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 Quarterly Period Ended October 31, 2001
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 (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation of
Organization)
1809 Walnut Street, Philadelphia, PA 19103
(Address of principal executive office) (Zip Code)
(215) 564-2313
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) 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 November 29, 2001
----------------------------------- -----------------------------
Common Shares, par value, $.0001 per share 17,286,786
INDEX
Page
----
PART I Financial Information
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at October 31, 2001,
January 31, 2001, and October 31, 2000 (Unaudited) 3
Condensed Consolidated Statements of Income for the three and
nine months ended October 31, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statements of Shareholders' Equity for
the nine months ended October 31, 2001 and 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 31, 2001 and 2000 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosure about Market Risk 15
PART II Other Information
-------
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
October 31, January 31, October 31,
2001 2001 2001
------------- --------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 7,531 $ 16,286 $ 7,157
Marketable securities 42 314 1,602
Accounts receivable, net of allowance for doubtful accounts of
$594, $500, and $599, respectively 5,352 3,444 4,777
Inventories 54,258 34,786 44,986
Prepaid expenses and other current assets 7,774 10,143 8,180
------------- --------------- -------------
Total current assets 74,957 64,973 66,702
Property and equipment, net 103,581 97,901 89,949
Other assets 6,127 5,842 5,940
------------- --------------- -------------
$ 184,665 $ 168,716 $ 162,591
============= =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 23,439 $ 19,387 $ 20,521
Accrued expenses and other current liabilities 14,881 13,931 10,636
------------- --------------- -------------
Total current liabilities 38,320 33,318 31,157
Deferred rent 7,497 5,786 5,355
------------- --------------- -------------
Total liabilities 45,817 39,104 36,512
============= =============== =============
Commitments and contingencies (See Note 5)
Shareholders' equity:
Preferred shares; $.0001 par value, 10,000,000 shares authorized,
none issued - - -
Common shares; $.0001 par value, 50,000,000 shares authorized,
17,264,486, 17,253,486, and 17,253,486 issued and outstanding,
respectively 2 2 2
Additional paid-in capital 16,374 16,268 16,268
Retained earnings 123,345 114,109 110,702
Accumulated other comprehensive loss (873) (767) (893)
------------- --------------- -------------
Total shareholders' equity 138,848 129,612 126,079
------------- --------------- -------------
$ 184,665 $ 168,716 $ 162,591
============= =============== =============
See accompanying notes
3
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
----------------------------- -----------------------------
2001 2000 2001 2000
------------- --------------- ------------- ---------------
Net sales $ 92,859 $ 77,091 $ 245,088 $ 209,769
Cost of sales, including certain buying, distribution
and occupancy costs 61,615 52,557 166,340 142,122
------------- --------------- ------------- ---------------
Gross profit 31,244 24,534 78,748 67,647
Selling, general and administrative expenses 22,875 20,386 62,884 55,478
------------- --------------- ------------- ---------------
Income from operations 8,369 4,148 15,864 12,169
Other income (expense), net (87) (213) (341) (154)
------------- --------------- ------------- ---------------
Income before income taxes 8,282 3,935 15,523 12,015
Income tax expense 3,354 1,574 6,287 4,927
------------- --------------- ------------- ---------------
Net income $ 4,928 $ 2,361 $ 9,236 $ 7,088
============= =============== ============= ===============
Net income per common share:
Basic $ 0.29 $ 0.14 $ 0.54 $ 0.41
============= =============== ============= ===============
Diluted $ 0.28 $ 0.14 $ 0.53 $ 0.41
============= =============== ============= ===============
Weighted average common shares outstanding:
Basic 17,263,712 17,259,402 17,259,402 17,258,348
============= =============== ============= ===============
Diluted 17,361,188 17,275,640 17,310,375 17,269,282
============= =============== ============= ===============
See accompanying notes
4
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Comprehensive
Income Common Shares
------------------- ---------------------
Accumulated
Additional Other
Year-to- Number Par Paid-in Retained Comprehensive
Quarter Date of Shares Value Capital Earnings Loss Total
---------- -------- ----------- -------- ----------- ------------ ------------- ----------
Balances at February 1, 2001 17,253,486 $ 2 $ 16,268 $ 114,109 $ (767) $ 129,612
Net Income $ 4,928 $ 9,236 9,236 9,236
Foreign currency translation
adjustments, net 226 (131) (131) (131)
Change in unrealized net losses
on marketable securities - 25 25 25
---------- --------
Comprehensive income $ 5,154 $ 9,130
========== ========
Exercise of stock options 11,000 106 106
----------- ------ --------- ---------- ----------- ----------
Balances at October 31, 2001 17,264,486 $ 2 $ 16,374 $ 123,345 $ (873) $ 138,848
=========== ====== ========= ========== =========== ==========
