SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterlyQuarterly Period Ended April 30,July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 ofor 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
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(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) 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 No
----- -------- ---
Title of Each Class Number of Shares Outstanding
of Common Stock at June 1,August 31, 1998
------------------- ---------------------------------------------------------
Common Shares,shares, par value, $.0001 per share 17,777,95417,752,954
INDEX
-----
PAGE
----
PART I Financial Information
ITEM 1 Financial Statements
- ------
Condensed Consolidated Balance Sheets at April 30,July 31, 1998
2
(Unaudited) and, January 31, 1998 and July 31, 1997 (Unaudited) 2
Consolidated Statements of Income for the three 3and
six months ended April 30,July 31, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited) 4
Consolidated Statements of Cash Flows for the
4
threesix months ended April 30,July 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements 56 - 7
ITEM 2 Management's Discussion and Analysis of Financial 68 - 913
- ----------- Condition and Results of Operations
PART II Other Information
ITEM 6 Exhibits and Reports on Form 8-K 913
- -----------
SIGNATURES 1014
1
URBAN OUTFITTERS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
APRIL 30, 1998 JANUARYJuly 31, 1998 (UNAUDITED)January 31, 1998 July 31, 1997
(Unaudited) (1) (Unaudited)
------------- ---------------- -------------
Assets
Current assets:
Cash and cash equivalents .............................................. $23,915 $26,712equivalents..................................................... $ 22,984 $ 26,712 $ 18,856
Marketable securities .................................................. 12,594securities......................................................... 11,732 10,865 10,507
Accounts receivable, net of allowance for
doubtful accounts of $672$792, $616 and $616$749 at April 30,July 31, 1998,
and January 31, 1998
and July 31, 1997, respectively .................................. 4,406............................................ 4,681 4,497 Inventory .............................................................. 21,1444,782
Inventory..................................................................... 27,073 17,128 20,300
Prepaid expenses and other current assets .............................. 7,215assets..................................... 7,607 6,591 ------- -------6,613
-------- -------- --------
Total current assets ...................................................... 69,274assets............................................................ 74,077 65,793 61,058
Property and equipment, less accumulated depreciation and amortization .... 31,563......... 34,810 26,893 24,675
Marketable securities ..................................................... 11,466securities........................................................... 11,882 11,993 11,813
Other assets .............................................................. 4,147assets.................................................................... 4,576 2,745 ------- -------
$116,4501,523
-------- -------- --------
$125,345 $107,424 ======= =======$ 99,069
======== ======== ========
Liabilities and shareholders' equityShareholders' Equity
Current liabilities:
Accounts payable ....................................................... $14,542 $10,386payable.............................................................. $ 17,650 $ 10,386 $ 10,847
Accrued expenses and other current liabilities ......................... 4,766liabilities................................ 7,100 3,274 ------- -------4,459
-------- -------- --------
Total current liabilities ................................................. 19,308liabilities....................................................... 24,750 13,660 15,306
Accrued rent and other liabilities ........................................ 3,240liabilities.............................................. 3,419 3,106 ------- -------2,769
-------- -------- --------
Total liabilities ......................................................... 22,548liabilities............................................................... 28,169 16,766 18,075
-------- -------- --------
Shareholders' equity:
Preferred shares; $.0001 par, 10,000,000 authorized, none issued .......issued.............. -- -- --
Common shares; $.0001 par, 50,000,000 shares authorized, 17,777,95417,784,954,
17,649,360 and 17,649,36017,588,696 issued at April 30,July 31, 1998, and January 31, 1998, and
July 31, 1997, respectively ........................................................................................................ 2 2 2
Additional paid-in capital ............................................. 22,626capital.................................................... 22,771 21,482 20,420
Retained earnings ...................................................... 71,274earnings............................................................. 74,714 69,174 ------- -------60,572
Cumulative translation adjustment ............................................ (311) -- --
-------- -------- --------
Total shareholders' equity ................................................ 93,902equity...................................................... 97,176 90,658 ------- -------
$116,45080,994
-------- -------- --------
$125,345 $107,424 ======= =======$ 99,069
======== ======== ========
(1) Derived from audited financial statements.
