Certain matters contained in this filing with the United States Securities and
Exchange Commission ("SEC") may contain forward-looking statements and are being
made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q,
the words "project," "believe," "plan," "will," "anticipate," "expect" and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Any
one, or all, of the following factors could cause actual financial results to
differ materially from those financial results mentioned in the forward-looking
statements: the impacts of the coronavirus (COVID-19) pandemic, the difficulty
in predicting and responding to shifts in fashion trends, changes in the level
of competitive pricing and promotional activity and other industry factors,
overall economic and market conditions and worldwide political events and the
resultant impact on consumer spending patterns, the effects of the
implementation of the United Kingdom's withdrawal from membership in
the European Union (commonly referred to as "Brexit"), including currency
fluctuations, economic conditions and legal or regulatory changes, any effects
of war, terrorism and civil unrest, natural disasters, severe or unseasonable
weather conditions or public health crises such as the coronavirus (COVID-19)
pandemic, increases in labor costs, increases in raw material costs,
availability of suitable retail space for expansion, timing of store openings,
risks associated with international expansion, seasonal fluctuations in gross
sales, the departure of one or more key senior executives, import risks, changes
to U.S. and foreign trade policies, including the enactment of tariffs, border
adjustment taxes or increases in duties or quotas, the closing or disruption of,
or any damage to, any of our distribution centers, our ability to protect our
intellectual property rights, risks associated with digital sales, our ability
to maintain and expand our digital sales channels, response to new store
concepts, our ability to integrate acquisitions, any material disruptions or
security breaches with respect to our technology systems, failure of our
manufacturers and third-party vendors to comply with our social compliance
program, changes in our effective income tax rate (including the uncertainties
associated with the U.S. Tax Cuts and Jobs Act), changes in accounting standards
and subjective assumptions, regulatory changes and legal matters and other risks
identified in our filings with the SEC, including those set forth in Item 1A of
our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed
on March 31, 2020. We disclaim any intent or obligation to update
forward-looking statements even if experience or future changes make it clear
that actual results may differ materially from any projected results expressed
or implied therein.
Unless the context otherwise requires, all references to the "Company," "we,"
"us" or "our" refer to Urban Outfitters, Inc., together with its subsidiaries.
Overview
We operate under three reportable segments - Retail, Wholesale and Subscription.
Our Retail segment consists of our Anthropologie, Bhldn, Free People, Terrain
and Urban Outfitters brands and our Menus & Venues division. Our Retail segment
consumer products and services are sold directly to our customers through our
stores, websites, mobile applications, catalogs and customer contact centers and
franchised or third-party operated stores and digital businesses. The Wholesale
segment consists of our Free People, Anthropologie and Urban Outfitters brands
that sell through department and specialty stores worldwide, digital businesses
and our Retail segment. The Wholesale segment primarily designs, develops and
markets apparel, intimates, activewear and home goods. Our Subscription segment
consists of the Nuuly brand, which is a monthly women's apparel subscription
rental service that launched on July 30, 2019.
Our fiscal year ends on January 31. All references to our fiscal years refer to
the fiscal years ended on January 31 in those years. For example, our fiscal
year 2021 will end on January 31, 2021.
Impact of the Coronavirus Pandemic
On March 11, 2020, the World Health Organization declared the novel strain of
coronavirus (COVID-19) a global pandemic and recommended containment and
mitigation measures worldwide, causing public health officials to recommend
precautions to mitigate the spread of the virus, including warning against
congregating in heavily populated areas, such as malls and shopping centers. On
March 14, 2020, the Company announced that it temporarily closed all stores
globally; however, the Company continued to fulfill digital orders from its
stores where permitted by local authorities. The Company's distribution and
fulfillment centers remained open to support the digital business and the
Wholesale segment operations but have done so with additional safety procedures
and
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enhanced cleaning to protect the health of employees. The Company closed its
offices and showrooms globally with the exception of location dependent
employees. All other corporate and showroom employees are working remotely. The
coronavirus pandemic continues to materially impact the Company's operations in
the United States and globally, and related government and private sector
responsive actions have and will continue to adversely affect its business
operations. Because it is impossible to predict the effect and ultimate impact
of the coronavirus pandemic, current financial information may not be
necessarily indicative of future operating results and the Company's plans as
described below may change.
