URBAN OUTFITTERS, INC. Certain matters contained in this filing with theUnited 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 public health crises such as the coronavirus (COVID-19) pandemic, overall economic and market conditions and worldwide political events and the resultant impact on consumer spending patterns, 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, the effects of the implementation of theUnited Kingdom's withdrawal from membership in theEuropean 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 (including as a result of climate change) or public health crises, 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, response to new concepts, our ability to integrate acquisitions, risks associated with digital sales, our ability to maintain and expand our digital sales channels, any material disruptions or security breaches with respect to our technology systems, the departure of one or more key senior executives, import risks (including any shortage of transportation capacities or delays at ports), changes toU.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, failure of our manufacturers and third-party vendors to comply with our social compliance program, risks related to environmental, social and governance activities, changes in our effective income tax rate, changes in accounting standards and subjective assumptions, regulatory changes and legal matters and other risks identified in our filings with theSEC , including those set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 , filed onApril 1, 2021 . 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
Overview
We operate under three reportable segments - Retail, Wholesale and Subscription. Our Retail segment consists of our Anthropologie, Bhldn, Free People,FP Movement , Terrain,Urban Outfitters and Menus & Venues brands. Our Retail segment consumer products and services are sold directly to our customers through our retail locations, 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,FP Movement 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 and activewear. Our Subscription segment consists of the Nuuly brand, which is a monthly women's apparel subscription rental service that launched onJuly 30, 2019 . Our fiscal year ends onJanuary 31 . All references to our fiscal years refer to the fiscal years ended onJanuary 31 in those years. For example, our fiscal year 2022 will end onJanuary 31, 2022 , our fiscal year 2021 ended onJanuary 31, 2021 and our fiscal year 2020 ended onJanuary 31, 2020 .
Impact of the Coronavirus Pandemic
Impact on Fiscal 2021
On
19
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Company announced that it temporarily closed all stores, offices and showrooms
globally. The Company's distribution and fulfillment centers remained open to
support the digital business and the Wholesale segment operations but did so
with additional safety procedures and enhanced cleaning measures in place to
protect the health of employees. All other corporate and showroom employees are
working remotely.
In response to the COVID-19 pandemic, the Company took measures to protect its
financial position and increase financial flexibility. For details of all such
material measures taken during fiscal 2021, refer to our Annual Report on Form
10-K for the fiscal year ended January 31, 2021 , filed with the SEC on April 1,
2021 . See Note 6, "Debt," of the Notes to our Condensed Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q for discussion of the
Company's borrowings and subsequent repayments under its Amended Credit Facility
during fiscal 2021.
As a result of the COVID-19 pandemic, during fiscal 2021, the Company recorded
certain additional reserves, including inventory obsolescence reserves and
allowance for doubtful accounts for Wholesale segment customer accounts
receivables, and non-cash charges, primarily store impairment charges. For
further discussion of such reserves and non-cash charges for the first quarter
of fiscal 2021, see the Company's Quarterly Report on Form 10-Q for the
quarterly period ended April 30, 2020 , filed with the SEC on June 29, 2020 , and
the impact of the remainder of fiscal 2021 in the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2021 .
Beginning April 25, 2020 , the Company reopened stores in select states and
countries in accordance with local government guidelines. As of July 31, 2020 ,
substantially all of the Company's stores had reopened. Where opening was
permitted, we followed newly established health protocols, provided personal
protective equipment to our employees, and implemented social distancing working
practices. Additionally, we implemented occupancy limits, reduced operating
hours, and instituted new cleaning regimens. As a result, the Company incurred
incremental costs for personal protective equipment and additional payroll and
other costs associated with implementing these health protocols in our stores,
distribution and fulfillment centers, and corporate offices. During the fourth
quarter of fiscal 2021, certain store operations were again impacted by an
additional round of temporary store closures and occupancy restrictions,
primarily in Europe and Canada .
