SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, DC 20549
-------------------
FORM 10-Q
[ X ][X] QUARTERLY REPORT UNDER SECTION 13 ORor 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999For the Quarterly Period Ended April 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROMFor the transition period from ______________ TOto
______________
COMMISSION FILE NUMBERCommission File Number 0-16999
-----------------------
URBAN OUTFITTERS, INC.------------------------------
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 orof Organization) Identification No.)
1809 WALNUT STREET, PHILADELPHIA,Walnut Street, Philadelphia, PA 19103
--------------------------------------- ----------
(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) 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 NOVEMBER 22, 1999
--------------------- ---
Title of Each Class Number of Shares Outstanding
of Common Stock at June 1, 2000
------------------- ----------------------------
Common shares,Shares, par value, $.0001 per share 17,619,24117,253,486
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
PAGEFinancial Information
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets at October 31, 1999,April 30, 2000, 3
January 31, 2000, and April 30, 1999 and October 31, 1998 (Unaudited) 2
Condensed Consolidated Statements of Income for the three and
nine4
months ended October 31,April 30, 2000 and 1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of Changes in Shareholders' 5
Equity for the nine months ended October 31, 1999
and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine6
three months ended October 31,April 30, 2000 and 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 67 - 910
ITEM 2 Management's Discussion and Analysis of Financial 1011 - 16
Condition and Results of Operations
PART II OTHER INFORMATIONOther Information
ITEM 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
12
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(InCondensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
OCTOBERApril 30, 2000 January 31, JANUARY 31, OCTOBER 31,2000 April 30, 1999
1999 1998
----------- ----------- ------------------------- ---------------- --------------
Assets
Current assets:
ASSETS
Current assets:
Cash and cash equivalents $ 7,3068,474 $ 25,16512,727 $ 24,03614,134
Marketable securities 8,371 13,032 11,25810,584 11,225 10,105
Accounts receivable, net of allowance for doubtful accounts of $563, $603$541,
$518 and $827 at October 31, 1999,
January 31, 1999 and October 31, 1998,$740, respectively 8,914 4,824 6,939
Inventory 32,527 21,881 26,5006,369 4,825 5,060
Inventories 33,023 26,868 25,292
Prepaid expenses and other current assets 15,501 6,653 6,7586,343 10,433 7,715
--------- --------- ---------
Total current assets 72,619 71,555 75,49164,793 66,078 62,306
Property and equipment, less accumulated depreciation and amortization 62,589 43,066 37,393net 76,208 72,819 48,477
Marketable securities 13,785 12,218 11,0338,646 8,646 16,299
Other assets 7,763 6,524 5,5995,953 5,958 8,248
--------- --------- ---------
$ 156,756155,600 $ 133,363153,501 $ 129,516135,330
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 19,68817,379 $ 14,76316,760 $ 17,47116,394
Accrued expenses and other current liabilities 13,945 9,265 8,29511,177 11,312 10,324
--------- --------- ---------
Total current liabilities 33,633 24,028 25,766
Accrued28,556 28,072 26,718
Deferred rent and other liabilities 4,495 4,041 3,7814,685 4,513 3,986
--------- --------- ---------
Total liabilities 38,128 28,069 29,54733,241 32,585 30,704
--------- --------- ---------
Shareholders' equity:
Preferred shares; $.0001 par value, 10,000,000 authorized, none issued -- -- --
Common shares; $.0001 par value, 50,000,000 shares authorized,
17,619,24117,253,486, 17,358,186 and 17,398,541 issued at October 31, 1999, 17,639,754 issued at January 31, 1999, and 17,617,754 issued at October 31, 1998,outstanding,
respectively 2 2 2
Additional paid-in capital 20,876 20,825 20,51716,268 17,680 17,021
Retained earnings 98,082 84,934 79,749106,604 103,614 87,884
Accumulated other comprehensive income (332) (467) (299)loss (515) (380) (281)
--------- --------- ---------
Total shareholders' equity 118,628 105,294 99,969122,359 120,916 104,626
--------- --------- ---------
$ 156,756155,600 $ 133,363153,501 $ 129,516135,330
========= ========= =========
See accompanying notes
23
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMECondensed Consolidated Statements of Income
(in thousands, except share and per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,Three Months Ended April 30,
2000 1999
1998 1999 1998
---- ---- ---- ---------------- ------------
