- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT UNDER SECTION 13 or 15(d)15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2000April 30, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16999
----------------
Urban Outfitters, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2003332
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
(Address of principal executive office) (Zip Code)
office)
(215) 564-2313
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) 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 [_]
Number of Shares Outstanding
Title of Each Class of Common Stock at December 6, 2000June 8, 2001
----------------------------------- ----------------------------
Common Shares, par value, $.0001 per share 17,253,48617,263,486
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
INDEX
Page
-----
PART I Financial Information
Page
----
ITEM 1Item 1. Financial Statements
Condensed Consolidated Balance Sheets at October 31, 2000,April 30, 2001,
January 31, 2000,2001, and October 31, 1999April 30, 2000 (Unaudited)............. 3
Condensed Consolidated Statements of Income for the three and
nine4
months ended October 31,April 30, 2001 and 2000 and 1999 (Unaudited)..................... 4
Condensed Consolidated Statements of Shareholders' Equity for
the ninethree months ended October 31,April 30, 2001 and 2000 and 1999 (Unaudited)....... 5
Condensed Consolidated Statements of Cash Flows for the ninethree
months ended October 31,April 30, 2001 and 2000 and 1999 (Unaudited)............. 6
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................... 7-9
ITEM 2Statements.......... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 9-12
ITEM 3Operations.................................... 10-14
Item 3. Quantitative and Qualitative Disclosure Aboutabout Market Risk....... 13Risk..... 14
PART II Other Information
ITEM 6Item 6. Exhibits and Reports on Form 8-K................................ 13
SIGNATURES..............................................................8-K.............................. 14
SIGNATURES............................................................. 15
2
URBAN OUTFITTERS, INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
October 31, 2000April January 31, April
30, 2001 2001 30, 2000
October 31, 1999
---------------- ---------------- ------------------------ ----------- --------
AssetsASSETS
------
Current assets:
Cash and cash equivalents..............equivalents.................... $ 7,1579,795 $ 12,72716,286 $ 7,3068,474
Marketable securities..... 1,602 11,225 8,371securities........................ 332 314 10,584
Accounts receivable, net of allowance for
doubtful accounts of $599, $518$536,$500 and and $563,
respectively............. 4,777 4,825 8,914
Inventories............... 44,986 26,868 32,527$541,
respectively................................ 5,558 3,444 6,369
Inventories.................................. 41,903 34,786 33,023
Prepaid expenses and other current assets........... 8,180 10,433 15,501assets.... 10,242 10,143 6,343
-------- -------- --------
Total current assets.... 66,702 66,078 72,619assets........................... 67,830 64,973 64,793
Property and equipment, net........................ 89,949 72,819 62,589net.................... 99,325 97,901 76,208
Marketable securities.......securities.......................... -- -- 8,646
13,785
Other assets................ 5,940 5,958 7,763assets................................... 6,139 5,842 5,953
-------- -------- --------
$162,591 $153,501 $156,756$173,294 $168,716 $155,600
======== ======== ========
Liabilities and
Shareholders' EquityLIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:Liabilities:
Accounts payable..........payable............................. $ 20,52122,243 $ 16,76019,387 $ 19,68817,379
Accrued expenses and other current
liabilities...... 10,636 11,312 14,070liabilities................................. 14,283 13,931 11,177
-------- -------- --------
Total current liabilities............ 31,157 28,072 33,758liabilities...................... 36,526 33,318 28,556
Deferred rent............. 5,355 4,513 4,370rent................................ 6,257 5,786 4,685
-------- -------- --------
Total liabilities....... 36,512 32,585 38,128
-------- -------- --------liabilities.............................. 42,783 39,104 33,241
Shareholders' equity:
Preferred shares; $.0001 par value,
10,000,000 authorized, none issued..issued.......... -- -- --
Common shares; $.0001 par value, 50,000,000
shares authorized, 17,253,486, 17,358,186 and 17,619,241
issued and
outstanding,
respectively.............outstanding................................. 2 2 2
Additional paid-in capital..................capital................... 16,268 17,680 20,87616,268 16,268
Retained earnings......... 110,702 103,614 98,082earnings............................ 115,260 114,109 106,604
Accumulated other comprehensive loss....... (893) (380) (332)loss......... (1,019) (767) (515)
-------- -------- --------
Total shareholders' equity................. 126,079 120,916 118,628130,511 129,612 122,359
-------- -------- --------
$162,591 $153,501 $156,756$173,294 $168,716 $155,600
======== ======== ========
See accompanying notes
3
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,April 30,
----------------------