As a result of the COVID-19 pandemic, certain governments implemented programs
(some of which expired in fiscal 2021) 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
qualified for certain of these programs during fiscal 2021 which partially
offset related expenses. The Company recorded the benefit of the government
assistance programs as an offset to selling, general and administrative expenses
or store occupancy expenses in cost of sales based on the nature of the related
expenses offset by such programs. The Company did not record any amounts in the
first quarter of fiscal 2021 but did throughout the remainder of fiscal 2021.
Impact on Fiscal 2022
The COVID-19 pandemic continued to negatively impact our store operations during
the first quarter of fiscal 2022 due to reduced store traffic as closures and
occupancy restrictions continued primarily in Europe and Canada . During the
first quarter of fiscal 2022, however, the Company decreased a portion of its
inventory obsolescence reserves as a result of disciplined inventory control and
better than planned product performance and reduced a portion of the allowance
for doubtful accounts for Wholesale segment customer accounts receivables due to
the collection of certain outstanding accounts receivables.
The Company continued to qualify for certain government assistance programs that
partially offset related expenses in locations impacted by closures during
fiscal 2022. The Company recorded the benefit of the government assistance
programs as an offset to selling, general and administrative expenses or store
occupancy expenses in cost of sales based on the nature of the related expenses
offset by such programs.
Impact on Future Operations
The COVID-19 pandemic continues to impact the Company's operations and related
government and private sector responsive actions could continue to affect its
business operations. The Company cannot reasonably estimate the duration and
severity of the COVID-19 pandemic, which has had and may continue to have a
material impact on its business. As a result, current financial information may
not be necessarily indicative of future operating results and the Company's
plans to address the impact of the COVID-19 pandemic may change.
20
--------------------------------------------------------------------------------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 retail locations, 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. The Company did not remove stores that were closed or operating for an extended period of time at a reduced capacity due to the COVID-19 pandemic from the comparable stores net sales calculations. 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, conversion rates, average units per transaction at our stores and on our websites and mobile applications and average unit selling price at our stores and average order value 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 toUrban 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 inNorth America ,Europe andAsia that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores, sells merchandise through a franchisee-owned store in theUnited Arab Emirates , and partners with third-party digital businesses to offer a limited selection of merchandise, which is available globally.Urban Outfitters' North American and European Retail segment net sales accounted for approximately 29.6% and 7.2% of consolidated net sales, respectively, for the three months endedApril 30, 2021 , compared to 32.3% and 7.5%, respectively, for the comparable period in fiscal 2021. Asian Retail segment net sales accounted for less than 1.0% of consolidated net sales for the three months endedApril 30, 2021 and the comparable period in fiscal 2021.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. 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, head pieces, 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, theAnthropologie 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 inNorth America andEurope that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found in its stores, offers a catalog inNorth America that markets select merchandise, most of which is also available in Anthropologie brand stores, and partners with third-party digital businesses to offer a limited selection of merchandise, which is available 21 -------------------------------------------------------------------------------- globally.The Anthropologie Group's North American and European Retail segment net sales accounted for approximately 36.5% and 1.5% of consolidated net sales, respectively, for the three months endedApril 30, 2021 , compared to 38.0% and 1.7%, respectively, for the comparable period in fiscal 2021. Asian Retail segment net sales accounted for less than 1.0% of consolidated net sales for the three months endedApril 30, 2021 and the comparable period in fiscal 2021.The Free People Group consists of theFree People and FP Movement brands. The Free People brand 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. The FP Movement brand offers performance-ready activewear, beyond-the-gym staples and wellness essentials.Free People Group stores are located in enclosed malls, upscale street locations and specialty centers.The Free People Group operates websites and mobile applications inNorth America ,Europe andAsia 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 theFree People andFP Movement wholesale offerings.The Free People Group also offers catalogs that market select merchandise, most of which is also available in ourFree People andFP Movement stores, and partners with third-party digital businesses to offer a limited selection of merchandise, which is available globally.The Free People Group's North American Retail segment net sales accounted for approximately 16.1% of consolidated net sales for the three months endedApril 30, 2021 , compared to approximately 14.3% for the comparable period in fiscal 2021. European and Asian Retail segment net sales each accounted for less than 1.0% of consolidated net sales for the three months endedApril 30, 2021 and the comparable period in fiscal 2021. The Menus & Venues brand focuses on a dining experience that provides excellence in food, beverage and service. The Menus & Venues brand net sales accounted for less than 1.0% of consolidated net sales for the three months endedApril 30, 2021 and the comparable period in fiscal 2021.