Balances at February 1, 2000 17,358,186 $ 2 $ 17,680 $ 103,614 $ (380) $ 120,916
Net Income $ 2,361 $ 7,088 7,088 7,088
Foreign currency translation
adjustments, net (131) (487) (487) (487)
Change in unrealized net losses
on marketable securities 63 (26) (26) (26)
---------- --------
Comprehensive income $ 2,293 $ 6,575
========== ========
Purchases and retirements
of common shares (104,700) (1,412) (1,412)
----------- ------ --------- ---------- ----------- ----------
Balances at October 31, 2000 17,253,486 $ 2 $ 16,268 $ 110,702 $ (893) $ 126,079
=========== ====== ========= ========== =========== ==========
See accompanying notes
5
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended October 31,
--------------------------------
2001 2000
------------- --------------
Cash flows from operating activities:
Net income $ 9,236 $ 7,088
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 11,433 8,537
Changes in assets and liabilities:
(Increase) decrease in receivables (1,910) 48
Increase in inventories (19,482) (18,118)
Decrease in prepaid expenses and other assets 2,060 2,250
Increase in payables, accrued expenses and other liabilities 5,823 3,927
------------- --------------
Net cash provided by operating activities 7,160 3,732
------------- --------------
Cash flows from investing activities:
Capital expenditures (16,260) (25,453)
Purchases of marketable securities - (600)
Sales and maturities of marketable securities 297 18,650
------------- --------------
Net cash used in investing activities (15,963) (7,403)
------------- --------------
Cash flows from financing activities:
Exercise of stock options 106 -
Purchases and retirement of common stock - (1,412)
------------- --------------
Net cash provided by (used in) financing activities 106 (1,412)
------------- --------------
Effect of exchange rate changes on cash and cash equivalents (58) (487)
------------- --------------
Decrease in cash and cash equivalents (8,755) (5,570)
Cash and cash equivalents at beginning of period 16,286 12,727
Cash and cash equivalents at end of period $ 7,531 $ 7,157
============= ==============
See accompanying notes
6
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, 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, 2001,
filed with the Securities and Exchange Commission on April 16, 2001.
Certain prior period amounts have been reclassified to conform to the
current year's presentation.
2. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and resolves significant implementation issues related to SFAS
No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
a Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company is required to
adopt SFAS No. 144 for the fiscal year ending January 31, 2003, however, early
application is permitted. Management does not believe that the adoption of SFAS
No. 144 will have a material impact on its results of operations.
In October 2000, the Emerging Issues Task Force issued Issue 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) and Wholesale segment 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.
7
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 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 on February 1, 2001 did not have a significant effect on the
financial position or results of operations of the Company.
3. Marketable Securities
All marketable securities are classified as available for sale for all
periods presented:
October 31, 2001 January 31, 2001 October 31, 2000
---------------- ---------------- ----------------
(in thousands)
Current
Available-for-sale................. $ 42 $ 314 $ 1,602
----- ------ -------
Total marketable securities............ $ 42 $ 314 $ 1,602
===== ====== =======
4. Line of Credit
On September 12, 2001, the Company entered into a new $25 million line
of credit facility with one of its banks. The new credit facility, which
replaced the Company's former $16.2 million discretionary line of credit with
the bank, is a one-year committed line of credit to fund working capital
requirements and letters of credit. The new line of credit contains sub-limits
for letters of credit and European subsidiary borrowings. Cash advances bear
interest at LIBOR plus 1.25% to 1.75% based on the Company's achievement of
prescribed adjusted debt ratios. The agreement subjects the Company to various
restrictive covenants, including maintenance of certain financial ratios such as
a fixed charge coverage ratio, adjusted debt ratio and minimum tangible net
worth and limits the Company's capital expenditures and share repurchases while
prohibiting the payment of cash dividends on common stock. At October 31, 2001,
the Company was in compliance with all covenants under this facility. The
Company also continues to maintain an additional $10 million discretionary line
of credit with another bank, which expires on December 31, 2001. Combined line
of credit facilities aggregate $35 million to facilitate letter of credit
transactions and cash borrowings. As of and during the nine months ended October
31, 2001, there were no borrowings. Outstanding letters of credit totaled $11.6
million, $8.0 million and $8.5 million at October 31, 2001, January 31, 2001 and
October 31, 2000, respectively. The fair value of these letters of credit is
estimated to be the same as the contract values.