----------------------2001 2000 1999 2000 1999
---------- ----------
---------- ----------
Net sales..................... $ 76,501 $ 75,384 $ 208,093 $ 201,350sales.............................................. $71,834 $65,950
Cost of sales, including certain buying, distribution
and occupancy costs.......... 52,030 46,716 140,629 124,959
---------- ----------costs................................... 50,274 42,684
---------- ----------
Gross profit................ 24,471 28,668 67,464 76,391profit......................................... 21,560 23,266
Selling, general and administrative expenses...... 20,323 17,145 55,295 48,225
---------- ----------expenses........... 19,512 18,255
---------- ----------
Income from operations...... 4,148 11,523 12,169 28,166operations............................... 2,048 5,011
Other expense, net............ (213) (388) (154) (2,856)
---------- ----------income (expense), net............................ (113) 100
---------- ----------
Income before income taxes.. 3,935 11,135 12,015 25,310taxes........................... 1,935 5,111
Income tax expense............ 1,574 5,035 4,927 12,162
---------- ----------expense..................................... 784 2,121
---------- ----------
Net income..................income........................................... $ 2,3611,151 $ 6,100 $ 7,088 $ 13,148
========== ==========2,990
========== ==========
Net income per common share:
Basic.......................Basic................................................ $ 0.140.07 $ 0.35 $ 0.41 $ 0.750.17
========== ==========
========== ==========
Diluted.....................Diluted.............................................. $ 0.140.07 $ 0.34 $ 0.41 $ 0.74
========== ==========0.17
========== ==========
Weighted average common shares outstanding:
outstanding:
Basic.......................Basic................................................ 17,253,486 17,594,467 17,258,348 17,516,68717,268,287
========== ==========
========== ==========
Diluted..................... 17,275,640 17,965,089 17,269,282 17,862,669
========== ==========Diluted.............................................. 17,292,362 17,312,167
========== ==========
See accompanying notes
4
URBAN OUTFITTERS, INC.
Condensed Consolidated Statements of Shareholders' EquityCONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Comprehensive
Income Common Shares
---------------- ------------------------------------------------------
Accumulated
Year-
Additional Other
To-Comprehensive Number of Par Paid-in Retained Comprehensive
Quarter DateIncome Shares Value Capital Earnings Loss ------- -------Total
------------- ---------- ----- ---------- -------- ------------- --------
Balances at February 1,
2000.................2001................... 17,253,486 $ 2 $16,268 $114,109 $ (767) $129,612
Net income.............. $1,151 -- -- -- 1,151 -- 1,151
Foreign currency
translation adjustment,
net.................... (270) -- -- -- -- (270) (270)
Change in unrealized net
losses on marketable
securities............. 18 -- -- -- -- 18 18
------
Comprehensive income.... $ 899
======
---------- --- ------- -------- ------- --------
Balances at April 30,
2001................... 17,253,486 $ 2 $16,268 $115,260 $(1,019) $130,511
========== === ======= ======== ======= ========
Balances at February 1,
2000................... 17,358,186 $ 2 $17,680 $103,614 $(380)$ (380) $120,916
Net income................................... $2,361 $ 7,088income.............. $2,990 -- -- -- 7,0882,990 -- 2,990
Foreign currency
translation adjustments,
net......................................... (131) (487)adjustment,
net.................... (135) -- -- -- -- (487)
Unrealized marketable securities losses,
net......................................... 63 (26) -- -- -- -- (26)(135) (135)
------
-------
Comprehensive income......................... $2,293 $ 6,575income.... $2,855
====== =======
Purchases and retirementsretirement
of common shares...shares....... (104,700) -- (1,412) -- -- (1,412)
---------- --- ------- -------- ------------ --------
Balances at October 31, 2000.................April 30,
2000................... 17,253,486 $ 2 $16,268 $110,702 $(893)$106,604 $ (515) $122,359
========== === ======= ======== =====
Balances at February 1, 1999................. 17,639,754 $ 2 $20,825 $ 84,934 $(467)
Net income................................... $6,100 $13,148 -- -- -- 13,148 --
Foreign currency translation adjustments,
net......................................... 222 135 -- -- -- -- 135
------ -------
Comprehensive income......................... $6,322 $13,283
====== =======
Exercises of stock options................... 351,032 -- 5,045 -- --
Purchases and retirements of common shares... (371,545) -- (4,994) -- --
---------- --- ------- -------- -----
Balances at October 31, 1999................. 17,619,241 $ 2 $20,876 $ 98,082 $(332)
- --------------------------------------------------
========== === ======= ======== =====
Total
---------
Balances at February 1, 2000................. $120,916
Net income................................... 7,088
Foreign currency translation adjustments,
net......................................... (487)
Unrealized marketable securities losses,
net......................................... (26)
Comprehensive income.........................