Net sales from the Retail segment accounted for approximately 92.5% of
consolidated net sales for the three months ended
22
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Store data for the three months ended
January 31, Stores Stores April 30,
2021 Opened Closed 2021
Urban Outfitters
United States 174 3 - 177
Canada 17 - - 17
Europe 56 1 - 57
Urban Outfitters Global Total 247 4 - 251
Anthropologie Group
United States 204 1 (1 ) 204
Canada 11 - - 11
Europe 22 1 - 23
Anthropologie Group Global Total 237 2 (1 ) 238
Free People Group
United States (1) 138 5 (1 ) 142
Canada 6 - (1 ) 5
Europe 5 1 - 6
Free People Group Global Total 149 6 (2 ) 153
Menus & Venues
United States 11 - - 11
Menus & Venues Total 11 - - 11
Total Company-Owned Stores 644 12 (3 ) 653
Franchisee-Owned Stores (2) 1 - - 1
Total URBN 645 12 (3 ) 654
(1)
2021. Three FP Movement stores were open as of April 30, 2021 .
(2) Franchisee-owned store is located in the United Arab Emirates .
Selling square footage by brand as of April 30, 2021 and 2020 was as follows:
April 30, April 30,
2021 2020 Change
Selling square footage (in thousands):
Urban Outfitters 2,224 2,220 0.2 %
Anthropologie Group 1,816 1,793 1.3 %
Free People Group (1) 338 325 4.0 %
Total URBN (2) 4,378 4,338 0.9 %
(1) Selling square footage for
were no
(2) 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 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.
23
--------------------------------------------------------------------------------Projected openings and closings for fiscal 2022 are as follows:
January 31, Projected Projected January 31,
2021 Openings Closings 2022
Urban Outfitters 247 18 (8 ) 257
Anthropologie Group 237 9 (8 ) 238
Free People Group (1) 149 27 (2 ) 174
Menus & Venues 11 - - 11
Total Company-Owned Stores 644 54 (18 ) 680
Franchisee-Owned Stores 1 4 - 5
Total URBN 645 58 (18 ) 685
(1) Includes 16 FP Movement projected store openings.
Wholesale Segment
Our Wholesale segment consists of the Free People,FP Movement and Urban Outfitters brands that sell through 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 and the BDG and other own brand apparel collections under the Urban Outfitters brand. The Anthropologie brand exited the wholesale business in the third quarter of fiscal 2021. Our Wholesale segment net sales accounted for approximately 6.7% of consolidated net sales for the three months endedApril 30, 2021 , compared to 3.6% for the comparable period in fiscal 2021.
