SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                               -------------------

                                    FORM 10-Q

[ X ][X]    QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934
       For the quarterly Period Ended
       JulyOctober 31, 1996

                                       OFOR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934
       For the transition period from ______________ to ______________

                         Commission File Number 0-16999
                             -----------------------

                             Urban Outfitters, Inc.
             (Exact name of registrant as specified in its charter)

          PENNSYLVANIA                                        23-2003332
  ----------------------------------------------------------------------                         -------------------
  (State or Other Jurisdiction of                          (I.R.S. Employer
   Incorporation of Organization)                         Identification No.)


  1809 Walnut Street, Philadelphia, PA                          19103
 ---------------------------------------                     -----------------------------
 (Address of principal executive office)                     (Zip Code)

                                 (215) 564-2313
               - ----------------------------------------------------------------------------------------------------------------------------------
               (Registrant's telephone number including area code)


                                       N/A
              - -----------------------------------------------------------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

                              ---------------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               Yes  ___X___X       No
                                  _______-----       -----

          Title of Each Class                      Number of Shares Outstanding
           of Common Stock                             at August 31,November 30, 1996
            ---------------------------------------------------------                        ----------------------------

Common shares, par value, $.0001 per share                 17,518,69817,528,698







                                      INDEX

                                                                           PAGE
                                                                           ----

                    PART I           Financial Information


ITEM 1       Financial Statements
- ------
             Consolidated Balance Sheets at JulyOctober 31, 1996                2
             (Unaudited) and January 31, 1996

             Consolidated Statements of Income for the three and            3
             sixnine months ended JulyOctober 31, 1996 and 1995 (Unaudited)

             Consolidated Statements of Cash Flows for the                  4
             sixnine months ended JulyOctober 31, 1996 and 1995 (Unaudited)

             Notes to Consolidated Financial Statements                     5

ITEM 2       Management's Discussion and Analysis of Financial            6 - 9
- ------       Condition and Results of Operations



                      PART II          Other Information


ITEM 6       Exhibits and Reports on Form 8-K                              10
- ------


SIGNATURES                                                                 11


                                        1





                             URBAN OUTFITTERS, INC.
                           Consolidated Balance Sheets
                 (In(in thousands, except share and per share data)