See accompanying notes
2
URBAN OUTFITTERS, INC.
Consolidated Statements of Income
(In(in thousands, except share and per share data)
(Unaudited)
THREE MONTHS ENDED APRIL 30,
----------------------------
1998 1997
---- ----
Net sales .......................... $ 39,383 $ 37,197
Cost of sales ...................... 18,818 18,589
------------ ------------
Gross profit .................... 20,565 18,608
Selling, general and administrative
expenses .......................... 17,399 14,761
------------ ------------
Income from operations .......... 3,166 3,847
Interest (income) .................. (551) (376)
Other expense (income), net ........ 160 81
------------ ------------
Income before income taxes ...... 3,557 4,142
Income tax expense ................. 1,457 1,719
------------ ------------
Net income ...................... $ 2,100 $ 2,423
============ ============
Net income per share:
Basic ........................... $ .12 $ .14
Diluted ......................... .12 .14
Weighted average shares outstanding:
Basic ........................... 17,694,461 17,537,462
Diluted ......................... 18,004,852 17,704,068
Three Months Ended July 31 Six Months Ended July 31
----------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net sales $ 48,068 $ 41,316 $ 87,452 $ 78,513
Cost of sales 23,118 20,966 41,937 39,555
---------- ---------- ---------- ----------
Gross profit 24,950 20,350 45,515 38,958
Selling, general and administrative expenses 19,568 15,824 36,967 30,586
---------- ---------- ---------- ----------
Income from operations 5,382 4,526 8,548 8,372
Interest (income) (547) (406) (1,098) (783)
Other expenses (income), net 95 52 256 133
---------- ---------- ---------- ----------
Income before income taxes 5,834 4,880 9,390 9,022
Income tax expense 2,392 2,025 3,850 3,744
---------- ---------- ---------- ----------
Net income $ 3,442 $ 2,855 $ 5,540 $ 5,278
========== ========== ========== ==========
Net income per common share:
Basic $ 0.19 $ 0.16 $ .31 $ .30
========== ========== ========== ==========
Diluted $ 0.19 $ 0.16 $ .31 $ .30
========== ========== ========== ==========
Weighted average common shares outstanding
Basic 17,782,063 17,588,696 17,738,988 17,563,503
========== ========== ========== ==========
Diluted 18,028,164 17,840,021 18,022,619 17,769,280
========== ========== ========== ==========
See accompanying notes
3
URBAN OUTFITTERS, INC.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands)
(Unaudited)
Comprehensive Additional Cumulative
Income Common Paid-In Retained Translation
Quarter Year-To-Date Stock Capital Earnings Adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1998 $ 2 $21,482 $69,174 -0- $90,658
Net income $3,442 $5,540 5,540 5,540
Foreign currency translation
adjustments, net (311) (311) (311) (311)
------ ------
Comprehensive income $3,131 $5,229
====== ======
Exercise of stock options 1,289 1,289
----- ------- ------- ----- -------
Balance at July 31, 1998 $ 2 $22,771 $74,714 $(311) $97,176
===== ======= ======= ===== =======
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997 $ 2 $20,396 $55,294 -0- $75,692
Net income $2,855 $5,278 5,278 5,278
Foreign currency translation
adjustments, net -0- -0- -0- -0-
------ ------
Comprehensive income $2,855 $5,278
====== ======
Exercise of stock options 24 24
----- ------- ------- ----- -------
Balance at July 31, 1997 $ 2 $20,420 $60,572 $ -0- $80,994
===== ======= ======= ===== =======
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
4
URBAN OUTFITTERS, INC.