Net sales $ 75,38465,291 $ 60,462 $ 201,350 $ 147,91457,991
Cost of sales, including certain buying,
distribution and occupancy costs 46,716 37,506 124,959 94,123
------------ ------------42,077 36,563
------------ ------------
Gross profit 28,668 22,956 76,391 53,79123,214 21,428
Selling, general and administrative expenses 17,145 14,849 48,225 37,135
------------ ------------18,203 15,416
------------ ------------
Income from operations 11,523 8,107 28,166 16,6565,011 6,012
Other income (expense), net (388) 426 (2,856) 1,268
------------ ------------100 (564)
------------ ------------
Income before income taxes 11,135 8,533 25,310 17,9245,111 5,448
Income tax expense 5,035 3,498 12,162 7,349
------------ ------------2,121 2,498
------------ ------------
Net income $ 6,1002,990 $ 5,035 $ 13,148 $ 10,575
============ ============2,950
============ ============
Net income per common share:
Basic $ 0.350.17 $ 0.28 $ 0.75 $ 0.60
============ ============0 .17
============ ============
Diluted $ 0.340.17 $ 0.28 $ 0.74 $ 0.59
============ ============0.17
============ ============
Weighted average common shares outstanding:
Basic 17,594,467 17,702,030 17,516,687 17,726,533
============ ============17,268,287 17,490,797
============ ============
Diluted 17,965,089 17,873,003 17,862,669 17,969,232
============ ============17,312,167 17,668,709
============ ============
See accompanying notes
34
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYCondensed Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
(Unaudited)
Common Shares
------------------------------------------------------------------------------------------------
Accumulated
Comprehensive
Number Additional Other
IncomeComprehensive of Par Paid-InPaid-in Retained Comprehensive
Quarter Year-To-DateIncome Shares Value Capital Earnings IncomeLoss Total
------------- ---------- ----- ---------- -------- ------------- --------
BalanceBalances at February 1, 2000 17,358,186 $ 2 $17,680 $103,614 $ (380) $120,916
Net income $2,990 -- -- -- 2,990 -- 2,990
Foreign currency translation (135) -- -- -- -- (135) (135)
------
Comprehensive income $2,855
======
Purchase and retirement of
common shares (104,700) -- (1,412) -- -- (1,412)
---------- --- ------- -------- ------- --------
Balances at April 30, 2000 17,253,486 $ 2 $16,268 $106,604 $ (515) $122,359
========== === ======= ======== ======= ========
Balances at February 1, 1999 17,639,754 $ 2 $ 20,825$20,825 $ 84,934 $ (467) $ 105,294$105,294
Net income $ 6,100 $ 13,148$2,950 -- -- -- 13,1482,950 -- 13,1482,950
Foreign currency translation adjustments, net 222 135186 -- -- -- -- 135 135
-------- --------186 186
------
Comprehensive income $ 6,322 $ 13,283
======== ========$3,136
======
Exercise of stock options 351,032130,332 -- 5,0451,190 -- -- 5,0451,190
Purchase and retirement of
common stockshares (371,545) -- (4,994) -- -- (4,994)
---------- ------- ------- -------- --------- ------- ----------
Balance--------
Balances at October 31,April 30, 1999 17,619,24117,398,541 $ 2 $17,021 $ 20,87687,884 $ 98,082 $ (332) $ 118,628(281) $104,626
========== ===== ======== ======== ====== =========
Balance at February 1, 1998 17,649,360 $ 2 $ 21,482 $ 69,174 $ -- $ 90,658
Net income $ 5,035 $ 10,575 -- -- -- 10,575 -- 10,575
Foreign currency translation
adjustments, net 12 (299) -- -- -- -- (299) (299)
-------- --------
Comprehensive income $ 5,047 $ 10,276
======== ========
Exercise of stock options 135,594 -- 1,289 -- -- 1,289
Purchase and retirement
of common stock (167,200) -- (2,254) -- -- (2,254)
--------- ----- -------- -------- ------- -----------
Balance at October 31, 1998 17,617,754 $ 2 $ 20,517 $ 79,749 $ (299) $ 99,969
========== ===== =========== ======= ======== ======= ==================
See accompanying notes
45
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCondensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
NINE MONTHS ENDED OCTOBER 31,Three Months Ended April 30,
2000 1999
1998
---- ------------ --------
Cash flows from operating activities:
Net income $ 13,1482,990 $ 10,5752,950
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,894 3,9822,396 1,926
Provision for losses of MXG Media, Inc. -- 1,000
Changes in assets and liabilities:
Increase in receivables (4,090) (2,442)(1,544) (236)
Increase in inventory (10,646) (9,372)
Increaseinventories (6,155) (3,411)
Decrease (increase) in prepaid expenses and other assets (1,937) (3,021)4,095 (1,611)
Increase in payables, accrued expenses and other liabilities 10,059 12,781656 2,635
-------- --------
Net cash provided by operating activities 12,428 12,5032,438 3,253
-------- --------
Cash flows from investing activities:
Capital expenditures (25,158) (14,482)
Purchase(5,722) (7,274)
