Urban Outfitters, Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended January 31, 2022 (FY2022), not a standalone calendar-quarter report. URBN operates Retail brands including Urban Outfitters, Anthropologie, Free People and related concepts; a Wholesale business; and Nuuly, which includes apparel rental and a resale marketplace launched in October 2021. Retail generated 93.4% of consolidated sales. The company reported 682 company-owned stores and 3 franchisee-owned stores at year-end.
Financial performance and position
| Metric | FY2022 | FY2021 | FY2020 |
|---|---|---|---|
| Net sales | $4,548.8 million | $3,449.7 million | $3,983.8 million |
| Gross profit / margin | $1,494.0 million / 32.8% | $861.9 million / 25.0% | $1,239.8 million / 31.1% |
| Operating income / margin | $408.6 million / 9.0% | $4.0 million / 0.1% | $231.9 million / 5.8% |
| Net income | $310.6 million | $1.2 million | $168.1 million |
| Diluted EPS | $3.13 | $0.01 | $1.67 |
| Operating cash flow | $359.3 million | $285.8 million | $273.9 million |
Liquidity and debt. At January 31, 2022, cash and cash equivalents were $206.6 million and marketable securities totaled $463.0 million, or $669.6 million combined. Working capital was $304.3 million. The company had no revolver borrowings and reported compliance with its credit agreement; the asset-based facility provides up to $350 million, subject to a borrowing base, and matures in June 2023. Operating lease liabilities totaled approximately $1,187.4 million, and disclosed operating lease commitments were $1,442.6 million undiscounted.
Capital expenditures were $262.4 million; net cash used in investing activities was $487.7 million, primarily reflecting purchases of marketable securities and property and equipment. The company repurchased $55.8 million of shares under its repurchase program during FY2022.
Material changes versus comparable periods
- Sales rose 31.9% from FY2021, a pandemic-disrupted year, and were 14.2% above FY2020. Management identifies FY2020 as a more meaningful comparison because of FY2021 store closures and restrictions.
- FY2022 Retail comparable sales increased 28.7%; by brand, Free People Group rose 42.5%, Anthropologie Group 34.5%, and Urban Outfitters 17.2%. Store sales grew strongly as locations reopened; digital sales also increased, but at a high-single-digit rate.
- Wholesale sales increased 28.0% from FY2021 but remained below FY2020; the segment represented 5.5% of FY2022 sales. Nuuly sales were $47.7 million, up from $24.3 million, while the segment recorded a $20.2 million operating loss.
- Gross margin improved substantially from FY2021, supported by record-low Retail markdown rates, improved store occupancy leverage and recovery from prior-year closures. Higher inbound freight and logistics costs were offsets.
- Inventory increased 46.2% year over year to $569.7 million. Management attributed the increase to sales growth and bringing product in earlier to mitigate supply delays and higher shipping costs.
Outlook, risks and unusual items
Management did not provide a specific sales or earnings forecast. For FY2023, it planned approximately $225 million of capital expenditures, about 46 new company-owned retail locations, and continued investment in digital capabilities, products and fulfillment. The Kansas City, Kansas fulfillment center was expected to become fully operational in FY2024. Management expected to fund planned spending from operating cash flow and existing cash and cash equivalents, while retaining revolver availability.
Management warned that COVID-19 and related supply-chain disruption, factory closures, port congestion and shipping delays remained uncertain. It also cited inflation, higher wages, merchandise and freight costs, labor availability, shifting consumer demand, fashion forecasting, competitive pricing, foreign exchange, geopolitical events including Russia’s invasion of Ukraine, and technology or cybersecurity incidents as risks. The company stated that pandemic impacts could make current financial results an unreliable guide to future performance.
FY2021 included $15.5 million of store impairment charges and elevated inventory reserves; FY2020 included $14.6 million of store impairments and a $13.9 million Menus & Venues goodwill impairment. FY2022 benefited from COVID-related government assistance earlier in the year, but most programs expired or became unavailable during the year. The company reported no material expected adverse effect from ordinary-course legal proceedings. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether comparable-sales strength and margin improvement persist after reopening-related comparisons normalize, especially at Urban Outfitters.
- Inventory quality, aging and markdown exposure, given the 46.2% increase and the decision to receive selected categories earlier.
- Whether freight, merchandise and labor cost inflation materially pressures gross margin and operating expenses.
- Nuuly’s ability to scale rental and resale operations and reduce its operating loss.
- Funding and execution of planned capital projects and store expansion, alongside $1.44 billion of undiscounted operating lease commitments and the revolver’s June 2023 maturity.