Consolidated Statements of Cash Flows
(In thousands, Unaudited)(in thousands)
(Unaudited)
THREE MONTHS ENDED APRIL 30,
----------------------------Six Months Ended July 31
------------------------
1998 1997
---- ------------ --------
Cash flows from operating activities:
Net income ................................................ $ 2,1005,540 $ 2,4235,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................. 1,258 1,1212,668 2,237
Provision for losses on accounts receivable ................ 56 71176 106
Changes in assets and liabilities:
(Increase) decreaseIncrease in receivables ......................... 35 (2,399)(360) (2,061)
Increase in inventory ...................................... (4,016) (1,640)(9,945) (3,335)
(Increase) decrease in prepaid expenses and other assets ... (2,026) 606(2,847) 655
Increase in payables, accrued expenses and other liabilities 5,782 2,01911,403 4,092
-------- --------
Net cash provided by operating activities .................. 3,189 2,2016,635 6,972
-------- --------
Cash flows from investing activities:
Capital expenditures ....................................... (5,928) (648)(10,585) (1,703)
Purchase of investments held-to-maturity ................... (2,903) (1,538)(5,735) (3,648)
Purchase of investments available-for-sale ................. (599) (2,250)(1,095) (3,800)
Maturities of investments held-to-maturity ................. 1,100 1,797
Sales4,874 5,230
Sale of investments available-for-sale .................... 1,200 8001,200
-------- --------
Net cash used in investing activities ...................... (7,130) (1,839)(11,341) (2,721)
-------- --------
Cash flows from financing activities:
IssuanceExercise of common shares .................................. 1,144stock options 1,289 24
-------- --------
Net cash provided by financing activities .................. 1,1441,289 24
-------- --------
Effect of foreign currency translation, net (311) -0-
-------- --------
Increase (decrease) in cash and cash equivalents ...................... (2,797) 386(3,728) 4,275
Cash and cash equivalents at beginning of period ........... 26,712 14,581
-------- --------
Cash and cash equivalents at end of period ................. $ 23,91522,984 $ 14,96718,856
======== ========
See accompanying notes
45
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
Statementsconsolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998, filed with the Securities and
Exchange Commission on April 21, 1998.
Certain prior period amounts have been reclassified to conform to the current
year's presentation.
2. Marketable Securities
Marketable securities are classified as follows:
April 30,
July 31, 1998 January 31, 1998 July 31, 1997
------------- ---------------- -------------
Current portion
Held-to-maturity.......................... $ 9,562 $ 8,590 $ 7,607
Available-for-sale........................ 2,170 2,275 2,900
------- ------- -------
11,732 10,865 10,507
------- ------- -------
Noncurrent portion
Held-to-maturity.......................... 11,882 11,993 11,813
------- ------- -------
Total marketable securities ................. $23,614 $22,858 $22,320
======= ======= =======
3. Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S. dollars at
current rates, except that revenues, costs and expenses are translated at the
weighted average of exchange rates in effect during the reporting period.
Translation adjustments are not included in determining net income but are
accumulated as a separate component of shareholders' equity. In accordance with
SFAS 130, "Reporting Comprehensive Income," components of comprehensive income,
such as foreign
6
currency transactions and unrealized gains on securities, are required to be
disclosed within the basic financial statements. The Company's adoption of SFAS
130, required for fiscal periods beginning after December 15, 1997, resulted in
comprehensive income which was $311 thousand less than net income reported for
the three- and six-month periods ended July 31, 1998 Current portion
Held-to-maturity .......... $10,922 $ 8,590
Available-for-sale ........ 1,672 2,275
------- -------
12,594 10,865
------- -------
Noncurrent portion
Held-to-maturity .......... 11,466 11,993
------- -------
Total marketable securities... $24,060 $22,858
======= =======
5due to the effect of
currency translation on the financial statements.
4. Effect of New Accounting Pronouncements
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
The new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise which qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
reviewing the effect, if any, that SFAS 131 will have on the disclosures
contained in the Company's consolidated financial statements.