Purchases of marketable securities (12,159) (8,355)(500) (6,816)
Sales and maturities of marketable securities 14,994 8,922
Other assets (8,150)1,078 5,599
Advances to MXG Media, Inc. -- (2,175)
-------- --------
Net cash used in investing activities (30,473) (13,915)(5,144) (10,666)
-------- --------
Cash flows from financing activities:
Exercise of stock options 5,045 1,289
Purchase-- 1,190
Purchases and retirement of common stock (1,412) (4,994) (2,254)
-------- --------
Net cash provided by (used in)used in financing activities 51 (965)(1,412) (3,804)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 135 (299)(135) 186
-------- --------
Decrease in cash and cash equivalents (17,859) (2,676)(4,253) (11,031)
Cash and cash equivalents at beginning of period 12,727 25,165 26,712
-------- --------
Cash and cash equivalents at end of period $ 7,3068,474 $ 24,03614,134
======== ========
See accompanying notes
56
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed 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, 1999,2000, filed with the Securities and
Exchange Commission on April 21, 1999.14, 2000.
Certain prior period amounts have been reclassified to conform to the
current year's presentation.
2. Marketable Securities
Marketable securities are classified as follows:
October 31, 1999April 30, 2000 January 31, 2000 April 30, 1999
October 31, 1998-------------- ---------------- ---------------- --------------------------
(in thousands)
Current portion
Held-to-maturity ............Held-to-maturity.......................... $ 6,3748,257 $ 9,2065,938 $ 9,391
Available-for-sale .......... 1,997 3,826 1,8677,348
Available-for-sale......................... 2,327 5,287 2,757
------- ------- -------
8,371 13,032 11,258
------- ------- -------10,584 11,225 10,105
Noncurrent portion
Held-to-maturity ............ 13,785 12,218 11,033Held-to-maturity........................... 8,646 8,646 16,299
------- ------- -------
Total marketable securities .... $22,156 $25,250 $22,291.............. $19,230 $19,871 $26,404
======= ======= =======
The difference between the fair market value and amortized cost of
marketable securities is immaterial.
67
3. Net Income Per Share
The difference betweenfollowing is a reconciliation of the numberdenominators of weighted average common shares outstanding
used for basicthe net income per
share and the number used for dilutive net income per share represents the share effect- assuming dilution ("EPS") computations:
April 30, 2000 April 30, 1999
-------------- --------------
Basic weighted average
shares outstanding 17,268,287 17,490,797
Effect of dilutive stock options.options 43,880 177,912
---------- ----------
Diluted weighted average
shares outstanding 17,312,167 17,668,709
========== ==========
Options to purchase 1,044,500 shares were outstanding at April 30, 2000,
but were not included in the computation of EPS because the options' exercise
prices were greater than the average market price of the common shares.
Options to purchase 318,500 shares were outstanding at April 30, 1999, but
were not included in the computation of EPS because the options' exercise prices
were greater than the average market price of the common shares.
4. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 5258 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and two web site.sites. Sales
from this retail segment account for approximatelyover 90% of total consolidated sales.sales for
the fiscal year ended January 31, 2000. The remainder is derived from a
wholesale division that manufactures and distributes apparel to the retail
segment and to over 1,300 better specialty stores worldwide.
The Company has aggregated its operations into these two reportable
segments based upon their unique management, customer base and economic
characteristics. Reporting in this format provides management with the financial
information necessary to evaluate the success of the segments and the overall
business. The Company evaluates the performance of the segments based on the net
sales and pretaxpre-tax income from operations (excluding intercompany royalty and
interest charges) of the segment. Corporate expenses include expenses incurred
in and directed by the corporate office that are not allocated to segments. The
principal identifiable assets for each operating segment are inventory and fixed
assets. Other assets are comprised primarily of general corporate assets, which
principally consist of cash and cash equivalents, marketable securities and
other assets. Intersegment sales are immaterial. The Company accounts for intersegment sales and transfers as if
the sales and transfers were made to third parties making similar volume
purchases.
