SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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
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Urban Outfitters, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2003332
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive office) (Zip Code)
(215) 564-2313
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(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