Purchases and retirements of common shares... (1,412)
---------
Balances at October 31, 2000................. $126,079
=========
Balances at February 1, 1999................. $105,294
Net income................................... 13,148
Foreign currency translation adjustments,
net......................................... 135
Comprehensive income.........................
Exercises of stock options................... 5,045
Purchases and retirements of common shares... (4,994)
---------
Balances at October 31, 1999................. $118,628
- --------------------------------------------------
=========
See accompanying notes
5
URBAN OUTFITTERS, INC.
Condensed Consolidated Statements of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
NineThree Months
Ended October 31,
------------------April 30,
----------------
2001 2000
1999
-------- --------------- -------
Cash flows from operating activities:
Net income................................................income................................................. $ 7,0881,151 $ 13,1482,990
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 8,537 5,894
Provision for losses of MXG Media, Inc.................... -- 4,353amortization............................ 3,647 2,396
Changes in assets and liabilities:
Decrease (increase) in receivables...................... 48 (4,090)
Increase in inventories................................. (18,118) (10,646)
Decrease (increase)receivables................................ (2,114) (1,544)
Increase in inventories................................ (7,117) (6,155)
(Increase) decrease in prepaid expenses and other
assets................................................. 2,250 (6,290)assets................................................ (396) 4,095
Increase in payables, accrued expenses and other
liabilities............................................ 3,927 10,059
-------- --------liabilities........................................... 3,679 656
------- -------
Net cash (used in) provided by operating activities................. 3,732 12,428
-------- --------activities.. (1,150) 2,438
------- -------
Cash flows from investing activities:
Capital expenditures.................................... (25,453) (25,158)expenditures....................................... (5,071) (5,722)
Purchases of marketable securities...................... (600) (12,159)securities......................... -- (500)
Sales and maturities of marketable securities........... 18,650 14,994
Advances to MXG Media, Inc..............................securities.............. -- (8,150)
-------- --------1,078
------- -------
Net cash used in investing activities..................... (7,403) (30,473)
-------- --------activities................ (5,071) (5,144)
------- -------
Cash flows from financing activities:
Exercise of stock options............................... -- 5,045
Purchases and retirementsretirement of common stock...............stock................... -- (1,412)
(4,994)
-------- --------------- -------
Net cash (used in) provided byused in financing activities.......activities................ -- (1,412)
51
-------- --------------- -------
Effect of exchange rate changes on cash and cash
equivalents.............................................. (487) 135
-------- --------equivalents................................................. (270) (135)
------- -------
Decrease in cash and cash equivalents..................... (5,570) (17,859)equivalents........................ (6,491) (4,253)
Cash and cash equivalents at beginning of period..........period............. 16,286 12,727
25,165
-------- --------------- -------
Cash and cash equivalents at end of period................period................... $ 7,1579,795 $ 7,306
======== ========8,474
======= =======
See accompanying notes
6
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(Unaudited)
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. The results of operations for the
three and nine months ended October 31, 2000April 30, 2001 are not necessarily indicative of the
results to be expected for the full year. 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,
2000,2001, filed with the Securities and Exchange Commission on April 14, 2000.16, 2001.