Subscription Segment
Our Subscription segment consists of the Nuuly brand, which is a monthly women's apparel subscription rental service that launched onJuly 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 less than 1.0% of consolidated net sales for the three months endedApril 30, 2021 , compared to 1.1% for the comparable period in fiscal 2021.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles inthe 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 endedJanuary 31, 2021 , which are included in our Annual Report on Form 10-K filed with theSEC onApril 1, 2021 . 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. There have been no significant changes to our critical accounting policies during the three months endedApril 30, 2021 . 24 --------------------------------------------------------------------------------
Results of Operations As a Percentage ofNet Sales Because of the material impact COVID-19 had on our business operations in fiscal 2021, including mandated store closures, this Quarterly Report on Form 10-Q includes a comparison of fiscal 2022 results to fiscal 2020, in addition to a comparison of fiscal 2022 results to fiscal 2021. Management views the comparison of fiscal 2022 results to fiscal 2020 as the more meaningful measurement of the Company's business performance. As a result of the COVID-19 pandemic, all of our stores were closed for a portion of the first half of fiscal 2021 (see further details under Impact of the Coronavirus Pandemic above). In addition to lost revenues, we incurred expenses that were not commensurate with the 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 results of operations and the percentage of our net sales represented by certain statement of operations data. This table should be read in conjunction with the discussion that follows: (amounts in millions) Three Months Ended April 30, 2021 2020 2019 Net sales$ 927.4 $ 588.5 $ 864.4 Cost of sales (excluding store impairment) 626.7 562.2 595.3 Store impairment - 14.5 - Gross profit 300.7 11.8 269.1
Selling, general and administrative expenses 227.2 210.5
229.1
Income (loss) from operations 73.5 (198.7 ) 40.0
Other (loss) income, net (0.2 ) 0.1
2.7
Income (loss) before income taxes 73.3 (198.6 )
42.7
Income tax expense (benefit) 19.8 (60.2 ) 10.1
Net income (loss) $ 53.5 $ (138.4 ) $ 32.6
AS A PERCENTAGE OF NET SALES
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales (excluding store impairment) 67.6 95.5 68.9
Store impairment - 2.5 -
Gross profit 32.4 2.0 31.1
Selling, general and administrative expenses 24.5 35.8 26.5
Income (loss) from operations 7.9 (33.8) 4.6
Other (loss) income, net (0.0) 0.1 0.3
Income (loss) before income taxes 7.9 (33.7) 4.9
Income tax expense (benefit) 2.1 (10.2) 1.1
Net income (loss) 5.8 % (23.5) % 3.8 %
25
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Three Months Ended April 30, 2021 (Fiscal 2022) Compared To
Three Months Ended April 30, 2020 (Fiscal 2021)
Net sales for the first quarter of fiscal 2022 were $927.4 million , compared to
$588.5 million in the first quarter of fiscal 2021. The $338.9 million increase
was attributable to a $296.3 million , or 52.8%, increase in Retail segment net
sales, a $41.1 million , or 196.0%, increase in Wholesale segment net sales, and
an increase in Subscription segment net sales of $1.5 million . Retail segment
net sales for the first quarter of fiscal 2022 accounted for 92.5% of total net
sales compared to 95.3% of total net sales in the first quarter of fiscal 2021.
The increase in our Retail segment net sales during the first quarter of fiscal
2022 was due to an increase of $282.4 million , or 50.8%, in Retail segment
comparable net sales, and an increase of $13.9 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 increased 76.8% at the Free People Group , 49.8% at the
Anthropologie Group and 42.4% at Urban Outfitters . Retail segment comparable net
sales increased in North America , Europe and Asia . The increase in Retail
segment comparable net sales was driven by double-digit growth in both retail
store and digital channel sales. Net sales for the first quarter of fiscal 2021
were significantly impacted by the COVID-19 pandemic including mandated store
closures for all of the Company's stores. Positive comparable store net sales in
the first quarter of fiscal 2022 resulted from an increase in store traffic,
transactions, average unit selling price and units per transaction. The digital
channel net sales increase was driven by an increase in sessions and average
order value, while units per transaction decreased and conversion rate was about
flat. The increase in non-comparable net sales was primarily due to the negative
impact of the COVID-19 pandemic in the first quarter of fiscal 2021, which
caused store closures and lower store productivity in the 32 new Company-owned
stores opened and 13 Company-owned stores closed since the prior comparable
period, and the positive impact of foreign currency translation.
