Business Context and Reporting Period
Company: Urban Outfitters, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2008 (First Quarter of Fiscal 2009)
Business Overview: The Company operates two primary segments: Retail (Urban Outfitters, Anthropologie, Free People, and Terrain brands) and Wholesale (Free People apparel). As of April 30, 2008, the Company operated 257 retail stores globally.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 (Ended Apr 30, 2008) | Q1 2008 (Ended Apr 30, 2007) |
|---|---|---|
| Net Sales | $394,292 | $314,544 |
| Gross Profit | $158,680 | $112,615 |
| Gross Margin | 40.2% | 35.8% |
| Operating Income | $62,942 | $36,016 |
| Net Income | $42,557 | $29,367 |
| Diluted EPS | $0.25 | $0.17 |
| Cash from Operations | $47,088 | $29,522 |
| Cash & Equivalents (End of Period) | $164,030 | $31,171 |
| Total Assets | $1,205,285 | $937,286 |
| Total Liabilities | $296,893 | $225,490 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 25.4% year-over-year, driven by a 25.6% increase in retail segment sales and a 21.9% increase in Free People wholesale sales.
- Comparable Store Sales: Total comparable store net sales increased 10.0%, with growth of 9.5% at Urban Outfitters, 10.3% at Anthropologie, and 18.6% at Free People.
- Margin Expansion: Gross margin improved to 40.2% from 35.8%, attributed to reduced markdowns, better initial merchandise costs, and leverage of occupancy costs.
- Inventory Build: Total inventories rose 13.8% to $191.3 million, primarily to stock new retail stores, though comparable store inventory decreased 3.3%.
- Tax Rate: The effective tax rate increased to 35.7% from 22.3% in the prior year, largely due to the absence of one-time federal tax incentives received in the prior period.
Guidance, Outlook, and Risks
- Store Expansion: The Company plans to open approximately 45 new stores in Fiscal 2009, including 12-15 Free People locations. Capital expenditures are expected to approximate $140 million.
- Direct-to-Consumer: Plans include modestly increasing catalog circulation to approximately 40 million and increasing investment in web marketing.
- Liquidity: The Company maintains a $60 million revolving credit facility with Wachovia Bank. As of April 30, 2008, there were no borrowings, with $38 million utilized for letters of credit. Management believes cash flow and credit facilities will fund needs through Fiscal 2011.
- Market Risk (ARS): Approximately $59.5 million of Auction Rate Securities (ARS) failed to liquidate at auction. These have been reclassified from current to long-term assets. A temporary impairment of $0.2 million was recorded. The principal remains at risk until a successful auction or maturity.
- Forward-Looking Statements: Risks include shifts in fashion trends, competitive pricing, economic conditions, and the ability to liquidate certain marketable securities.
Investor Verification Checklist
- ARS Liquidity: Verify the status of the $59.5 million in failed Auction Rate Securities and potential impact on long-term liquidity.
- Inventory Levels: Monitor inventory turnover and markdown rates given the 13.8% increase in total inventory.
- Comparable Store Trends: Confirm if the 10.0% comparable store sales growth is sustainable in subsequent quarters.
- Capital Expenditures: Track actual spending against the $140 million projected capex for Fiscal 2009.
- Tax Rate Normalization: Observe if the effective tax rate stabilizes near 35.7% for the remainder of the fiscal year.