In response to the coronavirus pandemic, the Company has taken many additional
measures to protect its financial position and increase financial flexibility
during this challenging time period. Those include:
• Furloughing a substantial number of store, wholesale and home office
associates,
• Suspending all new hiring except in its fulfillment and call centers,
• Suspending all merit raises and bonuses for fiscal 2021,
• Borrowing $220.0 million (and subsequently repaying $100.0 million on
June 17, 2020) under its Amended Credit Facility (as defined herein) to
further protect its cash reserves (see Note 6, "Debt," of the Notes to
our Condensed Consolidated Financial Statements included in this
Quarterly Report on Form 10-Q for additional information),
• Reducing its capital budget by over $140 million from approximately
$260 million to approximately $120 million by delaying or cancelling
projects,
• Adjusting inventory levels by cancelling or delaying many orders and
asked for price concessions on those remaining,
• Reducing all non-payroll expenses, including creative, marketing, and
travel to name a few,
• Extending payment terms for both merchandise and non-merchandise vendor
invoices by 30 days,
• Reducing certain occupancy and occupancy related expenses,
• Reducing investments in two Company growth initiatives: Nuuly and
expansion into China,
• Reducing senior leadership compensation for the duration of the
furlough time period,
• Eliminating Board of Directors' cash compensation through the date of
the 2021 Annual Meeting of Shareholders, and
• Suspending share repurchases for the foreseeable future (see Note 9,
"Shareholders' Equity," of the Notes to our Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q for
additional information).
As a result of the coronavirus pandemic, during the three months ended April 30,
2020, the Company recorded certain additional reserves and non-cash charges.
During the three months ended April 30, 2020, the Company assessed the value of
its inventory in the Retail and Wholesale segments and recorded a $43.3 million
increase in its inventory obsolescence reserves. During the three months ended
April 30, 2020, the Company recorded a $5.8 million increase in allowance for
doubtful accounts reserves for Wholesale segment customer accounts receivables
as a result of the significant disruption and uncertainty currently in the
wholesale macro environment. Finally, during the three months ended April 30,
2020, the Company determined that certain long-lived assets at the Company's
retail locations were unable to recover their carrying value primarily driven
due to the impact of the mandated store closures and anticipated reduced store
net sales during the remainder of fiscal 2021 as a result of the coronavirus
pandemic. These assets were written down to a fair value resulting in impairment
charges of $14.5 million across 39 retail locations.
As a result of the global coronavirus pandemic, governments in the United
States, United Kingdom ("U.K."), Canada and various other jurisdictions have
implemented programs to encourage companies to retain and pay employees that are
unable to work or are limited in the work that they can perform in light of
closures or a significant decline in sales. The Company continued to pay all
employees through at least April 1, 2020. On March 31, 2020, the Company
announced it furloughed a substantial number of store, wholesale and home office
employees beginning April 1. Impacted employees continued to receive enrolled
benefits during the furlough period. As such, the Company qualifies for certain
of these programs which will partially offset related expenses. The Company is
evaluating the reimbursement it is eligible to receive under such programs and
will record the cumulative benefit in the second quarter of fiscal 2021 and
through the eligibility period of such programs.
Beginning April 25, 2020, the Company started to reopen stores in select states
and countries. When the Company reopened these stores, it did so in accordance
with local government guidelines. As of June 24, 2020, the
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Company has reopened more than 570 of its stores globally and intends to
continue reopening stores around the world as states and countries permit the
reopening of retail operations. The Company has not changed its remote work
arrangements for its corporate employees.
As we have reopened stores, we have followed newly established health protocols,
provided personal protective equipment to our employees, and implemented social
distancing working practices. Additionally, we are implementing occupancy
limits, reducing operating hours, and instituting new cleaning regimens,
including enhanced cleaning of high-touch surfaces throughout the day and making
hand sanitizer available to our customers and employees. As a result, the
Company is planning on incurring incremental costs going forward for personal
protective equipment and additional payroll and supply costs associated with
social distancing protocols and cleaning regimens we are putting in place in our
stores, distribution and fulfillment centers, and offices.
