Urban Outfitters : URBN Q3 FY21 Results and Commentary

Urban Outfitters, Inc.

F Y '21 Q3 RESULTS

Introduction

Urban Outfitters, Inc. "URBN" is providing fiscal 2021 third quarter commentary ahead of our earnings call scheduled for Novmber 23rd at 5:00pm.

We remind you that any forward-looking statements made in this commentary are subject to our safeharbor statement found in our SEC filings.

Our third quarter earnings release and related financial information are available on our website, www.urbn.com.

Table of Contents

Key Financial Highlights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Sales by Segment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Sales by Brand.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-8Gross Profit by Segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Selling, General & Administrative Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Operating Income by Segment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Income Statement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Balance Sheet.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Inventory Detail.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Capital Spending.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Shares Outstanding.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Global Store Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Global Store Count & Square Footage.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Key Financial Highlights

Three Months Ended

	October 31, 2020		October 31, 2019
URBN Net Sales Change	-1.8%	1.4%
Gross Profit*	33.3%	32.5%
Selling, General
and Admin. Expenses*	23.1%	24.9%
Income from Operations*	10.2%	7.6%
Earnings Per Diluted Share	$ 0.78	$ 0.56

*expressed as a percent of net sales

URBN sales for the third quarter declined by 2% to $970 million. The decrease in sales was due to a 24% decline in Wholesale segment sales, while Retail segment sales were flat. Retail segment sales comp was also flat.

Gross profit dollars increased by 1% to $323 million for the quarter, while gross profit rate increased 79 bps to 33.3%. The increase in gross profit rate was due in part to record low merchandise markdowns in the Retail segment. The record low Retail segment markdown rate was driven by improvement at all three brands with the Urban Outfitters and Free People brands recording significant improvement. The Wholesale segment also delivered healthy improvement in merchandise margins due to lower discounts and allowances. Additionally, gross profit improved as a result of the benefits associated with negotiated rent concessions with landlords and European government assistance programs. These were partially offset by an increase in delivery and logistics expense primarily due to the penetration of the digital channel.

Selling general & administrative ('SG&A') expenses decreased by 9% to $224 million while SG&A as a % of sales leveraged by 175 bps to 23.1%. The leverage in SG&A as a rate to sales was primarily related to disciplined store payroll management and overall expense control. Digital marketing expenses grew during the quarter to support the strong digital sales and customer growth.

Operating income dollars increased by 31% to $99 million while operating income rate improved by 254bps to 10.2%. The increase in dollars was due to the SG&A leverage and improvement in gross profit rate in the quarter.

Net Income for the quarter was $77 million or $0.78 per diluted share, a new Q3 EPS record.

FY'21 Q3 RESULTS | 04

Sales by Segment

($ in millions)		Three Months Ended				Variance
(unaudited)	October 31, 2020	October 31, 2019		$			%
Total Sales	$	969.6		$	987.5			$	(17.9)		-2%
Retail Segment	$	895.6		$	897.2			$	(1.6)		flat
Anthropologie Group		358.7			394.4				(35.7)		-9%
Free People		143.2			123.1				20.1			16%
Urban Outfitters		390.0			372.9				17.1			5%
Menus & Venues		3.7			6.8				(3.1)		-46%
Retail Segment
By Geography
North America		789.9			800.0				(10.1)		-1%
Europe and ROW		105.7			97.2				8.5			9%
Wholesale Segment	$	67.3		$	88.3			$	(21.0)		-24%
Anthropologie Group		(0.2)			4.3				(4.5)		n/a
Free People		63.5			82.4				(18.9)		-23%
Urban Outfitters		4.0			1.6				2.4			154%
Subscription Segment	$	6.7		$	2.0			$	4.7			232%

Total Company or URBN sales for the third quarter decreased by 2% to $970 million. URBN Retail segment sales were flat at $896 million. Retail segment sales comp was also flat.

Retail segment sales experienced lower store productivity due to reduced store traffic which was offset by a strong double-digit increase in the digital channel.

URBN Wholesale segment sales for the third quarter declined 24% to $67 million. The decline in sales was primarily due to most of our wholesale partners having reduced customer demand during the quarter.

FY'21 Q3 RESULTS | 05

Revenue Metrics

($ in millions)			Three Months Ended				Variance
(unaudited)	October 31, 2020	October 31, 2019	$		%
Total Sales	$	358.5		$	398.7			$ (40.2)	-10%
Retail Segment	$	358.7		$	394.4			$ (35.7)	-9%
Sales by Geography
North America			342.7				378.6			(35.9)		-9%
Europe and ROW			16.0				15.8			0.2		1%
Wholesale Segment	$	(0.2)		$	4.3			$ (4.5)			n/a
North America			(0.2)				4.0			(4.2)			n/a
Europe and ROW			-			0.3			(0.3)		-100%

Total Anthropologie Group brand sales decreased by 10% to $358 million.