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,April 30, 2001 January 31, October 31,2001 April 30, 2000
2000 1999
----------- ----------- ------------------------- ---------------- --------------
(in thousands)
Current portion
Held-to-maturity.......................Held-to-maturity........ $ -- $ 5,938-- $ 6,374
Available-for-sale..................... 1,602 5,287 1,997
------8,257
Available-for-sale...... 332 314 2,327
----- ----- -------
-------
1,602 11,225 8,371332 314 10,584
Noncurrent portion.......................
Held-to-maturity.......................portion
Held-to-maturity........ -- -- 8,646
13,785
------ ------------ ----- -------
Total marketable
securities.......... $1,602 $19,871 $22,156
====== =======securities............... $ 332 $ 314 $19,230
===== ===== =======
The difference between the fair market value and amortized cost of
marketable securities is immaterial.
7
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Net Income Per Share
The difference between the number of weighted average common shares
outstanding used for basic net income per share and the number used for
dilutive net income per share represents the share effect of dilutive stock
options.
Options to purchase 1,181,0001,123,500 and 237,5001,044,500 shares were outstanding at
October
31,April 30, 2001 and 2000, and 1999, respectively, but were not included in the
computation of EPS because their effect would be antidilutive.
4. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 6673 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and two web sites.
Sales from this retail segment account for over 90% of total consolidated
sales for the fiscal year ended January 31, 2000.2001. The remainder is derived
from a wholesale division that manufactures and distributes apparel to the
retail segment and to overapproximately 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
7
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 pre-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, accounts receivable and other assets. The
Company accounts for intersegment sales and transfers as if the sales and
transfers were made to third parties making similar volume purchases.
8
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Both the retail and wholesale segment are highly diversified. No customer
comprises more than 10% of sales. Foreign operations are immaterial relative
to the overall Company.
Three Months
Ended October Nine Months Ended
31, October 31,months
ended April 30,
----------------
------------------2001 2000 1999 2000 1999
------- -------
-------- --------
Net Sales
Retail operations........................................ $67,428 $59,606
Wholesale operations..................................... 5,229 7,490
Intersegment elimination................................. ( 823) (1,146)
------- -------
Total net sales.......................................... $71,834 $65,950
======= =======
Income from operations
Retail operations........................................ $ 2,862 $ 4,188
Wholesale operations..................................... (23) 1,637
Intersegment elimination................................. (164) (262)
------- -------
Total segment operating income........................... 2,675 5,563
General corporate expenses............................... (627) (552)
------- -------
Total income from operations............................. $ 2,048 $ 5,011
======= =======
April 30, 2001 January 31, 2001 April 30, 2000
-------------- ---------------- --------------
Operating revenuesProperty and equipment, net
Retail operations.................... $71,637 $67,254 $191,838 $182,423operations......... $98,347 $96,890 $75,209
Wholesale operations................. 6,915 9,357 20,668 21,715
Intersegment elimination............. (2,051) (1,227) (4,413) (2,788)
------- ------- -------- --------
Total net sales.................... $76,501 $75,384 $208,093 $201,350
======= ======= ======== ========
Income from operations
Retail operations.................... $ 4,664 $10,292 $ 11,211 $ 27,049
Wholesale operations................. 607 1,929 3,712 3,802
Intersegment elimination............. (382) (255) (901) (566)
------- ------- -------- --------
Total segment operating income....... 4,889 11,966 14,022 30,285
General corporate expenses........... (741) (443) (1,853) (2,119)
------- ------- -------- --------
Total income from operations....... $ 4,148 $11,523 $ 12,169 $ 28,166
======= ======= ======== ========
October 31, January 31, October 31,
2000 2000 1999
----------- ----------- -----------
Net fixed assets
Retail operations..................... $88,911 $71,805 $61,460
Wholesale operations.................. 1,037 1,013 1,128
Corporate.............................operations...... 977 1,010 998
Corporate................. 1 1 1
------- ------- -------
Total net fixed assets.............. $89,949 $72,819 $62,589property and
equipment, net........... $99,325 $97,901 $76,208
======= ======= =======
InventoryInventories
Retail operations..................... $42,707 $25,217 $31,580operations......... $39,692 $31,845 $31,880
Wholesale operations.................. 2,279 1,651 947operations...... 2,211 2,941 1,143
------- ------- -------
Total inventory..................... $44,986 $26,868 $32,527inventories......... $41,903 $34,786 $33,023