Civil Unrest
In May 2020, significant civil unrest impacted 55 stores located in North
America with varying degrees of damage, including recently reopened stores and
stores from which we fulfilled digital orders. As a result, we temporarily
closed these stores in order to assess the damage and make repairs in affected
areas to ensure the safety of our customers and employees. We maintain business
interruption and property insurance coverage, which covers inventory at the
selling price and property and equipment at replacement costs, less a
deductible. We are currently assessing the degree of the damage and the extent
to which insurance may be available to cover the costs associated with these
events. However, we do not expect losses after insurance recoveries to be
material to our Condensed Consolidated Financial Statements.
Retail Segment
Our Retail segment omni-channel strategy enhances our customers' brand
experience by providing a seamless approach to the customer shopping experience.
All available Company-owned Retail segment shopping channels are fully
integrated, including stores, websites, mobile applications, catalogs and
customer contact centers. Our investments in areas such as marketing campaigns
and technology advancements are designed to generate demand for the Retail
segment omni-channel and not the separate store or digital channels. We manage
and analyze our performance based on a single Retail segment omni-channel rather
than separate channels and believe that the Retail segment omni-channel results
present the most meaningful and appropriate measure of our performance.
Our comparable Retail segment net sales data is equal to the sum of our
comparable store and comparable digital channel net sales. A store is considered
to be comparable if it has been open at least 12 full months, unless it was
materially expanded or remodeled within that year or was not otherwise operating
at its full capacity within that year due to store specific closures from events
such as damage from fire, flood and natural weather events. A digital channel is
considered to be comparable if it has been operational for at least 12 full
months. Sales from stores and digital channels that do not fall within the
definition of comparable store or channel are considered to be non-comparable.
Franchise net sales and the effects of foreign currency translation are also
considered non-comparable.
We monitor Retail segment metrics including customer traffic and average units
per transaction at our stores and on our websites and mobile applications. We
additionally monitor average unit selling price and transactions at our stores
and average order value and conversion rates on our websites and mobile
applications. We believe that changes in any of these metrics may be caused by a
response to our brands' fashion offerings, our marketing campaigns, circulation
of our catalogs and an overall growth in brand recognition.
Urban Outfitters targets young adults aged 18 to 28 through a unique merchandise
mix, compelling store environment, websites and mobile applications and a
product offering that includes women's and men's fashion apparel, activewear,
intimates, footwear, accessories, home goods, electronics and beauty. A large
portion of our merchandise is exclusive to Urban Outfitters, consisting of an
assortment of products designed internally and designed in collaboration with
third-party brands. Urban Outfitters stores are in street locations in large
metropolitan areas and select university communities, specialty centers and
enclosed malls that accommodate our customers' propensity not only to shop, but
also to congregate with their peers. Urban Outfitters operates websites and
mobile applications in North America and Europe that capture the spirit of the
brand by offering a similar yet broader selection of merchandise as found in its
stores, offers a catalog in Europe offering select merchandise, most of which is
also available in its stores, sells merchandise through franchisee-owned stores
in Israel and the United Arab Emirates, and partners with third-party digital
businesses to offer a limited selection of merchandise, which is
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available globally. Urban Outfitters' North American and European Retail segment
net sales accounted for approximately 32.3% and 7.5% of consolidated net sales,
respectively, for the three months ended April 30, 2020, compared to 29.1% and
7.4%, respectively, for the comparable period in fiscal 2020. Asian Retail
segment net sales accounted for less than 1.0% of consolidated net sales for the
three months ended April 30, 2020 and the comparable period in fiscal 2020.
The Anthropologie Group consists of the Anthropologie, Bhldn and Terrain brands.