5. Subsequent Events
On August 12, 1998, the Company, in accordance with its agreements with HMB
Publishing, Inc., purchased $1,750,000 principal amount of 8% convertible
debentures. As of July 31, 1998, the Company had purchased $1,407,000 of
convertible preferred stock. The agreements call for additional investments if
HMB meets certain performance milestones. HMB publishes moXiegirl(TM), a
combination magazine and catalog catering to teenage girls.
In accordance with its previously announced program, subsequent to July 31,
1998, the Company has repurchased approximately 80,000 shares of its common
stock in a series of individual open market transactions. These shares will be
retained to fund shares issuable under the Company's stock option plans.
7
PART I
FINANCIAL INFORMATION (continued)
ITEM 2 Management's Discussion and Analysis of Financial Condition
- ------ and Results
of Operations
GENERAL
This Securities and Exchange Commission filing is being made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Certain matters contained in this filing may constitute forward-looking
statements. Any one, or all, of the following factors could cause actual
financial results to differ materially from those financial results mentioned in
the forward-looking statements: industry competition factors, unavailability of
suitable retail space for expansion, timing of store openings, difficulty in
predicting and responding to fashion trend shifts, seasonal fluctuations in
gross sales, the departure of one or more key senior managers and other risks
identified in filings with the Securities and Exchange Commission.
The six percent sales increaseDuring the second quarter of FY 1999, new Urban Outfitters stores were opened in
this year'sSan Diego, CA and Columbus, OH, in addition to the Company's Urban Outfitters
store in London, its first quarter over last year's was
primarily a net resultin the United Kingdom. An Anthropologie store opened
in Seattle, WA. These openings bring the number of four factors:
o Urban Retail and Anthropologie stores' comparable sales growth of 9%
o Urban Retail and Anthropologie had fivenew stores opened in the first
quarter of this year that were not opened in the first quarter of last
year
o the new Anthropologie catalog added $417,000 in additional sales during the
quarter
o the Wholesale company recorded a 36% contraction in first quarter sales when
comparedFY 1999
to the first quarter of last year
As explained later in more detail, these same four factors had a direct effect
on improved gross profit margins and an increased selling, general and
administrative expense.
The Wholesale company is expected to finish the year at a lower sales level than
the prior year. However, if the new stores open as planned and the planned
comparable store sales are reached, the negative earning effect of the Wholesale
company sales reduction and the new companies (Anthropologie catalog and Urban
Outfitters, UK Ltd.) will be offset by the earnings growth in Urban Retail and
Anthropologie and thereby providing positive earnings growth for the year.
6
six.
RESULTS OF OPERATIONS
The Company's operating years end on January 31, and include 12 periods ending
on the last day of the calendar month. For example, FY'99fiscal year 1999 ("FY 1999")
will end on January 31, 1999. This discussion of results of operations covers
the second quarter and the first quartersix months of FY'99FY 1999 and FY'98.FY 1998.
