Urban Outfitters, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 31, 2021. Although the request metadata refers to 2020 Q4, this filing reports full-year results; the supplied text does not provide clear standalone fourth-quarter financial values. The company operates Retail, Wholesale and Subscription segments across its Urban Outfitters, Anthropologie, Free People, FP Movement, Terrain, Nuuly and other brands.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $3.450 billion | $3.984 billion |
| Gross profit / margin | $861.9 million / 25.0% | $1.240 billion / 31.1% |
| Operating income / margin | $4.0 million / 0.1% | $231.9 million / 5.8% |
| Net income | $1.2 million | $168.1 million |
| Cash from operations | $285.8 million | $273.9 million |
| Capital expenditures | $159.2 million | $217.4 million |
| Cash, cash equivalents and marketable securities at year-end | $694.0 million | $530.4 million |
| Borrowings under revolving credit facility at year-end | $0 | $0 |
Fiscal 2021 diluted earnings per share were $0.01, versus $1.67. The effective tax rate rose to 64.8% from 29.9%, primarily reflecting the mix of foreign taxable losses and global taxable profits and the much lower pretax income. Working capital was $317.2 million, down from $414.6 million; lease liabilities and pandemic-related changes in payment timing affected the comparison. Total operating lease liabilities were approximately $1.329 billion at year-end.
Material changes versus the prior year
- Sales fell 13.4%. Retail sales declined 11.5% and Wholesale sales declined 39.7%; Subscription sales increased by $16.3 million to $24.3 million.
- Retail comparable sales fell 10.6% overall: Free People Group rose 5.7%, while Urban Outfitters fell 7.0% and Anthropologie Group fell 18.4%. Digital growth partly offset store closures and weaker store productivity.
- Gross margin contracted by 6.1 percentage points, principally from higher delivery and logistics costs as digital sales gained share and occupancy-cost deleverage amid lower store sales. Inventory obsolescence reserves also increased year over year.
- Operating income fell from $231.9 million to $4.0 million. SG&A declined 13.7% in dollars, but expense controls and government relief only partly offset the sales and gross-profit decline.
- The company recorded $15.5 million of store impairment charges across 42 locations, compared with $14.6 million across eight locations in FY2020. FY2020 also included a $13.9 million goodwill impairment for Menus & Venues.
- Year-end inventory declined 4.9% to $389.6 million. Wholesale inventory fell 34%, while Retail inventory was flat.
Outlook, risks and unusual items
- Management cited continuing uncertainty from COVID-19, including store closures, capacity restrictions, reduced traffic, consumer spending, staffing and the possibility of further operational disruption. Substantially all stores had reopened by July 31, 2020, but closures—primarily in Europe—and traffic impacts continued into early FY2022.
- For FY2022, the company planned approximately $250 million of capital expenditures, about 55 new company-owned retail locations, and continued investment in fulfillment capacity, digital capabilities and other growth initiatives. Management expected these investments to be funded from operating cash flow and existing cash; it did not provide revenue or earnings guidance in the supplied text.
- Planned FY2022 store activity included 17 Urban Outfitters openings and 10 closures; 12 Anthropologie Group openings and nine closures; and 25 Free People Group openings, including 16 FP Movement stores, and two closures.
- Large commitments include $1.687 billion of undiscounted operating lease payments, $672.1 million of purchase commitments and $291.8 million of construction contracts. The Kansas City, Kansas fulfillment-center project represents $289.1 million of the construction commitments; completion was expected in FY2024.
- Key risks include pandemic developments, fashion and inventory forecasting, digital competition and execution, international sourcing and transport disruption, foreign exchange, labor and input costs, cybersecurity, and fulfillment-center capacity. Management stated that it does not currently hedge foreign-currency risk.
- The company temporarily drew and repaid $220 million on its revolving credit facility during FY2021 to preserve liquidity. It ended the year with no borrowings and reported compliance with facility terms. Share repurchases were suspended during the year after limited repurchases earlier in FY2021.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Retail-location impairment was identified as a critical audit matter.
Most important facts for investors to verify
- Whether digital growth and reopened-store productivity can restore sales and margins, particularly at Urban Outfitters and Anthropologie.
- How much of the FY2021 cash-from-operations performance depended on timing of payables, accrued expenses and other working-capital movements.
- Actual FY2022 capital spending, fulfillment-center commitments and new-store openings versus plans, and the resulting effect on liquidity.
- Progress on operating lease obligations, rent payments or concessions, store impairments and any further pandemic-related closures.
- The sustainability and profitability of Nuuly and the Wholesale segment, which remained loss-making and experienced sharply lower sales, respectively.