Urban Outfitters, Inc. — Form 10-Q summary
Reporting period: Three and nine months ended October 31, 2020 (fiscal 2021). The third quarter reflects a retail business still affected by COVID-19; results are not necessarily indicative of the full fiscal year.
Financial performance
Amounts are in millions, except per-share data and percentages.
| Metric | Three months 2020 | Three months 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $969.6 | $987.5 | $2,361.4 | $2,814.2 |
| Gross profit | $322.9 | $321.1 | $572.8 | $906.0 |
| Operating income (loss) | $98.5 | $75.3 | $(30.8) | $193.4 |
| Net income (loss) | $76.7 | $55.7 | $(27.3) | $148.6 |
| Diluted EPS | $0.78 | $0.56 | $(0.28) | $1.47 |
- Third-quarter sales declined 1.8% year over year, while net income increased. Gross margin improved to 33.3% from 32.5%; operating margin rose to 10.2% from 7.6%.
- Nine-month sales fell 16.1%. Gross margin contracted to 24.3% from 32.2%, and the company shifted from operating and net income to losses.
- Nine-month operating cash flow was $214.7 million versus $121.4 million. Capital spending was $89.2 million versus $171.1 million.
- At October 31, cash and cash equivalents were $624.9 million and marketable securities totaled $9.4 million, or $634.3 million combined. Working capital was $424.7 million. Total current assets were $1,371.6 million and current liabilities $946.9 million.
- There was no long-term debt or outstanding borrowing under the revolving credit facility at quarter-end. Operating lease liabilities totaled approximately $1,324.6 million on a discounted basis; disclosed future undiscounted lease payments were $1,702.2 million.
Changes and segment trends
- Third-quarter Retail sales were $895.6 million, down 0.2%; Wholesale sales were $71.1 million, down 23.8%; Subscription sales were $6.7 million, up from $2.0 million. Retail comparable sales were reported as flat overall: Free People rose 17.3%, Urban Outfitters 3.7%, and Anthropologie Group fell 9.3%.
- For the nine months, Retail sales declined 13.4% and Wholesale sales declined 49.0%; Subscription sales rose to $17.7 million. Retail comparable sales decreased 12.8%, with digital growth partly offsetting store weakness.
- Third-quarter profitability benefited from low Retail markdowns, improved Wholesale margins, rent concessions, government assistance in Europe, and lower SG&A from payroll and expense controls. Higher digital delivery and logistics costs partly offset these benefits.
- Nine-month results included weaker store sales and occupancy-cost deleverage, higher digital fulfillment costs, and pandemic-related inventory and store impairment charges.
Outlook, risks and unusual items
- Management said the pandemic continued to materially affect operations. As of October 31, substantially all stores were open, but temporary closures—primarily in Europe and Canada—capacity limits, and reduced traffic remained risks. The duration and financial impact were not reasonably estimable.
- The company reduced its fiscal 2021 capital budget from approximately $260 million to $195 million, delayed or cancelled projects, suspended share repurchases, tightened inventory and expenses, and reduced investment in Nuuly and China expansion. It planned approximately 21 new company-owned retail locations during fiscal 2021 and continued fulfillment-center projects. No specific earnings or sales guidance was provided.
- COVID-related nine-month charges included a net $15.9 million increase in inventory obsolescence reserves, a $2.6 million increase in doubtful-account allowance, and $14.5 million of store impairment charges covering 39 locations. No impairment was recorded in the second or third quarter. Government relief programs partly offset expenses; the filing does not clearly quantify total benefits.
- The company drew $220 million on its revolving facility early in fiscal 2021 and repaid it in full by September 16. A fixed-charge coverage covenant default arose as of May 31; the company obtained a waiver through September 15 and reported compliance at October 31. It expected to remain compliant.
- The company withheld certain lease payments during the pandemic; withheld amounts remained recorded as lease liabilities. It had received rent concessions and continued negotiations. Management said legal proceedings were not expected to materially adversely affect financial position, results, or cash flows.
- Other cited risks include consumer demand and store traffic, further COVID-related restrictions or closures, fashion and promotional trends, digital operations and fulfillment, labor and supply costs, international operations, and foreign exchange.
Most important facts for investors to verify
- Whether store traffic, temporary closures, capacity restrictions, and digital sales trends materially changed after October 31, 2020.
- Whether the quarter’s margin improvement is sustainable, given the nine-month margin decline and reliance on markdown, rent, and government-assistance benefits.
- How much government relief was recognized and whether inventory reserves, receivable allowances, or store impairments require further adjustment.
- Current liquidity, lease-payment status and concessions, and continued compliance with revolving-credit covenants.
- Progress and funding for planned capital projects and store openings, alongside the continued suspension of share repurchases.