The increase in Wholesale segment net sales in the first quarter of fiscal 2022,
as compared to the first quarter of fiscal 2021, was primarily due to a $36.3
million , or 180.2%, increase in sales for the Free People Group , due to most of
the brand's wholesale partners had a meaningful portion of their businesses
closed during the first quarter of fiscal 2021. The segment increase was also
due to an increase of $4.7 million in Urban Outfitters wholesale sales. While
the Company did not exit the Anthropologie Group wholesale business until the
third quarter of fiscal 2021, the COVID-19 pandemic resulted in minimal sales in
the first quarter of fiscal 2021.
Gross profit percentage for the first quarter of fiscal 2022 increased to 32.4%
of net sales, from 2.0% of net sales in the first quarter of fiscal 2021. Gross
profit increased to $300.7 million for the first quarter of fiscal 2022 from
$11.8 million in the first quarter of fiscal 2021. The increase in gross profit
rate was due to the negative impacts the COVID-19 mandated store closures had on
the Company's Retail segment and its partners in the Wholesale segment in the
prior year quarter. The mandated store closures resulted in a significant
deleverage in store occupancy and an increase in merchandise markdowns in the
prior year quarter. The Company also recorded a meaningful increase in inventory
obsolescence reserves in the prior year quarter due to the impact the store
closures had on the aging of the Company's inventory. Finally, during the prior
year quarter the Company recorded a $14.5 million store impairment charge.
Selling, general and administrative expenses increased by $16.6 million , or
7.9%, to $227.1 million in the first quarter of fiscal 2022, compared to the
first quarter of fiscal 2021. Selling, general and administrative expenses as a
percentage of net sales decreased in the first quarter of fiscal 2022 to 24.5%
of net sales, compared to 35.8% of net sales for the first quarter of fiscal
2021. The leverage in selling, general and administrative expenses for the three
months ended April 30, 2021 , was primarily related to leverage in store and
field management expense due to the Company continuing to employ and pay a large
portion of regional and store management teams despite store closures and
reduced sales related to the COVID-19 pandemic. Additionally, in the prior year
quarter the Company recorded a significant increase in allowance for doubtful
accounts reserves for wholesale customer accounts receivables as a result of the
significant disruption and uncertainty in the wholesale macro environment due to
the COVID-19 pandemic.
Income from operations was 7.9% of net sales, or $73.5 million , for the first
quarter of fiscal 2022 compared to a loss from operations of 33.8% of net sales,
or $198.7 million , for the first quarter of fiscal 2021.
26
--------------------------------------------------------------------------------Our effective tax rate for the first quarter of fiscal 2022 was an expense of 27.0% compared to a benefit of 30.3% in the first quarter of fiscal 2021.
Three Months Ended April 30, 2021 (Fiscal 2022) Compared To
Three Months Ended April 30, 2019 (Fiscal 2020)
Net sales in the first quarter of fiscal 2022 were $927.4 million , compared to
$864.4 million in the first quarter of fiscal 2020. The $63.0 million increase
was attributable to a $74.9 million , or 9.6%, increase in Retail segment net
sales partially offset by a $19.7 million , or 24.1%, decrease in Wholesale
segment net sales. The Subscription segment, which did not begin operations
until July 30, 2019 , contributed $7.8 million of net sales in the first quarter
of fiscal 2022. Retail segment net sales for the first quarter of fiscal 2022
accounted for 92.5% of total net sales compared to 90.5% of total net sales in
the first quarter of fiscal 2020.
The increase in our Retail segment net sales during the first quarter of fiscal
2022 was due to an increase of $75.2 million , or 10.0%, in Retail segment
comparable net sales, partially offset by a decrease of $0.3 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 increased 44.0% at the Free
People Group , 8.5% at Urban Outfitters and 1.4% at the Anthropologie Group .
Retail segment comparable net sales increased in North America , Europe and Asia .
