================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-16999
-----------------------
Urban Outfitters, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2003332
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
(Address of principal executive office) (Zip Code)
(215) 564-2313
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No ___
Title of Each Class Number of Shares Outstanding
of Common Stock at November 30, 1997
--------------- ----------------------------
Common shares, par value, $.0001 per share 17,645,360
<PAGE>
INDEX
PAGE
----
PART I Financial Information
ITEM 1 Financial Statements
- ------
Consolidated Balance Sheets at October 31, 1997 2
(Unaudited) and January 31, 1997
Consolidated Statements of Income for the three and 3
nine months ended October 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the 4
nine months ended October 31, 1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements 5
ITEM 2 Management's Discussion and Analysis of Financial 7 - 10
- ------ Condition and Results of Operations
PART II Other Information
ITEM 6 Exhibits and Reports on Form 8-K 11
- ------
SIGNATURES 12
1
<PAGE>
URBAN OUTFITTERS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
OCTOBER 31, 1997 JANUARY 31, 1997
(UNAUDITED) (AUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 19,654 $ 14,581
Marketable securities 9,908 9,255
Accounts receivable, net of allowance for
doubtful accounts of $742 and $643 at October 31, 1997
and January 31, 1997, respectively 6,711 2,827
Inventory 22,440 16,965
Prepaid expenses and other current assets 6,643 7,236
-------- --------
Total current assets 65,356 50,864
Property and equipment, less accumulated depreciation and amortization 25,318 25,209
Marketable securities 12,833 12,047
Other assets 1,514 1,555
-------- --------
$105,021 $ 89,675
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 9,866 $ 8,699
Income taxes payable 1,974 388
Accrued expenses and other current liabilities 4,036 2,538
-------- --------
Total current liabilities 15,876 11,625
Accrued rent and other liabilities 2,934 2,358
-------- --------
Total liabilities 18,810 13,983
-------- --------
Shareholders' equity:
Preferred shares; $.0001 par, 10,000,000 authorized, none issued -- --
Common shares; $.0001 par, 50,000,000 shares authorized, 17,643,028
and 17,528,698 issued at October 31, 1997 and January 31, 1997,
respectively 2 2
Additional paid-in capital 20,854 20,396
Retained earnings 65,355 55,294
-------- --------
Total shareholders' equity 86,211 75,692
-------- --------
$105,021 $ 89,675
======== ========
</TABLE>
See accompanying notes
2
<PAGE>
URBAN OUTFITTERS, INC.
Consolidated Statements of Income
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31 Nine Months Ended October 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 48,373 $ 44,884 $ 126,887 $ 114,416
Cost of sales 24,347 22,413 63,903 56,479
------------ ------------ ------------ ------------
Gross profit 24,026 22,471 62,984 57,937
Selling, general and administrative expenses 16,235 14,870 46,821 40,956
------------ ------------ ------------ ------------
Income from operations 7,791 7,601 16,163 16,981
Interest income 483 394 1,266 1,119
Other expenses, net (98) (44) (229) (234)
------------ ------------ ------------ ------------
Income before income taxes 8,176 7,951 17,200 17,866
Income tax expense 3,393 3,319 7,138 7,459
------------ ------------ ------------ ------------
Net income $ 4,783 $ 4,632 $ 10,062 $ 10,407
============ ============ ============ ============
Net income per common share $ .27 $ .26 $ .57 $ .59
============ ============ ============ ============
Weighted average common shares outstanding 17,856,690 17,840,541 17,802,707 17,786,429
============ ============ ============ ============
</TABLE>
See accompanying notes
3
<PAGE>
URBAN OUTFITTERS, INC.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,062 $ 10,407
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,402 2,613
Provision for losses on accounts receivable 100 170
Changes in assets and liabilities:
Increase in receivables (3,983) (4,459)
Increase in inventory (5,475) (8,255)
Decrease in prepaid expenses and other assets 634 1,028
Increase in payables, accrued expenses and other liabilities 4,827 6,813
-------- --------
Net cash provided by operating activities 9,567 8,317
-------- --------
Cash flows from investing activities:
Capital expenditures (3,513) (8,774)
Purchase of investments held-to-maturity (7,747) (18,713)
Purchase of investments available-for-sale (6,100) (2,350)
Maturities of investments held-to-maturity 7,908 9,894
Sale of investments available-for-sale 4,500 4,236
-------- --------
Net cash used in investing activities (4,952) (15,707)
-------- --------
Cash flows from financing activities:
Exercise of stock options 458 807
-------- --------
Net cash provided by financing activities 458 807
-------- --------
Increase(decrease) in cash and cash equivalents 5,073 (6,583)
Cash and cash equivalents at beginning of period 14,581 20,095
-------- --------
Cash and cash equivalents at end of period $ 19,654 $ 13,512
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1997, filed with the Securities and
Exchange Commission on April 21, 1997.
