administrative expenses expressed as a percentage
of sales decreased to 23.3% for the second quarter of fiscal 2022 and
23.8% for the first half of fiscal 2022, compared to 24.7% for the
second quarter of fiscal 2020 and 25.5% for the first half of fiscal
2020. The leverage was primarily related to disciplined store payroll
management and overall expense control, partially offset by deleverage
in digital marketing and creative expenses during the quarter to drive
overall customer growth and strong digital sales.
• Income from operations expressed as a percentage of net sales improved
to 14.3% for the second quarter of fiscal 2022 and 11.5% for the first
half of fiscal 2022, compared to 8.1% for the second quarter of fiscal
2020 and 6.5% for the first half of fiscal 2020.
The tables below set forth, for the periods indicated, the results of operations and the percentage of our net sales represented by certain statement of operations data. The tables should be read in conjunction with the discussions that follow. As a result of the COVID-19 pandemic, all of our stores were closed for a portion of the first half of fiscal 2021 (see further details under Impact of the Coronavirus Pandemic above). In addition to lost revenues, we incurred expenses that were not commensurate with the current level of sales. As a result, comparisons of expense ratios and year-over-year trends were impacted in a meaningful way.
Three Months Ended July 31, 2021 (Fiscal 2022) Compared To
Three Months Ended July 31, 2020 (Fiscal 2021)
(amounts in millions) Three Months Ended
July 31,
2021 2020
Net sales $ 1,157.7 100.0 % $ 803.3 100.0 %
Cost of sales 722.4 62.4 565.3 70.4
Gross profit 435.3 37.6 238.0 29.6Selling, general and administrative expenses 269.4 23.3 168.6 21.0
Income from operations 165.9 14.3 69.4 8.6
Other loss, net (1.8 ) (0.1 ) (0.5 ) (0.0)
Income before income taxes 164.1 14.2 68.9 8.6
Income tax expense 36.8 3.2 34.5 4.3
Net income $ 127.3 11.0 % $ 34.4 4.3 %
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Net sales for the second quarter of fiscal 2022 were
The increase in our Retail segment net sales during the second quarter of fiscal
2022 was due to an increase of
The increase in Wholesale segment net sales in the second quarter of fiscal
2022, as compared to the second quarter of fiscal 2021, was primarily due to a
Gross profit percentage for the second quarter of fiscal 2022 increased to 37.6%
of net sales, from 29.6% of net sales in the second quarter of fiscal 2021.
Gross profit increased to
Selling, general and administrative expenses increased by
Income from operations was 14.3% of net sales, or
Our effective tax rate for the second quarter of fiscal 2022 was 22.4% compared to 50.1% in the second quarter of fiscal 2021. The higher effective tax rate in the second quarter of fiscal 2021 was due to the partial reversal of the tax benefit recorded in the first quarter of fiscal 2021 based on the improved company performance in the second quarter of fiscal 2021.
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Six Months Ended July 31, 2021 (Fiscal 2022) Compared To
Six Months Ended July 31, 2020 (Fiscal 2021)
(amounts in millions) Six Months Ended
July 31,
2021 2020
Net sales $ 2,085.1 100.0 % $ 1,391.7 100.0 %
Cost of sales (excluding store 1,349.2 64.7 1,127.3 81.0
impairment)
Store impairment - - 14.5 1.0
Gross profit 735.9 35.3 249.9 18.0
Selling, general and 496.5 23.8 379.2 27.3
administrative expenses
Income (loss) from operations 239.4 11.5 (129.3 ) (9.3 )
Other loss, net (2.0 ) (0.1 ) (0.4 ) -
Income (loss) before income 237.4 11.4 (129.7 ) (9.3 )
taxes
Income tax expense (benefit) 56.6 2.7 (25.7 ) (1.8 )
Net income (loss) $ 180.8 8.7 % $ (104.0 ) (7.5 ) %
Net sales for the six months ended
The increase in our Retail segment net sales during the first six months of
fiscal 2022 was due to an increase of
The increase in Wholesale segment net sales in the first six months of fiscal
2022, as compared to the first six months of fiscal 2021, was primarily due to a
Gross profit percentage for the first six months of fiscal 2022 increased to
35.3% of net sales, from 18.0% of net sales in the comparable period in fiscal
2021. Gross profit increased to
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to the impact the store closures had on the aging of the Company's inventory.
Finally, all three brands recorded record low first half merchandise markdown
rates during the six months ended
Selling, general and administrative expenses increased by
Income from operations was 11.5% of net sales, or
Our effective tax rate for the first six months of fiscal 2022 was an expense of 23.8% compared to a benefit of 19.8% in the first six months of fiscal 2021.
Liquidity and Capital Resources
The following tables set forth certain balance sheet and cash flow data for the
periods indicated. These tables should be read in the conjunction with the
discussion that follows:
(amounts in millions)
July 31, January 31, July 31,
2021 2021 2020
Cash, cash equivalents and marketable securities $ 735.0 $ 694.0 $ 672.6
Working capital 449.0 317.2 499.8
Six Months Ended
July 31,
2021 2020
Net cash provided by operating activities $ 195.2 $ 115.2 Net cash (used in) provided by investing activities (123.0 ) 218.0 Net cash (used in) provided by financing activities (4.7 ) 109.2
The increase in working capital as of
During the last two years, we have satisfied our cash requirements primarily
through our cash flow from operating activities. Additionally, during the first
quarter of fiscal 2021, and in response to the COVID-19 pandemic, we borrowed
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Cash Flows from Operating Activities
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. Store closures and lower store productivity, as a result of the COVID-19 pandemic, resulted in lower cash provided by operating activities during fiscal 2021, which was primarily driven by the net loss incurred in the first six months of fiscal 2021. Although the Company's stores were closed for a part of the first six months of fiscal 2021, the Company continued to incur various store operational costs for a large portion of its store teams.
Cash Flows from Investing Activities
Cash used in investing activities in the first six months of fiscal 2022
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 2021 were primarily to preserve financial flexibility and
maintain liquidity in response to the COVID-19 pandemic, but reinvested in a
marketable securities portfolio in the fourth quarter of fiscal 2021. Cash paid
for property and equipment in the first six months of fiscal 2022 and 2021 was
Cash Flows from Financing Activities
Cash used in financing activities in the first six months of fiscal 2022
primarily related to repurchases of our common shares from employees to meet
minimum statutory withholding requirements. Cash provided from financing
activities during the first six months of fiscal 2021 was primarily due to
borrowings of
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 2022, we plan to continue construction on a new omni-channel
fulfillment center in
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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.
Other Matters
See Note 1, "Basis of Presentation," 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 recent accounting pronouncements.
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