Merchandise at the Anthropologie brand is tailored to sophisticated and
contemporary women aged 28 to 45. The product assortment includes women's casual
apparel, accessories, intimates, shoes, home furnishings, a diverse array of
gifts and decorative items and beauty and wellness. APlus by Anthropologie,
which was launched during fiscal 2020, is an apparel line that offers an
extended size range within certain Anthropologie brand clothing collections. The
Bhldn brand emphasizes every element that contributes to a wedding. The Bhldn
brand offers a curated collection of heirloom quality wedding gowns, bridesmaid
frocks, party dresses, assorted jewelry, headpieces, footwear, lingerie and
decorations. The Terrain brand is designed to appeal to women and men interested
in a creative and sophisticated outdoor living and gardening experience.
Merchandise includes lifestyle home, garden and outdoor living products,
antiques, live plants, flowers, wellness products and accessories. In addition
to individual brand stores, the Anthropologie Group operates expanded format
stores that include multiple Anthropologie Group brands, which allows for the
presentation of an expanded assortment of products in certain categories.
Anthropologie Group stores are located in specialty centers, upscale street
locations and enclosed malls. The Anthropologie Group operates websites and
mobile applications in North America and Europe that capture the spirit of its
brands by offering a similar yet broader selection of merchandise as found in
its stores, offers catalogs in North America and Europe that market select
merchandise, most of which is also available in Anthropologie brand stores,
sells merchandise through a franchisee-owned store in Israel, and partners with
third-party digital businesses to offer a limited selection of merchandise,
which is available globally. The Anthropologie Group's North American and
European Retail segment net sales accounted for approximately 38.0% and 1.7% of
consolidated net sales, respectively, for the three months ended April 30, 2020,
compared to 39.1% and 1.7%, respectively, for the comparable period in fiscal
2020. Asian Retail segment net sales accounted for less than 1.0% of
consolidated net sales for the three months ended April 30, 2020 and the
comparable period in fiscal 2020.
Free People focuses its product offering on private label merchandise targeted
to young contemporary women aged 25 to 30 and provides a unique merchandise mix
of casual women's apparel, intimates, FP Movement activewear, shoes,
accessories, home products, gifts and beauty and wellness. Free People stores
are located in enclosed malls, upscale street locations and specialty centers.
We plan to open standalone FP Movement stores in fiscal 2021 and expect to open
additional stores thereafter. Free People operates websites and mobile
applications in North America, Europe and Asia that capture the spirit of the
brand by offering a similar yet broader selection of merchandise as found in its
stores, as well as substantially all of the Free People wholesale offerings.
Free People also offers a catalog that markets select merchandise, most of which
is also available in our Free People stores, sells merchandise
through a franchisee-owned store in Israel, and partners with third-party
digital businesses to offer a limited selection of merchandise, which is
available globally. Free People opened its first European retail stores in
fiscal 2019. Free People's North American Retail segment net sales accounted for
approximately 14.3% of consolidated net sales for the three months ended April
30, 2020, compared to approximately 12.0% for the comparable period in fiscal
2020. European and Asian Retail segment net sales each accounted for less than
1.0% of consolidated net sales for the three months ended April 30, 2020 and the
comparable period in fiscal 2020.
The Menus & Venues division focuses on a dining experience that provides
excellence in food, beverage and service. The Menus & Venues division net sales
accounted for less than 1.0% of consolidated net sales for the three months
ended April 30, 2020 and the comparable period in fiscal 2020.
Net sales from the Retail segment accounted for approximately 95.3% of
consolidated net sales for the three months ended April 30, 2020, compared to
90.5% for the comparable period in fiscal 2020.
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Store data for the three months ended April 30, 2020 was as follows:
January 31, Stores Stores April 30,
2020 Opened Closed 2020
Urban Outfitters
United States 177 2 (1 ) 178
Canada 17 - - 17
Europe 54 - - 54
Urban Outfitters Global Total 248 2 (1 ) 249
Anthropologie Group
United States 200 1 - 201
Canada 11 - - 11
Europe 20 1 - 21
Anthropologie Group Global Total 231 2 - 233
Free People
United States 134 - - 134
Canada 6 - - 6
Europe 4 - - 4
Free People Global Total 144 - - 144
Menus & Venues
United States 11 - - 11
Menus & Venues Total 11 - - 11
Total Company-Owned Stores 634 4 (1 ) 637
Franchisee-Owned Stores (1) 7 - - 7
Total URBN 641 4 (1 ) 644
(1) Franchisee-owned stores are located in Israel and the United Arab Emirates.