JULYOCTOBER 31, 1996 JANUARY 31, 1996 (UNAUDITED) (AUDITED) ------- ------- Assets Current assets: Current assets: Cash and cash equivalents ......................................... $13,755$13,512 $20,095 Marketable securities ............................................. 8,7999,968 9,499 Accounts receivable, net of allowance for doubtful accounts of $650$701 and $531 at JulyOctober 31, 1996 and January 31, 1996, respectively ............................. 3,9435,862 1,573 Inventory ......................................................... 16,29518,732 10,477 Prepaid expenses and other current assets ......................... 7,2965,636 4,915 ------- ------- Total current assets ................................................. 50,08853,710 46,559 Property and equipment, less accumulated depreciation and amortization 19,32722,851 16,690 Marketable securities ................................................ 12,43312,711 6,247 Other assets ......................................................... 1,9822,046 1,621 ------- ------- $83,830$91,318 $71,117 ======= ======= Liabilities and shareholders' equity Current liabilities: Accounts payable .................................................. $ 9,985$12,135 $ 6,898 Accrued expenses and other current liabilities .................... 4,0994,290 3,174 ------- ------- Total current liabilities ............................................ 14,08416,425 10,072 Accrued rent and other liabilities ................................... 1,8352,053 1,593 ------- ------- Total liabilities .................................................... 15,91918,478 11,665 ------- ------- Shareholders' equity: Preferred shares; $.0001 par, 10,000,000 authorized, none issued .. -- -- Common shares; $.0001 par, 50,000,000 shares authorized, 17,505,96617,528,698 and 17,080,372 issued at JulyOctober 31, 1996 and January 31, 1996, respectively ................................................... 1 1 Additional paid-in capital ........................................ 20,10020,398 17,417 Retained earnings ................................................. 47,81052,441 42,034 ------- ------- Total shareholders' equity ........................................... 67,91172,840 59,452 ------- ------- $83,830$91,318 $71,117 ======= =======
See accompanying notes 2 URBAN OUTFITTERS, INC. Consolidated Statements of Income (in thousands, except share and per share data) (UNAUDITED)(Unaudited)
Three Months Ended JulyOctober 31 SixNine Months Ended JulyOctober 31 1996 1995 1996 1995 ----------- ----------- ----------- --------------- ---- ---- ---- Net Salessales $ 35,89844,884 $ 29,88138,842 $ 69,532114,416 $ 57,80196,642 Cost of Sales 17,496 14,797 34,066 28,610 ----------- ----------- ----------- -----------sales 22,413 19,239 56,479 47,848 ------------ ------------ ------------ ------------ Gross profit 18,402 15,084 35,466 29,19122,471 19,603 57,937 48,794 Selling, general and administrative expenses 13,743 11,383 26,086 21,883 ----------- ----------- ----------- -----------14,870 12,677 40,956 34,559 ------------ ------------ ------------ ------------ Income from operations 4,659 3,701 9,380 7,3087,601 6,926 16,981 14,235 Interest (income)income, net 394 318 1,119 915 Other income (expenses), net (355) (309) (725) (597) Other expenses (income), net 123 38 189 25 ----------- ----------- ----------- -----------(44) (92) (234) (118) ------------ ------------ ------------ ------------ Income before income taxes 4,891 3,972 9,916 7,8807,951 7,152 17,866 15,032 Income tax expense 2,042 1,668 4,140 3,310 ----------- ----------- ----------- -----------3,319 3,004 7,459 6,313 ------------ ------------ ------------ ------------ Net income 2,849 2,304 5,776 4,570 =========== =========== =========== ===========$ 4,632 $ 4,148 $ 10,407 $ 8,719 ============ ============ ============ ============ Net income per common share $ .16.26 $ .13.23 $ .33.59 $ .26 =========== =========== =========== ===========.49 ============ ============ ============ ============ Weighted average common shares outstanding 17,831,946 17,620,656 17,759,373 17,605,068 =========== =========== =========== ===========17,840,541 17,630,726 17,786,429 17,613,620 ============ ============ ============ ============
See accompanying notes 3 URBAN OUTFITTERS, INC. Consolidated Statements of Cash Flows (in thousands) (Unaudited)
SIXNINE MONTHS ENDED JULYOCTOBER 31 ------------------------ (UNAUDITED) (UNAUDITED) 1996 1995 -------- ------------ ---- Cash flows from operating activities: Net Incomeincome $ 5,77610,407 $ 4,5708,719 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,682 1,3872,613 2,132 Provision for losses on accounts receivable 119 73170 (20) Changes in assets and liabilities: Increase in receivables (2,489) (2,667)(4,459) (2,982) Increase in inventory (5,819) (3,350)(8,255) (4,712) (Increase)/decrease in prepaid expenses and other assets (742) 501,028 (344) Increase in payables, accrued expenses and other liabilities 4,254 3896,813 2,291 -------- -------- Net cash (used) provided by operating activities 2,781 4528,317 5,084 -------- -------- Cash flows from investing activities: Capital expenditures (4,319) (3,177)(8,774) (4,222) Purchase of investments held-to-maturity (14,096) (1,592)(18,713) (5,246) Purchase of investmentsinvestment available-for-sale (1,750) 0(2,350) -- Maturities of investments held-to-maturity 6,499 3,7069,894 7,236 Sale of investments available-for-sale 3,861 04,236 -- -------- -------- Net cash used in investing activities (9,805) (1,063)(15,707) (2,232) -------- -------- Cash flows from financing activities: Exercise of stock options 684 153807 466 Purchase of common shares 0-- (73) -------- -------- Net cash used inprovided by financing activities 684 80807 393 -------- -------- DecreaseIncrease(decrease) in cash and cash equivalents (6,340) (531)(6,583) 3,245 Cash and cash equivalents at beginning of period 20,095 9,109 -------- -------- Cash and cash equivalents at end of period $ 13,75513,512 $ 8,57812,354 ======== ========