2. Marketable Securities
Marketable securities are classified as follows:
October 31, 1997 January 31, 1997
---------------- ----------------
Current portion
Held-to-maturity ........... $ 8,008 $ 8,955
Available-for-sale ......... 1,900 300
------- -------
9,908 9,255
------- -------
Noncurrent portion
Held-to-maturity ........... 12,833 12,047
------- -------
Total marketable securities ... $22,741 $21,302
======= =======
3. Stock Split
On May 21, 1996, the Board of Directors of Urban Outfitters, Inc. declared a
two-for-one stock split in the form of a stock dividend for shareholders of
record on June 1, 1996. That stock split is retroactively reflected in the
financial statements for all periods presented.
5
<PAGE>
4. Recent Accounting Pronouncements
Earnings Per Share. In February 1997, FASB Statement 128, "Earnings Per Share"
was issued. The provisions of this statement, which supersedes Accounting
Principles Board Opinion No. 15, "Earnings Per Share," simplify the computation
of earnings per share. FASB Statement 128 will be effective for the Company's
financial statements beginning with the quarter ended January 31, 1998. The
Company does not expect the adoption of FASB Statement 128 to have a material
effect on its calculations of earnings per share.
Reporting Comprehensive Income. In June 1997, FASB Statement 130, "Reporting
Comprehensive Income" was issued. The provisions of this statement establish
standards for reporting and display of comprehensive income and its components
in financial statements. FASB Statement 130 will be effective for the Company's
financial statements beginning with the quarter ended April 30, 1998. The
Company does not expect the adoption of FASB Statement 130 to have a material
effect on its reporting of net earnings.
6
<PAGE>
PART I
FINANCIAL INFORMATION (continued)
ITEM 2 Management's Discussion and Analysis of Financial Condition and
- ------ Results of Operations
GENERAL
- -------
Total Company sales growth during the third quarter and nine months ended
October 31, 1997 compared to the same prior year periods was up 8 percent and 11
percent, respectively. The modest sales growth in the third quarter and in the
nine month period resulted from a combination of converse trends. Urban Retail
experienced the lowest overall growth, all of which came from two stores opened
in the fourth quarter of the prior year. Comparable store sales in Urban Retail
were negative during both periods. Anthropologie experienced the highest sales
growth, that growth coming from both new store openings and from positive
comparable store sales. The Wholesale Company experienced positive sales growth
in the third quarter of 4 percent (compared to 45 percent last year) and 9
percent during the nine month period (compared to 23 percent last year).
Urban Retail's comparable store sales performance during the periods result from
two categories of merchandise that have not performed at retail and thus
produced lower sales than in the prior year. Adding to this is the fact that no
new Urban Retail stores were opened during the nine month period. Subsequent to
the nine month period, two new stores were opened in the fourth quarter. The
next openings are expected to be in the first quarter of Fiscal 1999.
The Wholesale Company will not grow sales near last years levels of 45 percent
in the third quarter, 80 percent in the fourth quarter, and 31 percent for all
of last year. As previously noted, this year's third quarter growth was 4
percent with nine month growth at 9 percent. Fourth quarter sales growth will
likely be flat to down when compared to last year's 80 percent growth rate.
7
<PAGE>
RESULTS OF OPERATIONS
The Company's operating years end on January 31, and include 12 periods ending
on the last day of the month. For example, fiscal year 1998 will end on January
31, 1998. This discussion of results of operations covers the third quarter and
the first nine months of fiscal 98 and fiscal 97.
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by certain income statement data. The discussion
should be read in conjunction with the following table.
THIRD QUARTER ENDED NINE MONTHS ENDED
OCTOBER 31 OCTOBER 31
1997 1996 1997 1996
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 50.3% 49.9% 50.4% 49.4%
Gross profit 49.7% 50.1% 49.6% 50.6%
Selling, general and
administrative expenses 33.6% 33.1% 36.9% 35.8%
----- ----- ----- -----
Income from operations 16.1% 17.0% 12.7% 14.8%
Net interest and other income .8% .8% .8% .8%
----- ----- ----- -----
Income before income taxes 16.9% 17.7% 13.5% 15.6%
Income tax expense 7.0% 7.4% 5.6% 6.5%
----- ----- ----- -----
Net income 9.9% 10.3% 7.9% 9.1%
===== ===== ===== =====
THIRD QUARTER ENDED OCTOBER 31, 1997 COMPARED
TO THE THIRD QUARTER ENDED OCTOBER 31, 1996
Net sales increased during the third quarter ended October 31, 1997 to $48.4
million, up 7.8 percent from the same period in the prior year. $3.3 million of
the $3.5 million increase was attributable to newly opened and enlarged stores,
the comparable store sales contribution was down $.2 million, while the
Wholesale Company contributed $.4 million to the third quarter sales growth.