======= ======= =======
5. Investment in MXG Media, Inc.
As of January 31, 2000, the Company had invested approximately $2.0 million
in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures of MXG Media, Inc. ("MXG"). MXG incurred losses since its
inception, and, in accordance with the equity method of accounting, the
Company recorded charges to earnings of $4.4 million for its portion of
operating losses related to the minority interest in MXG during the fiscal
year ended January 31, 2000 (including $0.9 million for the quarter and $4.4
million for the nine months ended October 31, 1999). These charges in FY 2000
fully reserved for the Company's investment and the Company made no additional
investments in FY 2001 in MXG.
8
During the quarter ended October 31, 1999, the Company advanced $2.6 million
of bridge financing to MXG in the form of promissory notes. These notes,
together with previous advances, were repaid with interest on November 1,
1999. As of October 31, 1999, the Company's net investment in MXG was $7.6
million.
On September 13, 2000, MXG ceased operations and filed a Petition for Relief
under Chapter 7 of the United States Bankruptcy Code. MXG had been
unsuccessful in attempts to raise additional capital. The Company expects the
ultimate recovery of its investment in MXG, if any, to be di minimus.
6. Common Stock Purchase and Retirement
In February 2000, the Company purchased and retired 104,700 shares of its
common stock at a cost of $1.4 million, in open market transactions, pursuant
to a Board resolution adopted in January 2000. This resolution authorizes the
Company to purchase up to 1,000,000 shares of the Company's common stock, from
time-to-time, based on prevailing market conditions. As of October 31, 2000,April 30, 2001, up
to 880,500 additional shares are authorized for purchase under the January
2000 buy-back plan.
ITEM 29
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-lookingforward-
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: the difficulty in predicting and
responding to shifts in fashion trends, changes in the level of competitive
pricing and promotional activity and other industry factors, overall economic
conditions and the resultant impact on consumer spending patterns,
unavailabilityavailability of suitable retail space for expansion, timing of store openings,
seasonal fluctuations in gross sales, the departure of one or more key senior
managers, import risks, including potential disruptions and changes in duties,
tariffs and quotas and other risks identified in filings with the Securities
and Exchange Commission. The Company disclaims any intent or obligation to
update forward-looking statements even if experience or future changes make it
clear that actual results may differ materially from any projected results
expressed or implied therein.
Thus far this fiscal year, the Company has opened fourthree new Urban Retail
stores and fivetwo new Anthropologie stores. Management plans to open
oneapproximately five or twosix additional stores during the remainder of the fiscal year.
9
RESULTS OF OPERATIONS
The Company's operatingfiscal year ends on January 31. All references in this
discussion to fiscal years endof the Company refer to the fiscal years ended on
January 31 and include twelve periods
ending on the last day of the calendar month.in those years. For example, the fiscal year
2001Company's "Fiscal 2002" ("FY
2001"2002") will end on January 31, 2001.2002. This discussion of results of operations
addresses the thirdfirst quarter and first nine months of FY 20012002 and FY 2000.2001.