See accompanying notes 4 URBAN OUTFITTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996, filed with the Securities and Exchange Commission on April 23, 1996. 2. Marketable Securities Marketable securities are classified as follows: JulyOctober 31, 1996 January 31, 1996 ----------------------------- ---------------- Current portion Held-to-maturity....................Held-to-maturity.................. $ 7,9998,868 $ 6,588 Available-for-sale.................. 800Available-for-sale................ 1,100 2,911 ------- ------- 8,799---------- --------- 9,968 9,499 ------- ---------------- --------- Noncurrent portion Held-to-maturity.................... 12,433Held-to-maturity.................. 12,711 6,247 ------- --------------- --------- Total marketable securities ........ $21,232securities.......... $22,679 $15,746 ======= ======= 3. Stock Split On May 21, 1996, the Board of Directors of Urban Outfitters, Inc. declared a two for onetwo-for-one stock split in the form of a stock dividend for shareholders of record on June 1, 1996. All applicable shares and per share data have been adjusted for the split. 4. Additional Information During the third quarter, the Company opened a new Anthropologie storestores in New York CityNewport Beach and subsequentSanta Monica, California. Subsequent to the third quarter, the Company opened Urban Retail stores in Montreal and Toronto, Canada, and another Anthropologie store in Santa Monica, CA.Chicago, Illinois. 5 PART I FINANCIAL INFORMATION (continued) ITEM 2 Management's Discussion and Analysis of Financial Condition - ------ and Results of Operations GENERAL TotalSales growth for the total Company sales growth induring the secondthird quarter and the first sixnine months of this fiscal year was 20 percent for both periods. This comparesended October 31, 1996 compared to the same prior year periods of 23was up 16 percent and 2218 percent, respectively. While relativelyThe Wholesale Company's sales increased 44.8 percent during the same growth rates,third quarter and 23.4 percent for the source of the growth varies considerably. In the prior year, sales growth was almost entirely from new stores opened in Urbannine-months. Retail with little contribution from comparable store sales and no contribution from Wholesale. Conversely, sales growth inslowed during the secondthird quarter and the first six months of this year was fromto a negative 1.9 percent. The nine-month period finished with a positive comparable store sales growth of 9.0 percent and 10.4 percent, respectively, from5.7 percent. Four new store openings in Anthropologie and comparative Wholesale sales growth of 15.9 percent and 11.6 percent forstores were added during the second quarter and six months. The type of sales growth in the current year for the second quarter and the sixnine months contributed more to earnings than the type of sales growth in the same periods last year. High increases in comparable store sales and in Wholesale led to higher inventory turns, lower markdowns, and higher gross profit margins. Growth in comparable store sales and in Wholesale are subjected to much lower variable expenses, and therefore, preserve more gross profit to operating profit and net increase. In contrast, last year's sales growth was primarily from new stores which did not create higher turns and, indeed, burdened gross profit with a full range of new store operating expenses. Notwithstanding these favorable trends, the second quarter saw a slight increase in operating expenses as a percentage of sales due to Anthropologie's current higher expense to sales ratio and its accelerated growth. This .18 percent growth represents a $37,646.00 reduction in net income. These trends are reflected in the percentage to sales figures shown below. Last year, comparable store sales growth in the third and fourth quarters were 5 percent and 3 percent, respectively. Looking ahead, selling against these higher levels combined with delayed openings ofended October 31, 1996. No new Urban Retail stores will putwere opened during that time. Management believes that several factors combined to lead to the third quarter comparable store sales decline. Among those are: the third quarter last year was the strongest "comping" quarter; there was not enough transitional merchandise linking summer and fall; Back-to-School and early fall merchandise was too concentrated, and to some pressure on earnings growthextent, missed certain fashion changes; and finally, several merchandise classifications did not have enough inventory throughout the quarter. Efforts are underway to get the inventory properly balanced. Adding to the sales issue is a shorter holiday season. Management expects the fourth quarter to benefit from the continuing positive trends in the thirdWholesale business, and the opening of the eighth Anthropologie store (in Chicago, the fifth opening this year) and the opening of two new Urban Retail stores in Montreal and Toronto in early December. Retail comparable store sales, on the other hand, remain below plan and, if not improved during the fourth quarter. Helping toquarter, will offset those pressures are Wholesale bookings that, at this date, are running ahead of last year and plan. Store openings and the timing of those openings will continue to be a risk due to the nature of the stores, and management's very deliberate style in selecting locations and in completing lease negotiations.benefits. 