Gross profit during the third quarter ended October 31, 1997 was $24.0 million,
up $1.6 million or 6.9 percent from the prior year quarter. The dollar increase
resulted from the volume increases previously described. The gross profit margin
percentage to sales decreased to 49.7 percent during the third quarter of this
year from 50.1 percent last year. Both retail companies gross profit margins
percentages were either flat or improved. The Wholesale Company's percentage
decreased due to markdowns. Adding to the overall decline was a higher sales mix
from Anthropologie and the Wholesale Company, both of which have lower gross
profit margin percentages than Urban Retail.
8
<PAGE>
Selling, general and administrative expenses during the third quarter ended
October 31, 1997 were $16.2 million, up $1.4 million or 9.2 percent from the
prior year quarter. These dollar increases were attributed to new stores opened,
enlarged stores, and investments in people and systems necessary to manage last
year's and future sales growth in the Wholesale Company. Stated as a percentage
of sales, selling, general and administrative expenses increased slightly to
33.6 percent from 33.1 percent in the third quarter of the prior year.
Anthropologie leveraged expenses on higher sales growth, while Urban Retail was
flat to the prior year's quarter. Wholesale made investment in people and
systems as described.
Income from operations during the third quarter of fiscal 98 was $7.8 million,
up from $7.6 million in the prior year's third quarter. The retail companies
provided most of the income growth.
The effective income tax rate for the third quarter of 42 percent remains
unchanged from last year.
Net income during the third quarter of fiscal 98 was $4.8 million, up $.2
million or 3.3 percent from the prior year's third quarter.
NINE MONTHS ENDED OCTOBER 31, 1997
COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 1996
Net sales increased during the nine months ended October 31, 1997 to $126.9
million, up 10.9 percent from $114.4 million during the same period of the prior
year. The nine-month-to-nine-month $12.5 million increase was provided by sales
from newly opened and enlarged stores of $12.9 million, comparable store sales
decrease of $2.5 million or 2.9 percent and increases from the Wholesale Company
of $2.1 million.
Gross profit during the nine months ended October 31, 1997 was $63.0 million, up
$5.0 million (an 8.7 percent increase) from the same prior year period of $57.9
million. The dollar increases resulted from the volume growth previously
described. The gross profit margin percentage to sales decreased to 49.6 percent
from 50.6 percent during the nine-month period last year. The gross profit
margin percentage decrease resulted from higher markdowns in Urban Retail and
the Wholesale Company. Anthropologie's percentage improved over the prior year.
Adding to the decline was a higher sales mix of Anthropologie and the Wholesale
Company, both of which have lower gross profit margin percentages than Urban
Retail.
Selling, general and administrative expenses during the nine months ended
October 31, 1997 were $46.8 million, up $5.9 million or 14.3 percent from the
same period in the prior year. These dollar increases were attributed to newly
opened and enlarged stores and investments in people and systems necessary to
manage the sales growth, particularly in the Wholesale Company. Stated as a
percentage of sales, selling, general and administrative expenses increased to
36.9 percent from 35.8 percent. The percentage increases resulted from no
expense leveraging due to lower comparable store sales and investments in people
and systems needed for last year's growth and planned growth in Wholesale.
Anthropologie leveraged the expense percentage down on higher sales growth.
9
<PAGE>
Income from operations during the nine months ended October 31, 1997 was $16.2
million, down $.8 million or 4.8 percent from the same period in the prior year.
Both Urban Retail and Wholesale contributed to the decline while Anthropologie
made a positive contribution.
The effective income tax rate for the nine months ended October 31, 1997 of 42
percent remains unchanged from last year.
Net income during the nine months ended October 31, 1997 was $10.1 million, down
$.3 million or 3.3 percent from the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $19.7 million at October 31, 1997 from
$14.6 million at January 31, 1997. The $5.1 million net increase results from an
increase in cash from operating activity of $9.6 million, and net issuance of
common stock of $458,000, offset by capital expenditures of $3.5 million and net
purchases of investments of $1.5 million.
The Company's net working capital increased from $39.2 million at January 31,
1997 to $49.5 million at October 31, 1997. The $10.3 million increase in net
working capital during the nine-month period resulted from net income of $10.1
million and stock options exercised of $.5 million, offset by a net investment
in other assets of $.3 million.