78
4. Segment Reporting (continued)
Both the retail and wholesale segmentssegment are highly diversified. No customer
comprises more than 10% of sales. Foreign operations are immaterial relative to
the overall Company.
Three months ended
April 30,
2000 1999
-------- --------
Operating revenues
Retail operations $ 58,947 $ 52,443
Wholesale operations 7,490 6,186
Intersegment elimination (1,146) (638)
-------- --------
Total net sales $ 65,291 $ 57,991
======== ========
Income from operations
Retail operations $ 5,033 $ 6,040
Wholesale operations 530 477
-------- --------
Total segment operating income 5,563 6,517
General corporate expenses (552) (505)
-------- --------
Total income from operations $ 5,011 $ 6,012
======== ========
Three Months Ended Nine Months Ended
OctoberApril 30, 2000 January 31, October 31,2000 April 30, 1999
1998 1999 1998
---- ---- ---- ------------------ ---------------- --------------
OPERATING REVENUESNet fixed assets
Retail operations .....................operations............... $ 67,25475,209 $ 53,16871,805 $ 182,423 $ 130,95547,490
Wholesale operations .................. 9,357 8,599 21,715 20,264
Intersegment elimination .............. (1,227) (1,305) (2,788) (3,305)
--------- --------- --------- ---------
Total net sales ....................... $ 75,384 $ 60,462 $ 201,350 $ 147,914
========= ========= ========= =========
INCOME FROM OPERATIONS
Retail operations ..................... $ 10,808 $ 7,778 $ 28,266 $ 16,534
Wholesale operations .................. 1,158 721 2,019 1,406
--------- --------- --------- ---------
Total segment operating income ........ 11,966 8,499 30,285 17,940
Corporate and other general expenses .. (443) (392) (2,119) (1,284)
--------- --------- --------- ---------
Total income from operations .......... $ 11,523 $ 8,107 $ 28,166 $ 16,656
========= ========= ========= =========
October 31, 1999 January 31, 1999 October 31, 1998
---------------- ---------------- ----------------
NET FIXED ASSETS
Retail operations.............................. $ 61,460 $ 42,230 $ 36,573
Wholesale operations........................... 1,128 835 819
Corporate......................................operations............ 998 1,013 986
Corporate....................... 1 1 1
-------- -------- --------
Total net fixed assets.........................assets.......... $ 62,58976,208 $ 43,06672,819 $ 37,39348,477
======== ======== ========
INVENTORYInventory
Retail operations..............................operations............... $ 31,58031,880 $ 19,39725,217 $ 24,44824,280
Wholesale operations........................... 947 2,484 2,052operations............ 1,143 1,651 1,012
-------- -------- --------
Total inventory................................inventory................. $ 32,52733,023 $ 21,88126,868 $ 26,50025,292
======== ======== ========
89
5. Investment in MXG Media, Inc.
At October 31,On February 5, 1998 the Company's net investment inCompany entered into an agreement with MXG Media,
Inc. (MXG,("MXG," formerly HMB Publishing, Inc.) was $3.2 million.for the purchase of securities
convertible into a minority interest in the company through Series B Convertible
Preferred Stock and certain convertible debentures. The agreement called for
additional investments and ownership if MXG met certain performance milestones.
MXG publishes a "magalog"the "MXG magalog" and operates athe www.MXGonline.com and
www.MXGtv.com web site - www.mxgonline.com - that caterssites, all of which cater to teenage girls.
Since
October 31, 1998,As of April 30, 2000, the Company advanced $8.8has invested approximately $2.0 million
in bridgeSeries B Convertible Preferred Stock and other
financing to fund MXG's expansion. Additionally,$2.4 million in convertible
debentures. MXG has incurred losses since its inception, and, in accordance with
the equity method of accounting, the Company recognized net
charges to earnings of $853 thousand for the current quarter and $4.4 million
for the nine months ended October 31, 1999 to record required accountinghad recorded reserves for the Company'sits
portion of MXG's operating losses. The net charge of
$853 thousand for the current quarter included a gross charge of $2.9 millionlosses related to required reserves for MXG's operating losses, offset by a $2 million
recovery of advances more fully explained below.