5. Commitments and Contingencies
The Company is party to various legal proceedings arising from normal
business activities. Management believes that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
8
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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, 2001, up to 880,500 additional shares are authorized for purchase
under the January 2000 buy-back plan.
7. 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 1,451,700 and 1,181,000 shares were outstanding at
October 31, 2001 and 2000, respectively, but were not included in the
computation of EPS because their effect would be antidilutive.
8. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 79 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, 2001. The remainder of the Company's sales are
derived from a wholesale division that manufactures and distributes apparel to
the retail segment and to approximately 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 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.
9
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 not material
relative to the overall Company.
Three months ended Nine months ended
October 31, October 31,
----------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
Retail operations.......................... $ 86,599 $ 72,227 $229,817 $193,514
Wholesale operations....................... 9,105 6,914 20,965 20,668
Intersegment elimination................... (2,845) (2,050) (5,694) (4,413)
-------- -------- -------- --------
Total net sales........................... $ 92,859 $ 77,091 $245,088 $209,769
======== ======== ======== ========
Income from operations
Retail operations......................... $ 8,942 $ 4,664 $ 17,511 $ 11,359
Wholesale operations...................... 778 607 1,821 3,565
Intersegment elimination.................. (646) (382) (1,255) (902)
-------- -------- -------- --------
Total segment operating income............ 9,074 4,889 18,077 14,022
General corporate expenses................ (705) (741) (2,213) (1,853)
-------- -------- -------- --------
Total income from operations.............. $ 8,369 $ 4,148 $ 15,864 $ 12,169
======== ======== ======== ========
October 31, 2001 January 31, 2001 October 31, 2000
---------------- ---------------- ----------------
Property and equipment, net
Retail operations........................ $ 102,648 $ 96,890 $ 88,911
Wholesale operations..................... 932 1,010 1,037
Corporate................................ 1 1 1
--------- -------- --------
Total property and equipment, net........ $ 103,581 $ 97,901 $ 89,949
========= ======== ========
Inventories
Retail operations........................ $ 52,606 $ 31,845 $ 42,707
Wholesale operations..................... 1,652 2,941 2,279
--------- -------- --------
Total inventories........................ $ 54,258 $ 34,786 $ 44,986
========= ======== ========
10
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. When used in this Form 10-Q, the words "project," "believe,"
"anticipate," "expect" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. 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
and market conditions and the resultant impact on consumer spending patterns,
including any effects of terrorist acts or war, availability 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 seven new Urban
Outfitters stores and four new Anthropologie stores. Management plans to open
one more Anthropologie store prior to the end of the fiscal year.
RESULTS OF OPERATIONS
The Company's fiscal year ends on January 31. All references in this
discussion to fiscal years of the company refer to the fiscal years ended on
January 31 in those years. For example, the Company's "Fiscal 2002" ("FY 2002")
will end on January 31, 2002. This discussion of results of operations addresses
the third quarter and first nine months of FY 2002 and FY 2001.