The decline in Anthropologie sales during the quarter primarily related to a 9% decline in Retail segment sales. The decline in Retail segment sales was driven by lower store productivity due to reduced store traffic which was only partially offset by a strong double-digit increase in the digital channel. By product category, home, beauty and Terrain led the way while apparel, accessories and BHLDN were negative.

FY'21 Q3 RESULTS | 06

Revenue Metrics

($ in millions)		Three Months Ended					Variance
(unaudited)	October 31, 2020	October 31, 2019			$	%
Total Sales	$	206.7		$	205.5			$	1.2	1%
Retail Segment	$	143.2		$	123.1			$	20.1	16%
Sales by Geography
North America		138.9				119.5					19.4	16%
Europe and ROW		4.3				3.6					0.7	20%
Wholesale Segment	$	63.5		$	82.4			$ (18.9)	-23%
North America		60.2				78.3					(18.1)	-23%
Europe and ROW		3.3				4.1					(0.8)	-21%

Total Free People brand sales increased by 1% to $207 million for the quarter. This increase was due to an impressive increase in Retail segment sales of 16%, which was partially offset by a 23% decline in Wholesale segment sales.

The growth in Retail segment sales was due to strong double-digit digital channel growth more than offsetting lower store productivity due to reduced store traffic. By product category, all categories delivered growth with movement delivering exceptional growth in the quarter followed by beauty, intimates, accessories and apparel.

Wholesale segment sales declined by 23% due to most of Free People's wholesale partners having reduced customer demand during the quarter.

FY'21 Q3 RESULTS | 07

Revenue Metrics

($ in millions)			Three Months Ended					Variance
(unaudited)	October 31, 2020	October 31, 2019			$	%
Total Sales	$	394.0		$	374.5			$	19.5	5%
Retail Segment	$	390.0		$	372.9			$	17.1	5%
Sales by Geography
North America			304.6				295.1					9.5	3%
Europe and ROW			85.4				77.8					7.6	10%
Wholesale Segment	$	4.0		$	1.6			$	2.4	154%
North America			2.1				1.1					1.0	96%
Europe and ROW			1.9				0.5					1.4	274%

Total Urban Outfitters brand sales increased by 5% to $394 million for the quarter.

The increase in Urban Outfitters sales during the quarter was primarily driven by a 5% increase in Retail segment sales. The growth in Retail segment sales was due to strong double-digit digital channel growth more than offsetting lower store productivity due to reduced store traffic. By product category, the growth was driven by home, partially offset by declines in the other product categories.

FY'21 Q3 RESULTS | 08

Gross Profit by Segment

($ in millions)		Three Months Ended					Variance
(unaudited)	October 31, 2020	October 31, 2019			$			%
Gross Profit* $'s	$	322.9		$	321.1			$	1.8		1%
Gross Profit* %		33.3%			32.5%
Retail Segment
Gross Profit $'s	$	301.5		$	304.6			$	(3.1)		-1%
Gross Profit %		33.7%			34.0%
Wholesale Segment**
Gross Profit $'s	$	20.6		$	18.5			$	2.1		12%
Gross Profit %		30.7%			20.9%
Subscription Segment
Gross Profit $'s	$	0.8		$	(2.0)			$	2.8		n/a

*Cost of Sales includes initial mark-up, markdowns, store occupancy, delivery, freight and logistics expenses and merchant expenses

**Net of intersegment elimination

Total Company gross profit dollars increased by 1% to $323 million for the quarter, while gross profit rate increased 79 bps to 33.3%. The increase in gross profit rate was due in part to record low merchandise markdowns in the Retail segment. The record low Retail segment markdown rate was driven by improvement at all three brands with the Urban Outfitters and Free People brands recording significant improvement. The Wholesale segment also delivered healthy improvement in merchandise margins due to lower discounts and allowances. Additionally, gross profit improved as a result of the benefits associated with negotiated rent concessions with landlords and European government assistance programs. These were partially offset by an increase in delivery and logistics expense primarily due to the penetration of the digital channel.

Retail segment gross profit decreased 1% to $301 million while the Retail segment gross profit rate declined 29 bps to 33.7% for the quarter. The decrease in gross profit rate in the current year quarter was due to an increase in delivery and logistics expense primarily due to the penetration of the digital channel. This was mostly offset by lower merchandise markdowns and the benefits associated with negotiated rent concessions with landlords and European government assistance programs.