Retail segment comparable net sales increased due to double-digit growth in the
digital channel, partially offset by negative retail store sales due to reduced
store traffic caused by the COVID-19 pandemic and related store closures and
occupancy restrictions, primarily in Europe and Canada . The digital channel net
sales increase was driven by an increase in conversion rate, sessions and
average order value, while units per transaction decreased. Negative comparable
store net sales resulted from a decrease in store traffic and transactions,
while average unit selling price and units per transaction increased. The
decrease in non-comparable net sales was primarily due to lower store
productivity and reduced store traffic as a result of the COVID-19 pandemic at
the 58 new Company-owned stores opened and the 25 Company-owned stores and
restaurants closed since the prior comparable period partially offset by the
positive impact of foreign currency translation.
The decrease in Wholesale segment net sales in the first quarter of fiscal 2022,
as compared to the first quarter of fiscal 2020, was primarily due to a $22.1
million , or 28.1% decrease in sales for the Free People Group , due in part to
reducing the brand's sales to promotional wholesale customers. The segment
decrease was also due to a decrease of $2.2 million in Anthropologie Home sales
due to the brand's exit from the wholesale business in the third quarter of
fiscal 2021, partially offset by an increase of $4.5 million in Urban Outfitters
wholesale sales.
Gross profit percentage for the first quarter of fiscal 2022 increased to 32.4%
of net sales, from 31.1% of net sales in the comparable quarter in fiscal 2020.
Gross profit increased to $300.7 million in the first quarter of fiscal 2022
from $269.1 million in the first quarter of fiscal 2020. The increase in gross
profit rate was primarily due to record low first quarter merchandise markdown
rates in the Retail segment and benefits associated with negotiated rent
concessions with landlords and international government assistance programs. All
three brands recorded lower merchandise markdown rates with the Urban Outfitters
and Free People brands achieving record low first quarter merchandise markdown
rates. This was partially offset by deleverage in delivery and logistics
expenses and lower initial merchandise markups. Delivery and logistics expense
deleverage was primarily driven by the increased penetration of the digital
channel as well as an increase in home category net sales. Lower initial
merchandise markups are primarily due to higher inbound freight and logistics
expenses.
Total inventory at April 30, 2021 , as compared to April 30, 2019 , increased by
$69.4 million , or 17.0%, to $477.8 million . The increase in inventory is due to
the improving sales trend as well as ongoing challenges in the supply chain. Due
to extended lead times, we are bringing in product earlier to ensure we can meet
our sales demand. As a result, while Retail segment comparable inventory was
down 2.6% at cost as compared to April 30, 2019 , the significant increase in
inventory in-transit more than offset it.
Selling, general and administrative expenses decreased by 0.8%, to $227.1
million , in the first quarter of fiscal 2022, compared to $229.0 million in the
first quarter of fiscal 2020. Selling, general and administrative expenses as a
percentage of net sales decreased in the first quarter of fiscal 2022 to 24.5%
of net sales, compared to 26.5% of net
27
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sales for the first quarter of fiscal 2020. The leverage in selling, general and
administrative expenses as a rate to sales and decrease in dollars was primarily
related to disciplined store payroll management and overall expense control.
This was partially offset by an increase in digital marketing expenses during
the quarter to support the strong digital sales and customer growth.
Income from operations was 7.9% of net sales, or $73.5 million , for the first
quarter of fiscal 2022 compared to 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 2022 was 27.0% compared
to 23.7% in the first quarter of fiscal 2020. The change in effective tax rate
for the first quarter of fiscal 2022 was primarily due to the ratio of foreign
taxable losses to global taxable profits and a lower benefit of equity activity
compared to the first quarter of fiscal 2020.