Pursuantthe minority interest in MXG during the
prior fiscal year. The company has no plans to an agreement dated October 31, 1999,increase its investment in MXG received anor
advance additional equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest. The $7.6 million amount received was recorded
in other current assets at October 31, 1999. The balance of the Company's
investment has been fully reserved, and no further investments are planned at
this time. Accordingly, no additional charges to earnings for MXG operating
losses are expected to be recognized in future periods by the Company.
6. Common Stock Purchase and Retirement
In a series of open market transactions duringfunds.
During the quarter ended April 30, 1999, the Company advanced $1.6 million
of bridge financing to MXG in the form of promissory notes. This amount,
together with subsequent advances, was repaid with interest on November 1, 1999.
As of April 30, 1999, the Company's net investments in MXG aggregated $4.9
million. During this quarter, the Company recognized charges of $1.0 million,
reported as other expense, to record the above required accounting reserves.
6. Common Stock Purchase and Retirement
The Company purchased and retired 104,700 shares, at a cost of $1.4
million, and 371,545 shares, of its common stock at a cost of $5.0 million. These purchasesmillion, of its common stock in
open market transactions during the quarters ended April 30, 2000 and April 30,
1999, respectively. Purchases during the quarter ended April 30, 2000 were made
pursuant to a Board resolution adopted by
the Board of Directors in 1995January, 2000 that authorizes the
Company to purchase from
time to time, up to 800,0001,000,000 shares of the Company's common stock.stock from
time-to-time based on prevailing market conditions. Purchases during the prior
year's quarter ended April 30, 1999 were made pursuant to a 1995 Board
authorized buy-back plan which allowed the Company to purchase up to 800,000
shares. As of October
31, 1999,April 30, 2000, up to 261,255880,500 additional shares are authorized for
purchase under this
resolution.
9the January, 2000 buy-back plan.
10
PART I
FINANCIAL INFORMATION (CONTINUED)(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. Anyone, 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.
Thus far this fiscal year, the Company opened fourone new Urban Retail stores and
two new Anthropologie stores.store in
Tucson, Arizona. Management plans to open approximately fivetwelve to fourteen new
stores during the remainder of the fiscal year.
RESULTS OF OPERATIONS
The Company's operating years end on January 31 and include twelve periods
ending on the last day of the calendar month. For example, the fiscal year 20002001
("FY 2000"2001") will end on January 31, 2000.2001. This discussion of results of
operations covers the third quarter andaddresses the first ninethree months of FY 20002001 and FY 1999.
102000.
11
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 NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
distribution and occupancy costs 62.0% 62.0% 62.1% 63.6%
----- ----- ----- -----
Gross profit 38.0% 38.0% 37.9% 36.4%
Selling, general and administrative expenses 22.7% 24.6% 23.9% 25.1%
----- ----- ----- -----
Income from operations 15.3% 13.4% 14.0% 11.3%
Other income (expense), net (0.5%) 0.7% (1.4%) 0.9%
----- ----- ----- -----
Income before income taxes 14.8% 14.1% 12.6% 12.2%
Income tax expense 6.7% 5.8% 6.1% 5.0%
----- ----- ----- -----
Net income 8.1% 8.3% 6.5% 7.2%
===== =====Three Months Ended
April 30,
2000 1999
----- ------
Net sales 100.0% 100.0%
Cost of sales, including certain buying,
distribution and occupancy costs 64.4 63.0
----- -----
Gross profit 35.6 37.0
Selling, general and administrative expenses 27.9 26.6
----- -----
Income from operations 7.7 10.4
Other income (expense), net 0.1 (1.0)
----- -----
Income before income taxes 7.8 9.4
Income tax expense 3.2 4.3
----- -----
Net income 4.6% 5.1%
===== =====
THIRDFIRST QUARTER ENDED OCTOBER 31, 1999APRIL 30, 2000 COMPARED
TO THE THIRDFIRST QUARTER ENDED OCTOBER 31, 1998APRIL 30, 1999
Net sales increased during the thirdfirst quarter ended October 31, 1999April 30, 2000 to $75.4$65.3
million, up 25.0%12.6% from $60.5$58.0 million for the same quarter last year. The $14.9$7.3
million increase over the prior year's thirdfirst quarter was primarily the result of
new and noncomparable stores' sales increases of $8.3 million, an 8%$6.9 million. A 4% comparable
store decrease accounted for a $1.7 million reduction in sales, increase that contributed $3.8 million,while
Anthropologie direct response
sales increases (catalog and web site) sales increased $1.3
million. Wholesale segment sales increased by $0.8 million.