6 RESULTS OF OPERATIONS The Company's operating years end on January 31, and include 12 periods ending on the last day of the month. For example, fiscal year 19961997 will end on January 31, 1996.1997. This discussion of results of operations covers the secondthird quarter and the first sixnine months of FY97fiscal 97 and FY96.fiscal 96. The following table sets forth, for the periods indicated, the percentage of the Company's net sales represented by certain income statement data. The following discussion should be read in conjunction with the table which follows.following table.
SECONDTHIRD QUARTER ENDED SIXNINE MONTHS ENDED JULYOCTOBER 31 JULYOCTOBER 31 ---------------------- ----------------------- 1996 1995 1996 1995 ----- ----- ----- --------- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 48.7%49.9% 49.5% 49.0%49.4% 49.5% Gross profit 51.3%50.1% 50.5% 51.0%50.6% 50.5% Selling, general and administrative expenses 38.3% 38.1% 37.5% 37.9% ----- ----- ----- -----33.1% 32.6% 35.8% 35.8% ------ ------ ------ ------ Income from operations 13.0% 12.4% 13.5% 12.6%17.0% 17.8% 14.8% 14.7% Net interest &and other income .8% .6% .9% .8% 1.0% ----- ----- ----- -----.8% ------ ------ ------ ------ Income before income taxes 13.6% 13.3% 14.3% 13.6%17.7% 18.4% 15.6% 15.6% Income tax expense 5.7% 5.6% 6.0% 5.7% ----- ----- ----- -----7.4% 7.7% 6.5% 6.5% ------ ------ ------ ------ Net income 7.9% 7.7% 8.3% 7.9% ===== ===== ===== =====10.3% 10.7% 9.1% 9.0% ====== ====== ====== ======
SECONDTHIRD QUARTER ENDED JULYOCTOBER 31, 1996 COMPARED TO THE SECONDTHIRD QUARTER ENDED JULYOCTOBER 31, 1995 Net sales increased during the secondthird quarter ended JulyOctober 31, 1996 to $35.9$44.9 million, up 20.115.6 percent from $29.9 million during the same period ofin the prior year. The $6.0$3.7 million of the $6.1 million increase over the prior year's second quarter was split amongattributable to newly opened and enlarged stores; comparable store sales increases of $2.2were down $.6 million sales from stores opened less than 13 months and new stores ofwhile the Wholesale Company contributed $3.0 million and Wholesaleto the third quarter sales growth of $.8 million. The increases in part relate to increases in average selling prices at retail and very good consumer acceptance of the products offered at Retail and at Wholesale.growth. Gross profit during the secondthird quarter ended JulyOctober 31, 1996 was $18.4$22.5 million, up $3.3$2.9 million or 22.014.6 percent from the prior year quarter. The dollar increase resulted from the volumes described above and improved Retailvolume increases previously described. The gross profit margin percentage to sales decreased to 50.1 percent during the third quarter of this year from 50.5 percent last year. All three companies' gross profit margin percentages improved during the third quarter. However, the total percentage decline was due to initial markup increasesa higher sales mix of Anthropologie and lower markdowns. Wholesale, gross profit margins were down in the second quarter when compared to the same quarter in the prior year. The reason for the decline was higher growthboth of awhich have lower gross profit margin product line compared to the growth of other product lines.percentages than Urban Retail. 7 Selling, general and administrative expenses during the secondthird quarter ended JulyOctober 31, 1996 were $13.7$14.9 million, up $2.4$2.2 million or 20.717.3 percent from the prior year quarter. These dollar increases were attributed to new stores opened, enlarged stores and investments in people and systems necessary to manage the planned sales growth, particularly in Anthropologie. Stated as a percentage of sales, selling, general and administrative expenses increased slightly to 38.333.1 percent from 38.132.6 percent in the third quarter of the prior year. As previously mentioned, the increase represents an after tax effect of $37 thousandBoth Wholesale and is due to theAnthropologie leveraged expenses on higher sales growth. Urban Retail, with lower sales growth, of Anthropologie.experienced expense growth in dollars and in percentage. Income from operations during the secondthird quarter ended July 31, 1996of fiscal 97 was $4.7$7.6 million, up $1from $6.9 million or 25.9 percent fromin the prior year's secondthird quarter. The Wholesale Company experienced the most significant operating profit growth during the quarter. The effective income tax rate for the third quarter of 42 percent remains unchanged from last year. Net income during the secondthird quarter ended July 31, 1996of fiscal 97 was $2.8$4.6 million, up $545,000$.5 million or 23.711.7 percent from the prior year. SIXyear's third quarter. NINE MONTHS ENDED JULYOCTOBER 31, 1996 COMPARED TO THE SIXNINE MONTHS ENDED JULYOCTOBER 31, 1995 Net sales increased during the sixnine months ended JulyOctober 31, 1996 to $69.5$114.4 million, up 20.318.4 percent from $57.8$96.6 million during the same period lastof the prior year. The $11.7nine-month-to-nine-month $17.8 million increase over the prior year's first six months was split amongprovided by sales from newly opened and enlarged stores of $9.2 million, comparable store sales increaseincreases of $4.6$4.2 million sales(a 5.7 percent increase) and increases from stores opened less than 13 