10
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,
-------------------- ------------------April
30,
-------------
2001 2000
1999 2000 1999
--------- --------- -------- ------------- -----
Net sales........................ 100.0% 100.0% 100.0%sales................................................... 100.0 % 100.0%
Cost of sales, including certain buying, distribution and
occupancy costs................. 68.0 62.0 67.6 62.1
--------- --------- -------- --------costs............................................ 70.0 % 64.7%
----- -----
Gross profit................... 32.0 38.0 32.4 37.9profit.............................................. 30.0 % 35.3%
Selling, general and administrative expenses......... 26.6 22.7 26.6 23.9
--------- --------- -------- --------expenses................ 27.2 % 27.7%
----- -----
Income from operations......... 5.4 15.3 5.8 14.0operations.................................... 2.8 % 7.6%
Other expense, net............... (0.3) (0.5)income (expense), net................................. (0.1) (1.4)
--------- --------- -------- --------% 0.1%
----- -----
Income before income taxes..... 5.1 14.8 5.7 12.6taxes................................ 2.7 % 7.7%
Income tax expense............... 2.1 6.7 2.3 6.1
--------- --------- -------- --------expense.......................................... 1.1 % 3.2%
----- -----
Net income..................... 3.0% 8.1% 3.4% 6.5%
========= ========= ======== ========income................................................ 1.6 % 4.5%
===== =====
Third Quarter Ended October 31,FIRST QUARTER ENDED APRIL 30, 2001 COMPARED TO THE FIRST QUARTER ENDED
APRIL 30, 2000 Compared to the Third Quarter Ended
October 31, 1999
Net sales increased during the thirdfirst quarter ended October 31, 2000April 30, 2001 to $76.5$71.8
million, up 1.5%8.9% from $75.4$66.0 million for the same quarter last year. The $1.1$5.8
million increase versusover the prior year's thirdfirst quarter was primarily the result
of noncomparablenew and newnoncomparable store sales increases of $9.8$9.7 million whichalong with
direct response sales increases of $0.6 million. These increases more than
offset the 9%5.0% comparable store sales decrease of $5.4 millionand the 31.0% decrease in
Wholesale segment sales due to what managementManagement believes was a lackluster customer
response to the Company's fashion productofferings and production problems with the
Wholesale segment sales decrease of $3.3 million.Spring line.
The Company's gross profit margin, expressed as a percentage of sales,
decreased to 32.0% versus 38.0%30.0% from 35.3% for the comparable period last year,year. This
decrease was primarily due to additional retail clearance markdowns, the deleveraging impact on
occupancy costs caused by the negative comparable store sales trend, and theby: (1) increased occupancy costs of
noncomparable and new stores.stores and the impact of occupancy costs as a result of
the negative comparable store sales results, which combined to reduce gross
profit, expressed as a percentage of consolidated sales, by 3.3%; (2)
increased markdowns of Wholesale segment Spring and Summer inventories, which,
expressed as a percentage of consolidated sales, accounted for 1.2% of the
decline; and (3) a reduction of retail store gross margins due to a small
change in mix toward branded goods carrying a slightly lower initial markon,
which were offset, in part, by a reduction in clearance markdowns.
Selling, general and administrative expenses, expressed as a percentage of
sales, for the quarter ended October 31, 2000 increasedApril 30, 2001 decreased to 26.6%27.2% compared to
22.7%27.7% for the same quarter last year.
11
Anthropologie direct response operations experienced a decrease in operating
expenses for the quarter primarily due to the timing of the recognition of
catalog production and distribution costs related to the first quarter's
Spring and Summer books versus the same books in last year's comparable
quarter. For the retailRetail store operations, the Company's cost control efforts
continued to reduce the deleveraging impact ofreduced expense levels despite the comparable store sales decreases. Noncomparable and new stores, however,
with lower average sales volumes, have higher proportionatedecrease, resulting
in a decrease in expenses than
comparable stores and accounted for the majorityas a percentage of the increase.
Anthropologie direct response operations experienced an increase in operating
expense percentages for the quarter primarily due to the deleveraging of
catalog production costs caused by reduced customer response rates on
increased catalog circulation. Additionally, 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.sales.
Net income for the quarter ended October 31, 2000April 30, 2001 was $2.4$1.2 million compared
to $6.1versus
$3.0 million for the comparable quarter last year.