Selling square footage by brand as of April 30, 2020 and 2019 was as follows:
April 30, April 30,
2020 2019 Change
Selling square footage (in thousands):
Urban Outfitters 2,220 2,196 1.1 %
Anthropologie Group 1,793 1,782 0.6 %
Free People 325 304 6.9 %
Total URBN (1) 4,338 4,282 1.3 %
(1) Menus & Venues restaurants and franchisee-owned stores are not included
in selling square footage.
We plan for future store growth for all three brands to come from expansion
domestically and internationally, which may include opening stores (including
standalone FP Movement stores) in new and existing markets or entering into
additional franchise or joint venture agreements. We plan for future digital
channel growth to come from expansion domestically and internationally.
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Projected openings and closings for fiscal 2021 are as follows:
January 31, Projected Projected January 31,
2020 Openings Closings 2021
Urban Outfitters 248 9 (5 ) 252
Anthropologie Group 231 7 (4 ) 234
Free People 144 5 (1 ) 148
Menus & Venues 11 - - 11
Total Company-Owned Stores 634 21 (10 ) 645
Franchisee-Owned Stores 7 - - 7
Total URBN (1) 641 21 (10 ) 652
(1) All projected openings and closings are currently being evaluated due to
the COVID-19 pandemic.
Wholesale Segment
Our Wholesale segment consists of the Free People, Anthropologie and Urban
Outfitters brands that sell through approximately 2,300 department and specialty
stores worldwide, third-party digital businesses and our Retail segment. The
Wholesale segment primarily designs, develops and markets young women's
contemporary casual apparel, intimates, FP Movement activewear and shoes under
the Free People brand, home goods including gifts, tabletop and textiles under
the Anthropologie brand and the BDG apparel collection under the Urban
Outfitters brand. Our Wholesale segment net sales accounted for approximately
3.6% of consolidated net sales for the three months ended April 30, 2020,
compared to 9.5% for the comparable period in fiscal 2020.
Subscription Segment
Our Subscription segment consists of the Nuuly brand, which is a monthly women's
apparel subscription rental service that launched on July 30, 2019. For a
monthly fee, Nuuly subscribers can select rental product from a wide selection
of the Company's own brands, third-party labels and one-of-a-kind vintage pieces
via a custom-built, digital platform. Subscribers select their products each
month, wear them as often as they like, and then swap into new products the
following month. Subscribers are also able to purchase the rented product. Our
Subscription segment net sales accounted for approximately 1.1% of consolidated
net sales for the three months ended April 30, 2020.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles in the United States. These
generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, net
sales and expenses during the reporting period.
Our senior management has reviewed the critical accounting policies and
estimates with the Audit Committee of our Board of Directors. Our significant
accounting policies are described in Note 2, "Summary of Significant Accounting
Policies," in the Notes to our Consolidated Financial Statements for the fiscal
year ended January 31, 2020, which are included in our Annual Report on Form
10-K filed with the SEC on March 31, 2020. Critical accounting policies are
those that are most important to the portrayal of our financial condition,
results of operations and cash flows and require management's most difficult,
subjective and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. If actual
results were to differ significantly from estimates made, the reported results
could be materially affected. Other than the impact of the coronavirus pandemic
on our inventory obsolescence reserves in the Retail and Wholesale segments, the
allowance for doubtful accounts on our Wholesale segment accounts receivable and
the obsolescence reserves on our Subscription segment rental product, we are not
currently aware of any reasonably likely events or circumstances that would
cause our actual results to be materially different from our estimates. There
have been no significant changes to our critical accounting policies during the
three months ended April 30, 2020.