The Company's gross profit margin expressed as a percentage of $2.0 millionsales
decreased by 1.4% versus the comparable period last year, primarily due to the
increased occupancy costs of noncomparable and a $0.8 million
increase from the Wholesale segment.
Gross profitnew stores, as well as additional
retail clearance markdowns.
Selling, general and administrative expenses expressed as a percentage of
sales for the third quarter ended October 31,
1999 was unchanged versus the same quarter last year. Higher initial markups in
the retail segment combined with improved Wholesale results were offset by
higher occupancy costs versus the same quarter last year.
Selling, general and administrative expenses for the quarter ended October 31,
1999 expressed as a percentage of sales decreasedApril 30, 2000 increased to 22.7%27.9% compared to 24.6%26.6%
for the same quarter last year. TheFor the retail store operations, the Company's
cost control efforts reduced the deleveraging impact of the comparable store
sales gains combineddecrease, resulting in a decrease in expense dollars and only a modest
percentage increase in selling and administrative costs. Noncomparable and new
stores, however, with increases inlower average sales volumes, have higher proportionate
expenses than comparable stores, accounting for the bulk of the increase.
Anthropologie direct response operations experienced an increase in operating
expense percentages for the quarter primarily due to the timing of the
recognition of catalog production costs related to the first quarter's Spring
book
12
versus the same book in last year's comparable quarter. Additionally,
initial start-up costs were incurred for the design, production and
administration of the new Urban e-commerce web site (www.urbn.com) which
launched in May 2000. An increase in sales by the Wholesale sales gains,company resulted in
the leveraging of its operating expenses.
Accordingly, operatingexpenses, partially offsetting these items.
Net income increased by 1% to $2,990,000 versus $2,950,000 for the
comparable quarter increased by 42% in dollars and
from 13.4 % of sales in FY 1999 to 15.3% thislast year.
At October 31,On February 5, 1998 the Company's net investment inCompany entered into an agreement with MXG Media,
Inc. (MXG,("MXG," formerly HMB Publishing, Inc.) was $3.2 million.for the purchase of securities
convertible into a minority interest in MXG through Series B Convertible
Preferred Stock and certain convertible debentures. The agreement called for
additional investments and ownership if MXG met certain performance milestones.
MXG publishes a "magalog"the "MXG magalog" and operates athe www.MXGonline.com and
www.MXGtv.com web site - www.mxgonline.com - that caterssites, all of which cater to teenage girls.
Since
October 31, 1998,As of April 30, 2000, the Company has invested approximately $2.0 million
in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures. MXG has incurred losses since its inception, and, in accordance with
the equity method of accounting, the Company had recorded reserves for its
portion of operating losses related to the minority interest in MXG during the
prior fiscal year. The company has no plans to increase its investment in MXG or
advance additional funds.
During the quarter ended April 30, 1999, the Company advanced $8.8$1.6 million
inof bridge and other financing to fund MXG's expansion. Additionally,MXG in the form of promissory notes. This amount,
together with subsequent advances, was repaid with interest on November 1, 1999.
As of April 30, 1999, the Company's net investments in MXG aggregated $4.9
million. During this quarter, the Company recognized net
charges to earnings of $853 thousand for the current quarter and $4.4$1.0 million,
for the nine months ended October 31, 1999reported as other expense, to record the required accounting reserves for the
Company's portion of MXG's operating losses.
The net charge of
$853 thousand for the current quarter included a gross charge of $2.9 million
related to required reserves for MXG's operating losses, offset by a $2 million
recovery of advances more fully explained below.
Pursuant to an agreement dated October 31, 1999, MXG received an additional
equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest. The $7.6 million amount received was recorded
in other current assets at October 31, 1999. The balance of the Company's
investment has been fully reserved, and no further investments are planned at
this time. Accordingly, no additional charges to earnings for MXG operating
losses are expected to be recognized in future periods by the Company.
11
NINE MONTHS ENDED OCTOBER 31, 1999
COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 1998
Net sales increased during the nine months ended October 31, 1999 to $201.4
million, up 36.2% from $147.9 million for the same period last year. The $53.5
million increase over the prior year's first nine months was the result of new
and noncomparable stores' sales increases of $28.2 million, a 14% comparable
store sales increase that contributed $16.4 million, Anthropologie direct sales
increase of $6.9 million, and a $2.0 million increase in Wholesale segment
sales.