Wholesale segment gross profit increased 12% to $21 million while the Wholesale segment gross profit rate increased to 30.7%. The increase in gross profit dollars and gross profit rate was primarily due to the impact of our inventory reserves being lower than the prior year quarter as a result of improved sales trends, disciplined inventory control and lower markdowns, which more than offset the decline in sales.

The Subscription segment had gross profit of $0.8 million for the quarter. We continue to leverage into our investments and work to achieve greater operating efficiency.

FY'21 Q3 RESULTS | 09

SG&A-Total Company

($ in millions)		Three Months Ended				Variance
(unaudited)		October 31, 2020	October 31, 2019	$		%
SG&A* $'s	$ 224.4		$245.8			$ (21.4)	-9%
SG&A* %	23.1%		24.9%

*SG&A includes direct store controllable, creative and marketing, corporate overhead and credit and banking expenses

SG&A expenses decreased by 9% to $224 million while SG&A as a % of sales leveraged by 175 bps to 23.1%. The leverage in SG&A as a rate to sales was primarily related to disciplined store payroll management and overall expense control measures. Digital marketing expenses grew during the quarter to support the strong digital sales and customer growth.

FY'21 Q3 RESULTS | 10

Operating Income by Segment

($ in millions)		Three Months Ended				Variance
(unaudited)	October 31, 2020	October 31, 2019		$	%
Operating Income $'s	$	98.5		$	75.3				$	23.2	31%
Operating Income %		10.2%			7.6%
Retail Segment
Operating Income $'s	$	102.0		$	83.7				$	18.3	22%
Operating Income %		11.4%			9.3%
Wholesale Segment*
Operating Income $'s	$	15.1		$	10.5				$	4.6	43%
Operating Income %		22.4%			11.9%
Subscription Segment
Operating Loss $'s	$	(4.0)		$	(6.3)				$	2.3	-37%
General Corporate
Expenses $'s	$	14.6		$	12.6				$	2.0	15%

* Net of intersegment elimination

Operating income dollars increased by 31% to $99 million while operating income rate improved by 254 bps to 10.2%. The increase in dollars was due to the SG&A leverage and improvement in gross profit rate in the quarter.

Retail segment operating income increased by 22% or $18 million to $102 million for the quarter. The increase in operating income was primarily due to the disciplined store payroll management and overall expense control measures.

Wholesale segment operating income increased by 43% or $5 million to $15 million. The increase in operating profit was due to the increase in gross profit dollars and overall expense control measures.

Subscription segment operating loss was $4 million for the quarter.

General corporate expenses increased by $2 million primarily due to severance expense.

FY'21 Q3 RESULTS | 11

Income Statement Summary

($ in millions)						Three Months Ended
(share count in millions)
(unaudited)	October 31, 2020			% of Net Sales		October 31, 2019	% of Net Sales
Net Sales	$	969.6	100%	$	987.5		100%
Cost of Sales		646.7		66.7				666.4		67.5
Gross Profit		322.9	33.3				321.1		32.5
Selling, General and Admin. Expenses		224.4		23.1				245.8			24.9
Income from Operations		98.5		10.2				75.3			7.6
Other (Loss) Income, Net		(0.9)		(0.1)				0.5			0.1
Income Before Income Taxes		97.6		10.1				75.8			7.7
Income Tax Expense		20.9		2.2				20.1			2.1
Net Income	$	76.7	7.9%	$	55.7		5.6%
Diluted Share Count		98.6							98.6
Earnings Per Diluted Share	$	0.78				$	0.56

The effective tax rate for the third quarter was 21% compared to 27% in the prior year quarter. The change in the effective tax rate was primarily driven by the impact of the year-to-date operating loss compared to operating income in the prior year period.

Net Income was $77 million or $0.78 cents per diluted share for the third quarter.

FY'21 Q3 RESULTS | 12

Balance Sheet Summary

($ in millions)
(unaudited)	October 31, 2020	October 31, 2019
Assets
Cash and Cash Equivalents	$	625				$	167
Marketable Securities		-		171
Accounts Receivable, Net		87					100
Inventory		489					532
Other Current Assets		171					143
Total Current Assets		1,372					1,113
Property and Equipment, Net		931					891
Operating Lease ROU Assets		1,101					1,119
Marketable Securities		9					83
Other Assets		118					115
Total Assets	$	3,531				$	3,321
Liabilities and Shareholders' Equity
Accounts Payable	$	350				$	233
Current Operating Lease Liabilities		255					214
Other Current Liabilities		342					264
Total Current Liabilities		947					711
Non-Current Operating Lease Liabilities		1,069					1,119
Long-Term Debt		-		-
Deferred Rent and Other Liabilities		84					61
Total Liabilities		2,100					1,891
Total Shareholders' Equity		1,431					1,430
Total Liabilities and Shareholders' Equity	$	3,531				$	3,321

As of October 31, 2020, Inventory decreased 8% to $489 million, primarily due to an 11% decrease in Retail segment comp inventory.