8
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 that follows:
THREE MONTHS ENDED
April 30, 1998 April 30, 1997
Net sales 100.0% 100.0%
Cost of goods sold 47.8% 50.0%
Gross profit 52.2% 50.0%
Selling, general and
administrative expenses 44.2% 39.7%
------ ------
Income from operations 8.0% 10.3%
Net interest & other (income) (1.0%) (.8%)
------ ------
Income before income taxes 9.0% 11.1%
Income tax expense 3.7% 4.6%
------ ------
Net income 5.3% 6.5%
====== ======
FIRST
SECOND QUARTER ENDED SIX MONTHS ENDED
JULY 31 JULY 31
--------------------- --------------------
1998 1997 1998 1997
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 48.1% 50.7% 48.0% 50.4%
----- ----- ----- -----
Gross profit 51.9% 49.3% 52.0% 49.6%
Selling, general and
administrative expenses 40.7% 38.3% 42.2% 38.9%
----- ----- ----- -----
Income from operations 11.2% 11.0% 9.8% 10.7%
Net interest & other income 0.9% 0.8% 0.9% 0.8%
----- ----- ----- -----
Income before income taxes 12.1% 11.8% 10.7% 11.5%
Income tax expense 5.0% 4.9% 4.4% 4.8%
----- ----- ----- -----
Net income 7.1% 6.9% 6.3% 6.7%
===== ===== ===== =====
SECOND QUARTER ENDED APRIL 30,JULY 31, 1998 COMPARED
TO THE FIRSTSECOND QUARTER ENDED APRIL 30,JULY 31, 1997
Net sales increased during the firstsecond quarter ended April 30,July 31, 1998 to $39.4$48.1
million, up 5.9%16.3 percent from $37.2$41.3 million during the same period of the prior
year. The net$6.8 million increase over the prior year's second quarter was the
result of new and noncomparable stores' sales increase included aof $5.7 million, an 11 percent
comparable store sales increase of 9.1% or
$2.6which contributed $3.7 million an increase of new and enlarged store sales of $2.2$0.1 million
$417,000
from the new Anthropologie catalog, all partiallycatalog. These additions more than offset by a $3.0the $2.7
million reductiondecrease in Wholesale revenues. The reasons forcompany sales. Management believes that the
comparable storeprimary cause of this decrease in Wholesale company sales increases,is the new and enlarged store sales increases and the catalog
sales are the acceptancecontinuation of
the products offered by the customers. The causes
for the reduction in Wholesale revenues are varied, but the Company believes the
primary reason is that a numbertrend of larger customers optedopting to produce their own private label
merchandise rather than purchase branded products from the Wholesale company.
This trend is continuing and is expected to result inGross profit as a net
12% to 18% drop in Wholesale revenues for the year. If the drop in revenues is
as expected, the Wholesale company's earnings effect will not be material to the
planned consolidated earnings.
The gross profit marginpercentage of sales increased by 2.6 percent during the firstsecond
quarter ended April 30,July 31, 1998 was $20.6
million, up $2.0 million or 11.0% fromcompared to the prior year first quarter of $18.6
million.quarter. The dollar increase in
percentage resulted from the volume increases previously
discussed and improved gross profit margin percentages.
7
Theincrease in retail sales as a proportion of total
sales (since the retail divisions have a higher gross profit margin percentage
improvement of 2.2 percentage points is a
result of a sales mix in this year's first quarter favoringthan the Wholesale company), as well as higher gross
profit margininitial retail companies. Additionally, themarkups and lower
retail companies experienced
higher comparable store sales, higher inventory turnover, and as a result, lower markdowns.
Selling, general and administrative expenses during the firstsecond quarter ended
April 30,July 31, 1998 were $17.4$19.6 million, up $2.6$3.7 million or 17.9%23.7% from the prior year
of $14.8 million.year.
The dollar increases were principally from the following areas:
o operating expenses of new stores opened in Urban Retail and Anthropologie
9
o investments instartup expenses aggregating approximately $0.9 million for the European
subsidiaryoperation and infor the Anthropologie catalog
with
no first quarter sales in Europe or minimal sales in the catalog test. The combined total of these two expenses was approximately $1.2 million
o The Wholesale company incurred slightly lessincrease in selling, general and administrative expense dollars during first quarter when compared to
the prior year
The increaseexpenses as a percent of
4.5 percentage points in selling, general and administrative
expensessales is a result of the following factors:
o the $1.2aforementioned $0.9 million in startup expenses fromof the two new
companiesoperations with little or nomodest sales
o the Wholesale company, while spending lessfewer dollars, had a much more
significant drop in revenues (36%(38%). These combinations drove, increasing the percent to sales
upo additions to the corporate overhead structure to support the increased rate
of store expansion
o conversely, the retail companies, due to higher sales in both existing and
new stores, leveraged expenses and droveoffset, in part, the above increases in
the percent to sales
down
IncomeAccordingly, income from operations during the first quarter ended April 30,July 31, 1998 was
$3.2$5.4 million, down $.6up $0.9 million (17.7%(18.9%) from the prior year first quarter of $3.8
million.year.
