Urban Outfitters, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended January 31, 2014. The filing also reports fourth-quarter results for the three months ended that date. Urban Outfitters operates the Urban Outfitters, Anthropologie, Free People, Terrain and Bhldn retail brands, plus Free People wholesale. Its retail business integrates stores, e-commerce, mobile applications and catalogs.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $3,086.6 million | $2,794.9 million |
| Gross profit / margin | $1,161.3 million / 37.6% | $1,031.5 million / 36.9% |
| Operating income / margin | $426.8 million / 13.8% | $374.3 million / 13.4% |
| Net income / margin | $282.4 million / 9.2% | $237.3 million / 8.5% |
| Diluted EPS | $1.89 | $1.62 |
| Cash from operations | $423.2 million | $395.7 million |
| Capital expenditures | $186.1 million | $168.9 million |
- Sales rose 10.4%; Retail segment sales increased 9.9% and Wholesale sales rose 19.5%. Comparable Retail sales increased 6.0%, while new and non-comparable stores contributed $118.5 million of growth.
- Comparable sales by brand: Free People +31.7%, Anthropologie +10.1%, and Urban Outfitters −0.6%. Management cited stronger direct-to-consumer traffic, average order value and conversion, alongside positive comparable-store results at Free People and Anthropologie.
- Gross margin improved mainly because of lower markdowns at Anthropologie, partly offset by increased Urban Outfitters markdowns in North America. SG&A rose 11.8% to $734.5 million and increased to 23.8% of sales, primarily reflecting marketing and new-store costs.
- Fourth-quarter sales were $905.9 million versus $856.8 million a year earlier; net income was $88.7 million versus $82.5 million, and diluted EPS was $0.59 versus $0.56.
Financial position and liquidity
- At January 31, 2014, cash and cash equivalents were $242.1 million and marketable securities were $648.2 million, totaling $890.3 million, up from $623.4 million a year earlier. Working capital was $663.2 million.
- Total assets were $2.22 billion; total liabilities were $527.0 million and shareholders’ equity was $1.69 billion. The company reported no borrowings under its credit line at year-end.
- The $175 million revolving credit facility had $105.2 million available at year-end after letters of credit. On March 27, 2014, the facility was amended and restated for five years, with an option to increase capacity by up to $50 million.
- Inventory increased 10.2% to $311.2 million, mainly to support new and non-comparable stores; comparable Retail inventory grew 2.5%.
Outlook, risks and notable items
- Management planned approximately 35–40 new stores in fiscal 2015 and capital expenditures of $215–$235 million. It expected a fiscal 2015 tax rate of approximately 35%.
- Comparable Retail sales were low-single-digit negative in the first quarter of fiscal 2015 to date, as reported in the filing.
- Operating cash flow exceeded capital expenditures by approximately $237 million in FY2014. The company also had $1.80 billion of future minimum operating lease payments, including commitments for 27 stores not yet open, plus $367.0 million of merchandise purchase orders, mostly cancellable before shipment.
- After year-end, the company repurchased and retired 4.52 million shares for $162.0 million. The board had authorized a 10 million-share repurchase program in August 2013; 0.3 million shares were repurchased during FY2014.
- Key risks include fashion misjudgments and markdown exposure, discretionary consumer demand, intense retail and online competition, international expansion and foreign sourcing, seasonal inventory needs, store growth and lease commitments, distribution or technology disruption, cybersecurity, and dependence on key executives.
- Management said ordinary-course legal proceedings were not expected to materially affect results or financial condition. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether the reported first-quarter FY2015 comparable-sales weakness persisted, and how performance differed by brand and channel.
- Whether margin improvement can continue despite Urban Outfitters markdown pressure and rising marketing and occupancy-related costs.
- Whether inventory growth, store openings and planned capital spending produce expected sales and returns.
- Liquidity and capital allocation after the $162.0 million post-year-end buyback, considering lease commitments and credit-facility covenants.
- How much future growth depends on international markets, direct-to-consumer execution and continued fashion relevance.