As of October 31, 2020, cash and marketable securities totaled $634 million with $0 drawn down on our $350 million asset backed line of credit facility. The Company paid down $120 million of previously drawn credit facility funds during the quarter.

FY'21 Q3 RESULTS | 13

Inventory Data

($ in millions)							Variance
(unaudited)
	October 31, 2020		October 31, 2019		$	%
URBN Inventory
$	498.2	$	531.6	$ (42.4)	-8%
Retail Segment by Brand	$	450.3	$	468.8	$	(18.5)	-4%
Anthropologie Group		206.2			217.4		(11.2)	-5%
Free People		73.9			61.3		12.6	21%
Urban Outfitters		170.2			190.1		(19.9)	-10%
Wholesale Segment by Brand	$	38.9	$	62.8	$ (23.9)	-38%
Anthropologie Group		0.3			5.5		(5.2)	-95%
Free People		36.1			55.6		(19.5)	-35%
Urban Outfitters		2.5			1.7		0.8	51%
Subscription Segment Rental Product, Net*	$	14.1	$	10.9	$	3.2	29%

*Rental Product, net of amortization, is included in Other Assets

FY'21 Q3 RESULTS | 14

Capital Spending

($ in millions) (unaudited)

Net Capex % of Net Sales

$	250			5.5%	Home Office
$	200				Fulfillment
$	150		2.9%		Technology
$	100	2.3%			Stores
$	50
		FY'18	FY'19	FY'20	Projected
					FY'21

During the third quarter, capital expenditures were $17 million while depreciation & amortization was $25 million.

FY'21 Q3 RESULTS | 15

Shares Outstanding

($ in millions)

(share count in millions) (unaudited)

140

130

120

110

100

90

Ending Shares Outstanding

Q1 Q2 Q3

FY'16

FY'17

FY'18

FY'19

FY'20

FY'21

Shares Repurchased

Number of Shares Total Cost

15	1.3	8.1	3.5	8.1	0.5
$ 465	$ 46	$ 157	$ 121	$ 217	$ 7

The Company did not repurchase any shares during the quarter. The Company has authorization to repurchase approximately 26 million additional shares remaining granted by the Board of Directors resolution's on August 22, 2017 and June 4, 2019. Our weighted average diluted share count for the quarter was 98.6 million shares.

FY'21 Q3 RESULTS | 16

Global Retail Stores Summary

						Q1-Q3 FY'21									Projected Q4 FY'21
														Projected
		Open as of							Open as of		Projected	Projected	Open as of
	January 31, 2020	Openings	Closings	October 31, 2020		Openings	Closings	January 31, 2021
Anthropologie Group NA	211	1		-	212			4		1		215
Anthropologie Group EU	20		2		-		22				-			-			22
Total Anthropologie Group	231	3		-	234			4		1		237
Free People NA	140	3	1	142			2			-	144
Free People EU	4			-		-		4				1			-			5
Total Free People	144	3	1	146			3			-	149
Urban Outfitters NA	194	4	4	194			2		5		191
Urban Outfitters EU	54		2		-		56				-			-			56
Total Urban Outfitters	248	6	4	250			2		5		247
Menus & Venues	11			-		-		11				-			-			11
Total Company-Owned Stores	634	12	5	641			9		6		644
Franchisee-Owned Stores	7			-		5		2				-			1			1
Total URBN	641	12	10	643			9		7		645

FY'21 Q3 RESULTS | 17

Global Store Count & Square Footage

(all data is as of the respective period ended) (Selling SF in thousands)

		AN	FP	UO	M&V	URBN*
FY'20 Q1
Store Count	228	136	245	12	621
	Selling SF	1,782	304	2,196	n/a	4,282
Q2	Store Count	228	137	246	11	622
	Selling SF	1,782	306	2,203	n/a	4,291
Q3	Store Count	231	143	249	11	634
	Selling SF	1,790	322	2,223	n/a	4,335
Q4	Store Count	231	144	248	11	634
	Selling SF	1,776	325	2,218	n/a	4,319

		AN	FP	UO	M&V	URBN*
FY'21 Q1
Store Count	233	144	249	11	637
	Selling SF	1,793	325	2,220	n/a	4,338
Q2	Store Count	233	143	248	11	635
	Selling SF	1,793	321	2,212	n/a	4,326
Q3	Store Count	234	146	250	11	641
	Selling SF	1,795	327	2,227	n/a	4,349

*excludes franchisee-owned stores

FY'21 Q3 RESULTS | 18