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As of January 31, 2000, the Company had invested approximately $2.0 million
in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures of MXG Media, Inc. ("MXG"). MXG incurred losses since its
inception, and, in accordance with the equity method of accounting, the
Company recorded charges to earnings of $4.4 million for its portion of
operating losses related to the minority interest in MXG during the fiscal
year ended January 31, 2000 (including $0.9 million for the quarter and $4.4
million for the nine months ended October 31, 1999). These charges in FY 2000
fully reserved for the Company's investment and the Company made no additional
investments in FY 2001 in MXG.
During the quarter ended October 31, 1999, the Company advanced $2.6 million
of bridge financing to MXG in the form of promissory notes. These notes,
together with previous advances, were repaid with interest on November 1,
1999. As of October 31, 1999, the Company's net investment in MXG was $7.6
million.
On September 13, 2000, MXG ceased operations and filed a Petition for Relief
under Chapter 7 of the United States Bankruptcy Code. MXG had been
unsuccessful in attempts to raise additional capital. The Company expects the
ultimate recovery of its investment in MXG, if any, to be di minimus.
Nine Months Ended October 31, 2000 Compared to the Nine Months Ended October
31, 1999
Net sales increased during the nine months ended October 31, 2000 to $208.1
million, up 3.3% from $201.4 million for the same period last year. The $6.7
million increase over the prior year's nine months was the result of new and
noncomparable stores' sales increases of $20.9 million and Anthropologie
catalog and web site sales and Urban web site increases of $2.7 million. These
increases were offset by a 9% comparable store sales decrease due to what
management believes was a lackluster customer response to the Company's
product, which accounted for a $14.2 million reduction in sales, along with a
14% decrease in Wholesale segment sales which accounted for a $2.7 million
reduction in sales.
The Company's gross profit margin for the nine months ended October 31,
2000, expressed as a percentage of sales, decreased to 32.4% from 37.9% for
the comparable period last year. This decrease was due primarily to additional
retail clearance markdowns, the deleveraging impact on occupancy costs caused
by the negative comparable store sales trend, and the increased occupancy
costs of noncomparable and new stores.
Selling, general and administrative expenses for the nine months ended
October 31, 2000, expressed as a percentage of sales, increased to 26.6%
versus 23.9% for the comparable period last year. For the retail store
operations, the Company's cost control efforts continued to reduce the
deleveraging impact of the comparable store sales decreases. Noncomparable and
new stores, however, with lower average sales volumes, have higher
proportionate expenses than comparable stores and accounted for the majority
of the increase. Anthropologie direct response operations experienced an
increase in operating expense percentages for the quarter primarily due to the
deleveraging of catalog production costs caused by reduced customer response
rates on increased catalog circulation. This effect was partially offset by
the leveraging of fulfillment costs as a result of the elimination of third-
party service providers. Additionally, 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.
Net income for the nine months ended October 31, 2000 was $7.1 million
versus $13.1 million for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities were $8.8$10.1 million at
October 31, 2000,April 30, 2001, as compared to $32.6$16.6 million at January 31, 20002001 and $29.5$27.7
million at October 31, 1999.April 30, 2000. The Company's net working capital was $35.5$31.3 million
at October 31, 2000,April 30, 2001, as compared to $38.0$31.7 million at January 31, 20002001 and $38.9$36.2
million at October 31, 1999.April 30, 2000. The decrease in cash, cash equivalents and
marketable securities at October 31, 2000April 30, 2001 from year end principally reflects the funding of FY 2001's capital expenditures (primarily for new
store construction),
11
the
increase in inventory for new stores and the seasonal buildingfunding of inventory in existing stores.FY 2002's capital
expenditures for new store construction. Cash requirements for these
activities combined
with $1.4 million expended to purchase 104,700 shares of the Company's common
stock, more than offset other cash generated from operations.
Total inventories at October 31, 2000April 30, 2001 increased by 38.3%26.9% versus the
comparable period end last year, principally attributable to new store
requirements and a 13%the increase in
comparable store inventories.the number of retail stores. Direct response inventories are higher to support
the Anthropologie web site's higher sales, the addition of a May 1st catalog
mailing for Anthropologie and the addition of the Urban web site. Wholesale
inventories increased primarily due to higher levels of in-transit
Transitional and Fall merchandise. Comparable store inventories at October 31, 1999April 30,
2001 were 9% below planned levels because oflast year's levels. This reduction was slightly greater
than the strong comparable stores sales trend last year. This year's negative
comparable store sales trend accounts for the remainder of the increase.Company's plan.
