Urban Outfitters, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2020 (fiscal Q1 2021). The company filed on June 30, 2020, after using SEC relief to extend the deadline amid COVID-19 disruptions and additional impairment assessments.
Financial performance and liquidity
| Metric | Q1 2021 | Prior-year quarter |
|---|---|---|
| Net sales | $588.5 million | $864.4 million |
| Gross profit / margin | $11.8 million / 2.0% | $269.1 million / 31.1% |
| Operating income (loss) | ($198.7 million) / (33.8%) of sales | $40.0 million / 4.6% |
| Net income (loss) | ($138.4 million); diluted EPS ($1.41) | $32.6 million; diluted EPS $0.31 |
| Operating cash flow | ($59.7 million) | $25.9 million |
- Sales fell 31.9% year over year. Retail comparable sales declined 27.5%; Free People fell 19.1%, Urban Outfitters 24.1%, and Anthropologie Group 32.8%. Digital sales grew at a low double-digit rate, partially offsetting store closures.
- Retail sales were $561.2 million, Wholesale $25.7 million, and Subscription $6.3 million. Wholesale sales declined 74.4%; Nuuly contributed subscription revenue but recorded a $6.0 million operating loss.
- Gross margin was pressured by closed-store occupancy costs, higher inventory reserves, markdowns, and delivery expense. SG&A decreased 8.1% to $210.6 million but rose to 35.8% of sales from 26.5%, largely reflecting expense deleverage.
- Cash and cash equivalents were $588.7 million; marketable securities totaled $78.4 million. Combined cash and securities were $667.1 million. Working capital was $513.4 million.
- The company borrowed $220 million under its revolving credit facility during the quarter; long-term debt was $220 million at April 30. It repaid $100 million on June 17. Cash used for property and equipment was $43.5 million.
- Inventory was $335.6 million, down 17.8% from April 2019. Total liabilities included $1.33 billion of operating lease liabilities on the balance sheet; undiscounted future minimum operating lease payments were $1.74 billion.
Material changes, outlook, and risks
- COVID-19 prompted global store closures beginning March 14; stores were closed for nearly half the quarter. Fulfillment centers continued operating with added safety measures. More than 570 stores had reopened by June 24, subject to local rules.
- COVID-related charges and reserves included a $43.3 million increase in inventory obsolescence reserves, a $5.8 million increase in Wholesale doubtful-account reserves, and $14.5 million of impairment charges at 39 retail locations. The company also cited obsolescence reserves for Nuuly rental product, without a separate amount here.
- Management cut the fiscal 2021 capital budget by more than $140 million, from approximately $260 million to approximately $120 million; reduced costs and growth investments, including Nuuly and China expansion; extended vendor payment terms; and suspended share repurchases. Planned store openings and closings were under review.
- The company gave no specific financial guidance. Management said pandemic effects and future operating results were highly uncertain; it expected to continue reopening stores where permitted and anticipated added costs for protective equipment, staffing, and cleaning protocols.
- The company withheld certain lease payments while negotiating rent concessions. The amount withheld was included in current lease liabilities; accounting treatment will depend on the terms of any concessions.
- May 2020 civil unrest affected 55 North American stores, which temporarily closed for damage assessment and repairs. The company was assessing insurance coverage and did not expect losses after recoveries to be material.
- The tax benefit reflected carryback of the current-year net operating loss under the CARES Act. The company said it expected to remain compliant with credit-facility terms and covenants. Management considered routine legal proceedings not likely to have a material adverse effect.
Important facts for investors to verify
- Subsequent-quarter sales, digital demand, store reopening progress, and any renewed closures or operating restrictions.
- Whether inventory reserves, Wholesale credit losses, and store impairments increase as demand and customer credit conditions evolve.
- Cash burn, available borrowing capacity under the borrowing-base facility, and debt outstanding after the $100 million repayment.
- Results of landlord negotiations, rent concessions, and the company’s ability to meet substantial lease commitments.
- Actual capital spending, planned store openings and closures, and the financial trajectory of Nuuly and other growth initiatives.
- Insurance recoveries and repair costs related to civil unrest, and reimbursements under government employee-support programs.