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Results of Operations
As a Percentage of Net Sales
As a result of the coronavirus pandemic, our stores were closed for nearly half
of the first quarter of fiscal 2021. In addition to lost revenues, we incurred
expenses that were not commensurate with the level of current level of sales. As
a result, comparisons of expense ratios and year-over-year trends were impacted
in a meaningful way.
The following table sets forth, for the periods indicated, the percentage of our
net sales represented by certain income statement data and the change in certain
income statement data from period to period. This table should be read in
conjunction with the discussion that follows:
Three Month Ended
April 30,
2020 2019
Net sales 100.0 % 100.0 %
Cost of sales (excluding store impairment) 95.5 68.9
Store impairment
2.5 -
Gross profit 2.0 31.1
Selling, general and administrative expenses 35.8 26.5
(Loss) income from operations
(33.8) 4.6
Other income, net 0.1 0.3
(Loss) income before income taxes (33.7) 4.9
Income tax (benefit) expense (10.2) 1.1
Net (loss) income (23.5) % 3.8 %
Three Months Ended April 30, 2020 Compared To Three Months Ended April 30, 2019
Net sales in the first quarter of fiscal 2021 were $588.5 million, compared to
$864.4 million in the first quarter of fiscal 2020. The $275.9 million decrease
was attributable to a $221.3 million, or 28.3%, decrease in Retail segment net
sales and a $60.9 million, or 74.4%, decrease in Wholesale segment net sales,
partially offset by $6.3 million of Subscription segment net sales. Retail
segment net sales for the first quarter of fiscal 2021 accounted for 95.3% of
total net sales compared to 90.5% of total net sales in the first quarter of
fiscal 2020.
The decrease in our Retail segment net sales during the first quarter of fiscal
2021 was due to a decrease of $208.3 million, or 27.5%, in Retail segment
comparable net sales, and a decrease of $13.0 million in non-comparable net
sales, including the net impact of store openings and closings since the prior
comparable period and the impact of foreign currency translation. Retail segment
comparable net sales decreased 19.1% at Free People, 24.1% at Urban Outfitters
and 32.8% at the Anthropologie Group. Retail segment comparable net sales
decreased in both North America and Europe. The decrease in Retail segment
comparable net sales was driven by negative comparable store net sales due to
mandated store closures as a result of the coronavirus pandemic, partially
offset by low double-digit growth in the digital channel. Negative comparable
store net sales resulted from a decrease in transactions, average unit selling
price and units per transaction. Store traffic for the quarter decreased. The
digital channel net sales increase was driven by an increase in conversion rate,
sessions and units per transaction, while average order value decreased. The
decrease in non-comparable net sales was primarily due to the mandated store
closures as a result of the coronavirus pandemic at the 30 new Company-owned
stores and restaurants opened and 13 Company-owned stores and restaurants closed
since the prior comparable period.
The decrease in Wholesale segment net sales in the first quarter of fiscal 2021,
as compared to the first quarter of fiscal 2020, was primarily due to a 74.3%
decrease for the Free People brand, due to the majority of the brand's wholesale
partners having all or a meaningful portion of their businesses closed for a
significant portion of the quarter. The segment decrease was also due to
decreases of $2.2 million in Anthropologie Home sales and $0.2 million in Urban
Outfitters BDG sales.
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Gross profit percentage for the first quarter of fiscal 2021 decreased to 2.0%
of net sales, from 31.1% of net sales in the comparable quarter in fiscal 2020.
Gross profit decreased to $11.8 million in the first quarter of fiscal 2021 from
$269.1 million in the first quarter of fiscal 2020. The decrease in gross profit
percentage was due to significant store occupancy deleverage, a meaningful
increase in inventory obsolescence reserves, an increase in delivery expense and
an increase in merchandise markdowns. While stores were closed for half of the
first quarter of fiscal 2021 due to the coronavirus pandemic, store occupancy
expense significantly deleveraged as rent and other occupancy costs are
unadjusted until agreements are reached with landlords. During the first quarter
of fiscal 2021, the Company recorded a $14.5 million store impairment charge and
a $43.3 million year-over-year increase in inventory obsolescence reserves due
to an increase in aged inventory and an increase in the promotional environment
in both the Retail and Wholesale segments. Delivery expense increased primarily
due to the increase in penetration of the digital channel, lower average order
value and an increase in split shipments.