The effective income tax rate for the quarter was 41.0%, down from 41.5% last
year. The reduction is a result of a lower average state income tax rate.
SIX MONTHS ENDED JULY 31, 1998
COMPARED TO THE SIX MONTHS ENDED JULY 31, 1997
Net incomesales increased during the first quartersix months ended April 30,July 31, 1998 was $2.1to $87.5 million,
down
$325,000 (13.4%)up 11.4 percent from the same period last year. The $8.9 million increase over
the prior year's first six months was the result of sales from new and
noncomparable stores of $8.1 million, a 10 percent comparable store sale
increase that yielded $6.3 million and sales of $0.5 million from the test of
the new Anthropologie catalog, which more than offset the $5.6 million decrease
in Wholesale company sales.
Gross profit margins stated as a percentage of sales during the six months ended
July 31, 1998. The dollar increases came from the volume growth previously
described. Gross profit increased to 52.0 percent this year versus 49.6 percent
last year. The increase in percentage resulted from the increase in retail
sales as a proportion of $2.4 million. Increasedtotal sales volumes
and improved(since the retail divisions have a higher
gross profit margin percentagespercentage than the Wholesale company), as well as higher
initial retail markups and lower retail markdowns.
Selling, general and administrative expenses during the six months ended July
31, 1998 were offset by operating expense
dollars$37.0 million, up $6.4 million or 20.9 percent from the same
period in the prior year. These dollar increases were attributed principally to
newly opened stores and percentages leadingthe $2.1 million of costs to fund the startup expenses
10
of the European subsidiary and the test of the new Anthropologie catalog. Stated
as a percentage of sales, selling, general and administrative expenses increased
from 38.9 percent to 42.2 percent during the six months compared to the slight decline.
8
same
period in the preceding year. The increase in percent of sales is attributable
to the aforementioned startup costs and the Wholesale company's inability to
reduce expenses commensurate with its 37 percent decrease in sales. These
factors more than offset the leveraging of retail expenses due to the 10 percent
comparable store sales increase.
Income from operations during the six months ended July 31, 1998 was $8.5
million, up 2.1 percent from the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $23.9were $23.0 million at April 30,July 31, 1998, fromas compared to
$26.7 million at January 31, 1998.1998 and $18.9 million at July 31, 1997. The
$2.8Company's net working capital was $49.3 million at July 31, 1998, as compared to
$52.1 million at January 31, 1998 and $45.8 million at July 31, 1997.
The decrease in cash and cash equivalents comeson July 31, 1998 from year end
reflects the netfunding of cash from operationsFY 1999's increased level of $3.2 million, capital expenditures of $(5.9)($10.6
million versus $1.7 million for the net purchase of investments of $(1.2)
millionsix months ended July 31, 1997), primarily
for new store construction, and the issuance of common shares on options exercisedincrease in inventory for new stores and the
tax
benefitseasonal building of those options of $1.1 million.
The Company's net working capital decreasedinventory in existing stores. These activities more than
offset the amounts generated from $52.1 million at January 31,
1998, to $50.0 million at April 30, 1998. The $2.1 million decrease in net
working capital was primarily due to investments in property, equipment and
other assets offset by earnings and options exercised.the increase in accounts payable
and accrued expenses.
The Company has a $16.5 million revolving line of credit available to facilitate
letter of credit transactions and cash advances. Interest on any outstanding
cash advance balance is payable monthly and is based on an as offered"as offered" basis
not to exceed the London Interbank Offered Rate (LIBOR) plus 3/8 of 1%. No cash
borrowing has ever taken place on this line and, accordingly, no principal
amounts were outstanding at July 31, 1998, January 31, 1998 or April 30, 1998.July 31, 1997.
Outstanding letters of credit totaled $6.8 million, $4.7 million and $6.1$7.7
million at July 31, 1998, January 31, 1998 and April 30, 1998,July 31, 1997, respectively.