The Company maintains a line of credit of $15.0 million which is available for
any combination of cash borrowing or letters of credit. The line is unsecured
and any cash borrowing under the line would accrue interest at an as offered
basis not to exceed LIBOR plus 3/8 of one percent. The Company uses
international letters of credit to purchase private label merchandise and
merchandise for the Wholesale Company. Outstanding balances of letters of credit
at January 31, 1997 and at October 31, 1997 were $4.3 million and $5.3 million,
respectively. The Company has never borrowed against the available cash line of
credit. There were no loan balances at January 31, 1997 or October 31, 1997.
The Company expects that capital expenditures during fiscal 98 will be
approximately $5.0 million depending upon the number of stores opened, enlarged
or improved during the year. In future years, the Company expects to invest
amounts greater than that figure, again depending on new and existing stores
opened or expanded. The Company believes that existing cash, and marketable
securities at October 31, 1997 and cash from future operations will be
sufficient to meet the Company's cash needs for at least the next three years.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
- ------
(a) Exhibits: Income Per Share Calculation
(b) Reports on Form 8-K: None
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URBAN OUTFITTERS, INC.
(Registrant)
By: /s/ Richard A. Hayne
-----------------------------
Richard A. Hayne
Chairman of the Board of
Directors
By: /s/ Kenneth K. Cleeland
-----------------------------
Kenneth K. Cleeland
Treasurer
(Chief Financial Officer)
Dated: December 12, 1997
12
EXHIBIT 11
URBAN OUTFITTERS, INC.
INCOME PER SHARE CALCULATION:
October 31, 1997 & 1996
INCOME PER SHARE CALCULATION:
<TABLE>
<CAPTION>
Three Months Ended October 31,
----------------------------------------------------
1997 1996
------------------------ ------------------------
$ Per Share $ Per Share
<S> <C> <C> <C> <C>
NET INCOME 4,783,000 $0.27 4,632,000 $0.26
========== ============ ========= ============
WEIGHTED AVERAGE COMMON
SHARES & COMMON SHARE
EQUIVALENTS OUTSTANDING 17,856,690 17,840,541
============ ============
<CAPTION>
Nine Months Ended October 31,
-------------------------------------------------------------------------
1997 1996
-------------------------------- -----------------------------------
$ Per Share $ Per Share
<S> <C> <C> <C> <C>
NET INCOME 10,062,000 $0.57 10,407,000 $0.59
========== ========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES & COMMON SHARE
EQUIVALENTS OUTSTANDING 17,802,707 17,786,429
========== ===========
</TABLE>
COMPUTATION OF COMMON SHARES
& COMMON SHARE EQUIVALENTS OUTSTANDING:
<TABLE>
<CAPTION>
Three Months Ended October 31,
--------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
End of Period Weighted Ave. End of Period Weighted Ave.
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Common Shares Outstanding 17,643,028 17,608,764 17,528,698 17,520,771
---------------- ----------------
Common Share Equivalents:
Options 546,270 526,202 472,937 480,864
Assumed Repurchased at
Average Price (278,276) (161,094)
---------------- ----------------
Weighted Average Common Equivalents 247,926 319,770
---------------- ----------------
Total Weighted Average Common Shares
& Common Share Equivalents Outstanding 17,856,690 17,840,541
================ ================
<CAPTION>
Nine Months Ended October 31,
-------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
End of Period Weighted Ave. End of Period Weighted Ave.
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Common Shares Outstanding 17,643,028 17,578,306 17,528,698 17,396,267
---------------- ---------------
Common Share Equivalents:
Options 546,270 532,214 472,937 559,595
Assumed Repurchased at
Average Price (307,814) (169,433)
---------------- ---------------
Weighted Average Common Equivalents 224,401 390,162
---------------- ---------------
Total Weighted Average Common Shares
& Common Share Equivalents Outstanding 17,802,707 17,786,429
================ ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 19,654
<SECURITIES> 9,908
<RECEIVABLES> 6,711
<ALLOWANCES> 0
<INVENTORY> 22,440
<CURRENT-ASSETS> 65,356
<PP&E> 25,318
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,021
<CURRENT-LIABILITIES> 15,876
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 86,209
<TOTAL-LIABILITY-AND-EQUITY> 105,021
<SALES> 126,887
<TOTAL-REVENUES> 126,887
<CGS> 63,903
<TOTAL-COSTS> 63,903
<OTHER-EXPENSES> 46,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,266)
<INCOME-PRETAX> 17,200
<INCOME-TAX> 7,138
<INCOME-CONTINUING> 10,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,062
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