months and new storesthe Wholesale Company of $5.7, and Wholesale sales growth of $1.4$4.4 million. The increases relate to increases in average selling prices at retail and very good consumer acceptance of the products offered at Retail and at Wholesale. Gross profit during the sixnine months ended JulyOctober 31, 1996 was $35.5$57.9 million, up $6.3$9.1 million (an 18.7 percent increase) from the same prior year period a 21.5 percent increase.of $48.8 million. The dollar increases comeresulted from the sales volume increasesgrowth previously described and improved Retaildescribed. The gross profit margin percentages duepercentage to initial markup increases and lower markdowns. Wholesale gross profit margins were down insales improved slightly to 50.6 percent from 50.5 percent during the six months when compared to the same six months in the priornine-month period last year. The reason for the decline was higher growth of a lower gross profit margin product line compared to the growth of other product lines. Selling, general and administrative expenses during the sixnine months ended JulyOctober 31, 1996 were $26.1$41.0 million, up $4.2$6.4 million or 19.218.5 percent from the same period in the prior year. These dollar increases were attributed to newly opened and enlarged stores and investments in people and systems necessary to manage the sales growth in comparable stores, particularlyUrban Retail, Anthropologie and in Anthropologie.Wholesale. Stated as a percentage of sales, selling, general and administrative expenses decreased to 37.5 percent from 37.9were flat at 35.8 percent during the six months compared to the same period in the preceding year. The percent to sales improvement results from leveraging on high comparable stores sales, new stores, and Wholesale sales growth.nine-month periods of both years. 8 Income from operations during the sixnine months ended JulyOctober 31, 1996 was $9.4$17.0 million, up $2.1$2.7 million or 28.319.3 percent from the same period in the prior year. The Wholesale Company contributed $.6 million to the growth during the nine-month period. The effective income tax rate for the sixnine months ended October 31, 1996 of 42 percent remains unchanged from last year. Net income during the sixnine months ended JulyOctober 31, 1996 was $5.8$10.4 million, up $1.2$1.7 million or 26.419.4 percent from the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased $6.3 million to $13.8$13.5 million at JulyOctober 31, 1996 from $20.1 million at January 31, 1996. ThisThe $6.6 million net decrease was primarily a result of a $4.3 millionresults from an increase in leasehold improvements, other capital assets and the new Distribution Center. Additionally, cash of $5.5 million was used to purchase marketable securities. Offsetting these uses of cash was $.7 million received from the exercise of stock options and cash from operating activitiesactivity of $2.8$8.3 million, and net issuance of common stock of $807,000, offset by capital expenditures of $8.8 million and net purchases of investments of $6.9 million. The Company's net working capital decreasedincreased from $36.5 million at January 31, 1996 to $36.0$37.2 million at JulyOctober 31, 1996. The $.5$.7 million decreaseincrease in net working capital during the six monthnine-month period ended JulyOctober 31, 1996 results primarily from the usenet income of cash$10.4 million and short termstock options exercised and tax benefits from those exercised of $3.0 million, offset by investments in long-term marketable securities to purchase long term marketable securitiespurchased of $6.5 million and net property and equipment.equipment purchased of $6.2 million. The Company maintains a line of credit of $10.0 million which is available for any combination of cash borrowing or letters of credit. The line is unsecured and any cash borrowing under the line would accrue interest at the LIBOR rate plus 1/2 of one percent. The Company uses international letters of credit to purchase private label merchandise and merchandise for the Wholesale Company. Outstanding balances of letters of credit at January 31, 1996 and at JulyOctober 31, 1996 were $5.3 million and $4.3$3.1 million, respectively. The Company has never borrowed against the available cash line of credit. The last long-term borrowing was paid down to zero during the second quarter of fiscal 1994. There were no loan balances at January 31, 1996 or JulyOctober 31, 1996. The Company expects that capital expenditures during FY97fiscal 97 will be approximately $10$10.0 million depending upon the number of stores opened, and stores enlarged or improved during the year. In future years, the Company expects to invest an amount equal to oramounts greater than that figure, again depending on new and existing store plans.stores opened or expanded. The Company believes that existing cash, marketable securities at JulyOctober 31, 1996 and cash from future operations will be sufficient to meet the Company's cash needs for at least the next three years. 9 PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K - ------ (a) Exhibits: Income Per Share Calculation (b) Reports on Form 8-K: None 10 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. URBAN OUTFITTERS, INC. (Registrant) By: /s/ Richard A. Hayne --------------------------------------------------------------- Richard A. Hayne Chairman of the Board of Directors By: /s/ Kenneth K. Cleeland --------------------------------------------------------------- Kenneth K. Cleeland Treasurer (Chief Financial Officer) Dated: SeptemberDecember 13, 1996 11