Gross profit as a percentage of sales increased by 1.5% during the nine months
ended October 31, 1999 compared to the same prior year period. The gross profit
improvement was due to: (1) higher initial markups in the retail segment; (2)
leveraging of store occupancy costs based on comparable store sales; and (3)
distribution efficiencies.
Selling, general and administrative expenses during the nine months ended
October 31, 1999 were $48.2 million, up $11.1 million or 30.0% from the same
period in the prior year. These dollar increases were attributed principally to
newly opened stores; the cost of moving catalog fulfillment in-house; and
additions to corporate overhead structure to support an increased rate of store
expansion. The comparable store sales gains resulted in leveraging of selling,
general and administrative expenses which decreased from 25.1% of sales during
the nine months ended October 31, 1998 to 23.9% of sales during the same period
this year.
12
Income from operations during the nine months ended October 31, 1999 was $28.2
million, up 69.1% from the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities were $29.5$27.7 million at
October
31, 1999,April 30, 2000, as compared to $50.4$32.6 million at January 31, 19992000 and $46.3$40.5
million at October 31, 1998.April 30, 1999. The Company's net working capital was $39.0$36.2 million
at October
31, 1999,April 30, 2000, as compared to $47.5$38.0 million at January 31, 19992000 and $49.7$35.6
million at October 31, 1998.April 30, 1999. The decrease in cash, cash equivalents and marketable
securities on October 31, 1999at April 30, 2000 from year end principally reflects the funding of
FY 2000's
increased level of2001's capital expenditures (primarily for new store construction),
the increase in inventory for new stores and the
seasonal building of inventory in existing stores. Cash requirements for these
activities, combined with $5.0$1.4 million expended to repurchase 371,545104,700 shares of
the Company's common stock, and
additional investments in and bridge loans to MXG, more than offset cash generated from earnings.
13
Total inventories at October 31, 1999April 30, 2000 increased by 22.7%31% versus the comparable
quarter end last year, principally attributable to new store requirements.requirements and a
14% increase in comparable store inventories. Comparable store inventories at
the endApril 30, 1999 were below planned levels because of the period were flat compared to the
same datestrong comparable stores
sales trend last year. CatalogThis year's negative comparable stores sales trend for
the quarter and early receipt of certain merchandise categories account for the
remainder of the increase. The Wholesale segment's inventories increased substantially due to13%, in
line with the expanded circulation and demand, while Wholesale inventories decreased by 54.0%,
reflecting a lower level of prior season inventory.sales trend for the current year's first quarter.
The Company expects that capital expenditures for the current year including
amounts expended for stores anticipated to open in FY 2001, will be
approximately $33.0$35.0 million. The Company believesexpects that existing cash and
investments at October 31, 1999,April 30, 2000, as well as cash from future operations, and the
$7.6 repayment on November 1, 1999 of the bridge loan by MXG, will be
sufficient to meet the Company's cash needs through January 31, 2001. However,
accelerated expansion beyond the store openings and expansions planned for
Fiscal 2001 may necessitate borrowings on the Company's line of credit facility.
Accrued expenses and other current liabilities increased to $13.9$11.2 million
as of October 31, 1999April 30, 2000 from $8.3$10.3 million at October 31, 1998.April 30, 1999. The increase in the
components of accrued expenses and other current liabilities (which includes
accrued incentive and other compensation, accrued benefits and accrued income
taxes) is primarily attributable to additional stores, the strong comparable
store sales performance and improved profitability.stores.
The Company has a $16.2 million revolving line of credit available to
facilitate letter of credit transactions and cash advances. As of and during the
ninethree months ended October 31, 1999,April 30, 2000, there were no outstanding borrowings.
Outstanding letters of credit totaled $7.1$11.3 million, $4.1$6.6 million and $3.9$5.7
million at October
31, 1999,April 30, 2000, January 31, 19992000 and October 31, 1998,April 30, 1999, respectively.
The fair value of these letters of credit is estimated to be the same as the
contract values.
1314
OTHER MATTERS
Outlook
While the Company has exceeded its planned rate of comparable store sales
increases during the first three quarters of the fiscal year, management's plan
for the fourth quarter continues to be moderate comparable store sales growth.