Total inventory at April 30, 2020 as compared to April 30, 2019, decreased by
$72.7 million, or 17.8%, to $335.6 million. The decrease in inventory was due to
an 18% decrease in Retail segment inventory and a 16% decrease in Wholesale
segment inventory. The decrease in both segments was primarily due to cancelling
orders to align with store closures and overall reduced consumer demand, as well
as an increase in inventory obsolescence reserves.
Selling, general and administrative expenses decreased by 8.1%, to $210.6
million, in the first quarter of fiscal 2021, compared to $229.0 million in the
first quarter of fiscal 2020. Selling, general and administrative expenses as a
percentage of net sales increased in the first quarter of fiscal 2021 to 35.8%
of net sales, compared to 26.5% of net sales for the first quarter of fiscal
2020. The increase in selling, general and administrative percentage was
primarily related to deleverage in store and field management expense. The
Company continued to employ and pay a large portion of its regional and store
management teams despite store closures and reduced sales during the coronavirus
pandemic. Additionally, marketing expenses increased as a percentage of net
sales primarily due to the increase in digital channel penetration. The Company
also recorded a significant increase in allowance for doubtful accounts reserves
for wholesale customer accounts receivables as a result of the significant
current disruption and uncertainty in the wholesale macro environment. The
decrease in selling, general and administrative expenses was primarily due to
the cost savings measures the Company put in place after mandated store closures
as a result of the coronavirus pandemic.
Loss from operations was 33.8% of net sales, or $198.7 million, for the first
quarter of fiscal 2021 compared to income from operations of 4.6% of net sales,
or $40.0 million, for the first quarter of fiscal 2020.
Our effective tax rate for the first quarter of fiscal 2021 was a benefit of
30.3% of loss before income taxes compared to an expense of 23.7% of income
before income taxes in the first quarter of fiscal 2020. The change in the
effective tax rate was primarily driven by the tax benefit for the carryback of
the current year net operating loss, as provided by the Coronavirus Aid, Relief
and Economic Security (CARES) Act. The CARES Act allows net operating losses
incurred in 2018, 2019, and 2020 to be carried back to each of the five
preceding taxable years to generate a refund of previously paid income taxes.
Current year net operating losses will be carried back to fiscal year 2016 when
the statutory tax rate was 35% rather than the current statutory tax rate of
21%.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities were $667.1 million as of April
30, 2020, as compared to $530.4 million as of January 31, 2020 and $614.3
million as of April 30, 2019. During the first three months of fiscal 2021, we
borrowed $220.0 million under our Amended Credit Facility, used $59.7 million in
cash from operations, invested $43.5 million in property and equipment and
repurchased $7.0 million of common shares under our share repurchase programs.
The shares repurchased during the three months of fiscal 2021 were prior to the
known spread of the coronavirus pandemic in the United States, which forced the
Company to close its stores for an extended period of time. Our working capital
was $513.4 million at April 30, 2020 compared to $414.6 million at January 31,
2020 and $491.1 million at April 30, 2019. The increase in working capital as
compared to January 31, 2020, was primarily due to the net increase in cash,
cash equivalents and current marketable securities due to the $220.0 million
borrowing under our Amended Credit Facility partially offset by uses of cash to
fund store related expenses during the mandated store closures.
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During the last two years, we have satisfied our cash requirements primarily
through our cash flow from operating activities and additionally in the first
three months of fiscal 2021, through our borrowings. Our primary uses of cash
have been to repurchase our common shares, open new stores, purchase inventory,
fund store operations and expand our home offices and fulfillment centers.