Liquidity and Capital Resources
The following tables set forth certain balance sheet and cash flow data for the periods indicated. These tables should be read in the conjunction with the discussion that follows:
(amounts in millions)
April 30 , January
31,
2021 2021 2020 2019
Cash, cash equivalents and marketable securities $ 629.4 $ 694.0 $ 667.1 $ 614.3
Short-term debt - - 220.0 -
Working capital 389.4 317.2 293.4 491.1
Three Months Ended
April 30,
2021 2020 2019
Net cash provided by (used in) operating activities
$ 25.9 Net cash (used in) provided by investing activities (63.6 ) 222.2 (15.9 ) Net cash (used in) provided by financing activities (6.3 ) 209.2
(75.7 )
The increase in working capital as ofApril 30, 2021 as compared toJanuary 31, 2021 was due to timing of disbursements. The increase in working capital as ofApril 30, 2021 as compared toApril 30, 2020 was due to the increase of cash, cash equivalents and short-term marketable securities less repayment of short-term debt. The decrease in working capital as ofApril 30, 2021 as compared toApril 30, 2019 was due to higher accrued incentive compensation as ofApril 30, 2021 and timing of other disbursements. During the last three years, we have satisfied our cash requirements primarily through our cash flow from operating activities. Additionally, during the first quarter of fiscal 2021, and in response to the COVID-19 pandemic, we borrowed$220.0 million under our Amended Credit Facility to further protect our cash reserves. We subsequently repaid the entire$220.0 million during the second and third quarters of fiscal 2021. Our primary uses of cash have been to fund business operations, purchase inventory, expand our home offices and fulfillment centers, open new stores and repurchase our common shares.
Cash Flows from Operating Activities
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.
Mandated store closures and lower store productivity caused by the COVID-19
pandemic resulted in cash used in operating activities during the first quarter
of fiscal 2021, compared to cash provided by operating activities during the
first quarters of fiscal 2022 and 2020. This was primarily driven by the net
loss incurred in the first quarter of fiscal 2021 due to the negative impact
that the
28
-------------------------------------------------------------------------------- COVID-19 pandemic had on the Company's operations. Although the Company's stores were closed for part 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 COVID-19 pandemic.
Cash Flows from Investing Activities
Cash used in investing activities in the first quarters of fiscal 2022 and fiscal 2020 primarily related to purchases of marketable securities and property and equipment, partially offset by the sales and maturities of marketable securities. Net liquidations of our marketable securities portfolio in the first quarter of fiscal 2021 were primarily to preserve financial flexibility and maintain liquidity in response to the COVID-19 pandemic, but reinvested in a marketable securities portfolio in the fourth quarter of fiscal 2021. Cash paid for property and equipment in the first quarter of fiscal 2022, 2021 and 2020 was$42.6 million ,$43.5 million and$37.7 million , respectively, which was primarily used to expand our fulfillment center network in all periods.
Cash Flows from Financing Activities
Cash used in financing activities in the first quarter of fiscal 2022 primarily related to repurchases of our common shares from employees to meet minimum statutory withholding requirements. Cash provided from financing activities during the first quarter of fiscal 2021 was primarily due to borrowings of$220.0 million under our Amended Credit Facility in order to preserve financial flexibility and maintain liquidity and flexibility in response to the COVID-19 pandemic. The borrowings were subsequently repaid in the second and third quarters of fiscal 2021. During the first quarter of fiscal 2021, the Company also repurchased$7.0 million of shares under our share repurchase programs prior to the known spread of the COVID-19 pandemic inthe United States , which forced the Company to close its stores for an extended period of time. Cash used in financing activities in the first quarter 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
During fiscal 2022, we plan to continue construction on a new omni-channel fulfillment center inKansas City, Kansas , finalize setup of material handling equipment at our new omni-channel fulfillment center inEurope , open approximately 54 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 may also repurchase common shares. We believe that our new brand initiatives, new store openings, merchandise expansion programs, international growth opportunities and our marketing, social media, website and mobile initiatives are significant contributors to our sales. During fiscal 2022, we plan to continue our investment in these initiatives for all brands. We anticipate our capital expenditures during fiscal 2022 to be approximately$250 million , a portion of which will be to support new and expanded fulfillment and distribution centers. All fiscal 2022 capital expenditures are expected to be financed by cash flow from operating activities and existing cash and cash equivalents. We believe that our new store investments generally have the potential to generate positive cash flow within a year; however, the impact of the COVID-19 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. 29 --------------------------------------------------------------------------------
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.
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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