The Company expects that capital expenditures for the current year will be
approximately $34.0not
exceed $25 million. The Company expectsManagement believes that existing cash and investments at
October 31, 2000,April 30, 2001, as well as cash from future operations and available credit
under the Company's line of credit facilities will be sufficient to meet the
Company's cash needs through January 31, 2002.the end of the next fiscal year.
Accrued expenses and other current liabilities decreasedincreased to $10.6$14.3 million
as of October 31, 2000April 30, 2001 from $14.0$11.2 million at October 31, 1999.April 30, 2000. The decreaseincrease 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 a reductionchange in accruals
related to construction-in-progress.the timing of income tax
payments.
The Company has linesline of credit facilities aggregating $26.2 million,
available to facilitate letter of credit transactions and cash advances.borrowings. As
of and during the ninethree months ended October 31, 2000,April 30, 2001, there were no borrowings.
Outstanding letters of credit totaled $8.5$11.4 million, $6.6$8.0 million and $7.1$11.3
million at October 31, 2000,April 30, 2001, January 31, 20002001 and October 31, 1999,April 30, 2000, respectively.
The fair value of these letters of credit is estimated to be the same as the
contract values.
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OTHER MATTERS
Recent Accounting Pronouncements
In July 2000, the Emerging Issues Task Force issued No. 00-10, "Accounting
for Shipping and Handling Fees and Costs" ("EITF 00-10"). Under the provisions
of EITF 00-10, amounts billed to a customer in a sale transaction related to
shipping and handling should be classified as revenue. As required, the
Company adopted EITF 00-10 in its consolidated financial statements during the
fourth quarter of Fiscal 2001 and has restated all comparative prior period
financial statements.
In its financial statements, the Company includes shipping and handling
revenues in net sales and shipping and handling costs in cost of sales.
Previously, the Company had offset shipping and handling revenues earned from
its direct response (catalog and e-commerce) activities against shipping and
handling costs incurred within cost of sales. Additionally, revenues earned
from delivery transactions generated by retail stores were offset against
store level costs within selling, general and administrative expenses. The
Company's shipping and handling revenues consist of amounts billed to
customers for shipping and handling merchandise. Shipping and handling costs
include shipping supplies, related labor costs and third-party shipping costs.
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"). The standard, which is effective for fiscal
years beginning after June 2000, and, accordingly, the Company will adopt the
standardrequired to be adopted in
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 ison February 1, 2001 did not expected to have a significant effect on the
financial position or results of operations of the Company.
Seasonality and Quarterly Results
While Urban Outfitters has been profitable in each of its last 4345 operating
quarters, its operating results are subject to seasonal fluctuations. While
the Company's negative comparable store sales trend has continued since October 31, 2000,April
30, 2001, 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-
monthfive-month period
from August 1 to December 31 of each year (the "Back-to-School" and Holiday
periods). Sales generated during these periods have traditionally had a
significant impact on the Company's results of operations.
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
13
of new stores into the operations of the Company or by the size and timing of
mailings and web site traffic for the Company's direct response operations.
Fluctuations in the bookings and shipments of Wholesale merchandise between
quarters can also have substantial positive or negative effects on earnings
during the quarters.
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ITEM 3Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to the following types of market risks--fluctuationsrisks -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.Europe. As explained in the section above on "Recent
Accounting Pronouncements," market risks are further limited by the Company's
purchase of foreign currency forward exchange contracts.
Since the Company has not been a borrower thus far this year, its exposure
to interest rate fluctuations has been 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.holdings.
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.
PART II
OTHER INFORMATION
ITEM 6Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
1314
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)
/s/ Richard A. Hayne
By: _________________________________
Richard A. Hayne
Chairman of the Board of Directors
/s/ Stephen A. Feldman
By: _________________________________
Stephen A. Feldman
Chief Financial Officer
Dated: December 6, 2000
14June 12, 2001
15