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,
------------------ -------------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
distribution and occupancy costs 66.4% 68.2% 67.9% 67.8%
----- ----- ----- -----
Gross profit 33.6% 31.8% 32.1% 32.2%
Selling, general and administrative expenses 24.6% 26.4% 25.7% 26.4%
----- ----- ----- -----
Income from operations 9.0% 5.4% 6.4% 5.8%
Other income (expense), net (0.1%) (0.3%) (0.1%) (0.1%)
----- ----- ----- -----
Income before income taxes 8.9% 5.1% 6.3% 5.7%
Income tax expense 3.6% 2.0% 2.6% 2.4%
----- ----- ----- -----
Net income 5.3% 3.1% 3.7% 3.3%
===== ===== ===== =====
11
THREE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO THREE MONTHS ENDED
OCTOBER 31, 2000
Net sales increased during the third quarter ended October 31, 2001 to
$92.9 million, up 20.5% from $77.1 million for the same quarter last year. The
$15.8 million increase over the prior year's third quarter was primarily the
result of new and noncomparable store sales increases of $11.4 million,
comparable store sales increases of $1.7 million or 2.5%, Wholesale segment
sales increases of $1.4 million or 28.7% and direct response sales increases of
$1.3 million or 26.3%. The 2.5% increase in comparable store sales was the
result of strengthened customer response to the Company's fashion offerings,
especially in the women's apparel and accessory categories. The increase in
Wholesale sales was due to an increase in sales of off-price merchandise, as
current season full-price Fall and Holiday shipments were flat versus the
comparable prior year period. Direct response sales increased as a result of
continued growth of the Urban web site and increased customer response to the
Anthropologie catalog and web site.
The Company's gross profit margin, expressed as a percentage of sales,
increased to 33.6% from 31.8% for the comparable period last year. Decreased
markdown requirements at the retail stores more than offset the increase in
occupancy costs attributable to the impact of noncomparable and new stores and
the reduction in Wholesale gross margin caused by the off-price liquidation of
excess inventories.
Selling, general and administrative expenses, expressed as a percentage
of sales, decreased to 24.6% from 26.4% for the quarter ended October 31, 2001
versus the same quarter last year. The leveraging of operating costs for the
Anthropologie direct and urbn.com operations was the greatest contributor to the
savings, which together with improvements in comparable store efficiencies more
than offset the impact of the less efficient noncomparable and new stores.
Net income for the quarter ended October 31, 2001 increased by 109.0%
to $4.9 million versus $2.4 million for the comparable quarter last year.
NINE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO NINE MONTHS ENDED
OCTOBER 31, 2000
Net sales increased during the nine months ended October 31, 2001 to $245.1
million, up 16.8% from $209.8 million for the same period last year. The $35.3
million increase over the prior year's first nine months was the result of new
and noncomparable store sales increases of $32.5 million, direct response sales
increases of $2.9 million or 20.3%, and comparable store sales increases of $0.9
million or 0.5%. These increases were partially offset by a Wholesale segment
sales decrease of $1.0 million or 6.0%. Direct response sales increased as a
result of an increase in response to the Anthropologie catalog and web site and
the Urban web site, which launched in May 2000. The decline in Wholesale sales
was attributable to lower sales of Spring and Summer goods due to a lackluster
response to the Company's fashion offerings and production problems with the
Spring line, offset, in part, by an increase in off-price prior season
merchandise shipments compared to last year. Current season full-price Fall and
Holiday shipments were flat versus the comparable prior year period.
The Company's gross profit margin for the nine months ended October 31,
2001, expressed as a percentage of sales, decreased slightly to 32.1% from 32.2%
for the comparable period last year. Decreased retail markdown requirements were
almost sufficient to offset the increase in occupancy costs attributable to
noncomparable and new stores and the reduction in Wholesale gross margin.
Selling, general and administrative expenses, expressed as a percentage of
sales, decreased to 25.7% from 26.4% for the nine months ended October 31, 2001
versus the comparable period last year. The Company's cost control efforts
continued to reduce operating expense levels, especially at the Anthropologie
direct and urbn.com operations. These efforts more than offset the impact of
increased costs, as a percentage of sales, for new and noncomparable stores.
12
Net income for the nine months ended October 31, 2001 increased by 30.3% to
$9.2 million versus $7.1 million for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities were $7.6 million at
October 31, 2001, as compared to $16.6 million at January 31, 2001 and $8.8
million at October 31, 2000. The Company's net working capital was $36.6 million
at October 31, 2001, as compared to $31.7 million at January 31, 2001 and $35.5
million at October 31, 2000. The decrease in cash, cash equivalents and
marketable securities at October 31, 2001 from year end principally reflects the
increase in purchases of inventories for new stores and funding FY 2002's
capital expenditures, primarily for new store construction. Cash requirements
for these activities more than offset other cash generated from operations.