These letters of credit, which have terms from one month to one year,
collateralize the Company's obligation to third parties for the purchase of
inventory. The fair value of these letters of credit is estimated to be the same
as the contract values. There were no loan balances of any kind at July 31,
1998, January 31, 1998 or April 30, 1998.July 31, 1997.
The Company expects that capital expenditures during FY'99FY 1999 will be
approximately $15.0$18 million, depending upon the number of stores opened, enlarged
or improved during the year. Five stores are currently under construction. The
Company believes that existing cash and investments at April 30,July 31, 1998, as well as
cash from future operations, will be sufficient to meet the Company's cash needs
through at least FY'99, FY'00January 31, 2000. The Company has increased the number of new store
openings in FY 1999 over historical trends, and FY'01.management expects to maintain
this higher rate of expansion over the next several years. If the need for
additional capital after FY 2000 is forecasted and if deemed by management to be
in the best interests of the Company, then additional equity, long-term debt,
capital leases or other permanent financing may be considered.
11
OTHER MATTERS
Outlook
Management has planned for a moderation in the Company's rate of comparable
store sales increases during the second half of the fiscal year from those
achieved during the first half; but the added sales of noncomparable and new
stores are planned to more than offset the planned decrease in the level of
Wholesale company sales.
Year 2000 Systems Readiness
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. The
Company has also reviewed the implemented changes or planned changes of its
major suppliers that management believes could be affected by the Year 2000
date. Based on the review, the Company's major systems that would be adversely
affected by the Year 2000 will be upgraded or replaced through the normal course
of business. Internal resources will be used in a timely manner to evaluate,
modify and test the Company's other systems that are not scheduled to be
upgraded or replaced through the normal course of business. Management believes
the combination of these efforts will prepare the Company's computer systems for
the Year 2000 on a timely basis. The Company's core merchandising and financial
system upgrade and the store register system upgrades have been completed, and
testing of these upgrades continues. However, if all such modifications and
conversions are not completed timely by the Company or its key suppliers, the
Year 2000 problem may have a material impact on the operations of the Company.
The incremental costs associated with major system upgrades and/or replacements,
as well as internal efforts to evaluate, modify and test the Company's other
systems are not expected to be of a material nature to the Company.
Effect of New Accounting Pronouncements
The FASB issued SFAS 130, "Reporting Comprehensive Income," which requires
disclosure of comprehensive income within the basic financial statements for
those entities with items that qualify as components of comprehensive income
such as foreign currency transactions and unrealized gains on securities. The
Company's adoption of SFAS 130, required for fiscal periods beginning after
December 15, 1997, resulted in comprehensive income which was $311 thousand less
than net income reported for the three- and six-month periods ended July 31,
1998 due to the effect of currency translation on the financial statements.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
The new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise that qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
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reviewing the effect, if any, that SFAS 131 will have on the disclosures
contained in the Company's consolidated financial statements.
Subsequent Events
On August 12, 1998, the Company, in accordance with its agreements with HMB
Publishing, Inc., purchased $1,750,000 principal amount of 8% convertible
debentures. As of July 31, 1998, the Company had purchased $1,407,000 of
convertible preferred stock. The agreement calls for additional investments if
HMB meets certain performance milestones. HMB publishes moXiegirl(TM), a
combination magazine and catalog catering to teenage girls.
In accordance with its previously announced program, subsequent to July 31,
1998, the Company has repurchased approximately 80,000 shares of its common
stock in a series of individual open market transactions. These shares will be
retained to fund shares issuable under the Company's stock option plans.
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
- -----------
(a) Exhibits: Exhibit 11 - Income Per Share Calculation
(b) Reports on Form 8-K: None
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrantRegistrant 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/ Wayne W. Wetterlund
-------------------------------------
Wayne W. Wetterlund
Controller
(Principal AccountingStephen A. Feldman
-----------------------
Stephen A. Feldman
Treasurer
(Chief Financial Officer)
Dated: June 12,September 11, 1998
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