Cash Flows from Operating Activities
Cash flows from operating activities during the first three months of fiscal
2021 was a cash outflow of $59.7 million compared to a cash inflow of $25.9
million in the first three months of fiscal 2020. For both periods, our major
source of cash from operations was merchandise sales and our primary outflow of
cash from operations was for the payment of operational costs. The period over
period decrease in cash flows from operations was due to the net loss incurred
in the first three months of fiscal 2021 driven by the material negative impact
that the mandated store closures caused by the coronavirus pandemic had on the
Company's operations. Although the Company's stores were closed for the second
half of the first quarter of fiscal 2021, the Company continued to incur various
store operational costs, such as employee costs and costs for a large portion of
its regional and store management teams despite store closures and reduced sales
during the coronavirus pandemic.
Cash Flows from Investing Activities
Cash flows from investing activities during the first three months of fiscal
2021 was a cash inflow of $222.2 million compared to a cash outflow of $15.9
million in the first three months of fiscal 2020. Net liquidations of our
marketable securities portfolio in the first three months of fiscal 2021 were
primarily to preserve financial flexibility and maintain liquidity in response
to the coronavirus pandemic. Cash used in investing activities in fiscal 2020
primarily related to purchases of marketable securities and property and
equipment, partially offset by the sales and maturities of marketable
securities. Cash paid for property and equipment in the first three months of
fiscal 2021 and 2020 was $43.5 million and $37.7 million, respectively, which
was primarily used to expand our fulfillment center network in fiscal 2021 and
2020. See Capital and Operating Expenditures for further discussion of the
Company's plans to reduce planned capital expenditures for the remainder of
fiscal 2021 in response to the coronavirus pandemic.
Cash Flows from Financing Activities
Cash flows from financing activities during the first three months of fiscal
2021 was a cash inflow of $209.2 million compared to a cash outflow of $75.7
million in the first three months of fiscal 2020. Cash provided by financing
activities in the first three months of fiscal 2021 primarily related to $220.0
million of borrowings under our Amended Credit Facility, partially offset by
$7.0 million of repurchases of our common shares under our share repurchase
program. The shares repurchased during the three months of fiscal 2021 were
prior to the known spread of the coronavirus pandemic in the United States,
which forced the Company to close its stores for an extended period of time. The
Company has since suspended share repurchase activity under its programs for the
foreseeable future. Cash used in financing activities in the first three months
of fiscal 2020 primarily related to $71.2 million of repurchases of our common
shares under our share repurchase program.
Credit Facilities
See Note 6, "Debt," of the Notes to our Condensed Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q for additional
information regarding the Company's debt.
Capital and Operating Expenditures
With the additional measures in place noted above under Impact of the
Coronavirus Pandemic, during fiscal 2021, we plan to complete construction of a
new omni-channel fulfillment center in Europe, open approximately 21 new
Company-owned retail locations, expand or relocate certain existing retail
locations, invest in new products, markets and brands, purchase inventory for
our operating segments at levels appropriate to maintain our planned sales,
upgrade our systems, improve and expand our digital capabilities and invest in
omni-channel marketing when appropriate. We believe that our new brand
initiatives, new store openings, merchandise expansion programs,
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international growth opportunities and our marketing, social media, website and
mobile initiatives are significant contributors to our Retail segment sales. All
fiscal 2021 capital expenditures are expected to be financed by cash flow from
operating activities and borrowings. We believe that our new store investments
generally have the potential to generate positive cash flow within a year;
however, the impact of the coronavirus pandemic may result in a slightly longer
timeframe. We may also enter into one or more acquisitions or transactions
related to the expansion of our brand offerings, including additional franchise
and joint venture agreements. We believe that our existing cash and cash
equivalents, availability under our current credit facilities and future cash
flows provided by operations will be sufficient to fund these initiatives.
Share Repurchases
See Note 9, "Shareholders' Equity," of the Notes to our Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q for
additional information regarding the Company's share repurchases.
Off-Balance Sheet Arrangements
As of and for the three months ended April 30, 2020, we were not party to any
material off-balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, expenses, results
of operations, liquidity, capital expenditures or capital resources.
Other Matters
See Note 1, "Basis of Presentation," Recent Accounting Pronouncements, of the
Notes to our Condensed Consolidated Financial Statements included in this
Quarterly Report on Form 10-Q for a description of recent accounting
pronouncements.
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