Total inventories at October 31, 2001 increased by $9.3 million or
20.6% versus the comparable period end last year, principally attributable to
the increase in the number of new retail stores opened since October 31, 2000.
Comparable in-store inventories at October 31, 2001 increased by 6.0% versus the
comparable period in the prior year. The retail store inventory increase was in
the women's and women's accessories categories, which have experienced
comparable store sales gains, while comparable store inventories of men's and
home merchandise have decreased. Wholesale inventories decreased as a result of
liquidation of prior season merchandise.
Management expects that capital expenditures for the quarter ending
January 31, 2002 will be approximately $8-10 million, bringing total capital
expenditures for the current fiscal year to $24-26 million. Existing cash and
investments at October 31, 2001, together with cash from future operations and
available credit under the Company's line of credit facilities, are expected to
be sufficient to meet the Company's cash needs through January 31, 2003.
Accrued expenses and other current liabilities increased to $14.9
million as of October 31, 2001 from $10.6 million at October 31, 2000. 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 and
incentive compensation accruals associated with improved profitability.
On September 12, 2001, the Company entered into a new $25 million line
of credit facility with one of its banks. The new credit facility, which
replaced the Company's former $16.2 million discretionary line of credit with
the bank, is a one-year committed line of credit to fund working capital
requirements and letters of credit. The new line of credit contains sublimits
for letters of credit and European subsidiary borrowings. Cash advances bear
interest at LIBOR plus 1.25% to 1.75% based on the Company's achievement of
prescribed adjusted debt ratios. The agreement subjects the Company to various
restrictive covenants, including maintenance of certain financial ratios such as
a fixed charge coverage ratio, adjusted debt ratio and minimum tangible net
worth and limits the Company's capital expenditures and share repurchases while
prohibiting the payments of cash dividends on common stock. At October 31, 2001,
the Company was in compliance with all covenants under this facility. The
Company also continues to maintain an additional $10 million discretionary line
of credit with another bank, which expires on December 31, 2001. Combined line
of credit facilities now aggregate $35 million to facilitate letter of credit
transactions and cash borrowings. As of and during the nine months ended October
31, 2001, there were no borrowings. Outstanding letters of credit totaled $11.6
million, $8.0 million and $8.5 million at October 31, 2001, January 31, 2001 and
October 31, 2000, respectively. The fair value of these letters of credit is
estimated to be the same as the contract values.
13
OTHER MATTERS
On September 11, 2001, acts of terrorism occurred in the United States. As
a result of these events, a majority of the Company's retail stores either did
not open or were closed early on that day. The Company's seven stores located in
New York City were closed from between two to four days, depending on the stores
location within Manhattan. Management of the Company is not aware of any
physical damage to its stores. These closings adversely affected the Company's
sales during the third quarter of Fiscal 2002. Management of the Company is
unable to determine the long-term impact, if any, of these events on the
Company's future sales.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and resolves significant implementation issues related to SFAS
No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
a Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company is required to
adopt SFAS No. 144 for the fiscal year ending January 31, 2003, however, early
application is permitted. Management does not believe that the adoption of SFAS
No. 144 will have a material impact on its results of operations.
In October 2000, the Emerging Issues Task Force issued Issue 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) and Wholesale segment 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"), which is required 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 on February 1, 2001 did not 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 47
operating quarters, its operating results are subject to seasonal fluctuations.
While the Company's positive comparable store sales trend has continued since
October 31, 2001, 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" and Holiday periods). Sales
generated during these periods have traditionally had a significant impact on
the Company's results of
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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
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 positive or negative effects on earnings during the
quarters.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
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 Europe. As explained in the section
above on "Recent Accounting Pronouncements," market risks are further limited by
the Company's purchase of short-term 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
holdings. The impact of a hypothetical one 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 3.1 The Company's Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 33-69378),
filed on September 24, 1993).
3.2 The Company's Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 33- 69378), filed on
September 24, 1993).
10.9 Credit Agreement, dated September 12, 2001, between the
Company and First Union National Bank
(b) Reports on Form 8-K: None
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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:
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