Year 2000
The Company does not generally sell products that must be brought into Year 2000
compliance. However, the Company does rely upon many vendors and suppliers for
their products and services. 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 and continues to monitor 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 information technology systems ("IT") that would be adversely
affected by Year 2000 issues have been upgraded or replaced through the normal
course of business. Internal resources are being used in a timely manner to
evaluate, modify and test the Company's other systems that were not scheduled to
be upgraded or replaced through the normal course of business. The upgrades of
the Company's core merchandising and financial system, Wholesale accounting and
control systems, catalog fulfillment system, warehousing management system and
store register system have been completed, and testing of these upgrades
continues. In addition, the Company is in the process of completing the
inventory and assessment of its non- information technology systems ("non-IT"),
including those with embedded processor chips -- heating, ventilation and
air-conditioning systems, elevators, etc. The Company continues to evaluate key
vendor preparedness by conducting interviews, obtaining updated compliance
representation letters and, if deemed necessary, conducting additional
comprehensive tests. While most vendors have completed their compliance work,
ongoing Company efforts are required.
The Company's Year 2000 compliance evaluation program is substantially complete.
The incremental costs associated with these major system upgrades and/or
replacements, as well as internal efforts to evaluate, modify and test the
Company's other systems to ensure Year 2000 compliance, have not been of a
material nature to the Company.
There can be no guarantee, however, that the Company's efforts will prevent Year
2000 issues from having a material adverse impact on its results of operations,
financial condition and cash flows. The possible consequences to the Company if
its business partners are not fully Year 2000 compliant (including banking
systems, communications, other public utilities and the transportation industry)
include temporary store closings and delays in the receipt of key merchandise
categories. Accordingly, the Company continues to refine its contingency plans
to mitigate the potential disruptions that may result from the Year 2000 issue.
Such plans include earlier receipt of key merchandise categories, preparing
alternative merchandise delivery
14
methodologies, securing alternative suppliers, etc. These contingency plans to
manage identified IT and non-IT areas of high risk will be reviewed and tested,
as appropriate, over the remainder of the year.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133") which is required to be adopted in
fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No.
133 effective February 1, 2001.Fiscal 2002. The Company currently enters into short-term foreign currency
forward exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of the contracts
and related gains and losses have not been material. The adoption of SFAS No.
133 is not expected to have a significant effect on the financial position or
results of operations of the Company.
Market Risks
The Company is exposed to the following types of market risks -
fluctuations in the purchase price of merchandise, as well as other goods and
services; the value of foreign currencies in relation to the U.S. dollar; and
changes in interest rates. Due to the Company's inventory turn and its
historical ability to pass through the impact of any generalized changes in its
cost of goods to its customers through pricing adjustments, commodity and other
product risks are not expected to be material. The Company purchases
substantially all its merchandise in U.S. dollars, including a portion of the
goods for its stores located in Canada and the United Kingdom. As explained in
the section above on "Recent Accounting Pronouncements," the market risk is
further limited by the Company's purchase of foreign currency forward exchange
contracts.
Since the Company has not been a borrower, its exposure to interest rate
fluctuations is limited to the impact on its marketable securities portfolio.
This exposure is minimized by the limited investment maturities and "put"
options available to the Company. The impact of a hypothetical two percent
increase or decrease in prevailing interest rates would not materially affect
the Company's consolidated financial position or results of operations.
15
Seasonality and Quarterly Results
While Urban Outfitters has been profitable in each of its last 3941 operating
quarters, its operating results are subject to seasonal fluctuations. While the
Company's negative comparable store sales trend has continued since April 30,
2000, the Company's results of operations in any one fiscal quarter are not
necessarily indicative of the results of operations that can be expected for any
other fiscal quarter or for the full fiscal year. The Company's highest sales
levels have historically occurred during the five-month period from August 1 to
December 31 of each year (the "Back- to-School""Back-to-School" and Holiday periods). Sales
generated during these periods have traditionally had a significant impact on
the Company's results of operations. Any decreases in sales for these periods or
in the availability of working capital needed in the months preceding these
periods could have a material adverse effect on the Company's results of
operations.
The Company's results of operations in any one
fiscal quarter are not necessarily indicative of the results of operations that
can be expected for any other fiscal quarter or for the full fiscal year.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of expenses incurred in connection
with, and sales contributed by, new stores, store expansions and the integration
of new stores into the operations of the Company or by the size and timing of
mailings ofand web site traffic for the Company's Anthropologie catalog.direct response operations.
Fluctuations in the bookings and shipments of Wholesale productsmerchandise between
quarters can also have positive or negative effects on earnings during the
quarters.
16
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
17
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/ Stephen A. Feldman
---------------------------------------------------
Stephen A. Feldman
Chief Financial Officer
Dated: November 24, 1999June 13, 2000
18