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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly Period Ended July 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
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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 August 31, 1997
--------------- ----------------------------
Common shares, par value, $.0001 per share 17,588,696
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<PAGE>
INDEX
PAGE
----
PART I Financial Information
ITEM 1 Financial Statements
Consolidated Balance Sheets at July 31, 1997 2
(Unaudited) and January 31, 1997
Consolidated Statements of Income for the three and 3
six months ended July 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the 4
six months ended July 31, 1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements 5 - 6
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)
JULY 31, 1997 JANUARY 31, 1997
(UNAUDITED) (AUDITED)
Assets
Current assets:
Cash and cash equivalents.................... $18,856 $14,581
Marketable securities........................ 10,507 9,255
Accounts receivable, net of allowance for
doubtful accounts of $749 and $643 at
July 31, 1997 and January 31, 1997,
respectively.............................. 4,782 2,827
Inventory.................................... 20,300 16,965
Prepaid expenses and other current assets.... 6,613 7,236
------- -------
Total current assets............................ 61,058 50,864
Property and equipment, less accumulated
depreciation and amortization................ 24,675 25,209
Marketable securities........................... 11,813 12,047
Other assets.................................... 1,523 1,555
------- -------
$99,069 $89,675
======= =======
Liabilities and shareholders' equity
Current liabilities:
Accounts payable............................. $10,847 $ 8,699
Income taxes payable......................... 1,201 388
Accrued expenses and other current
liabilities............................... 3,258 2,538
------- -------
Total current liabilities....................... 15,306 11,625
Accrued rent and other liabilities.............. 2,769 2,358
------- -------
Total liabilities............................... 18,075 13,983
------- -------
Shareholders' equity:
Preferred shares; $.0001 par, 10,000,000
authorized, none issued................... -- --
Common shares; $.0001 par, 50,000,000 shares
authorized, 17,588,696 and 17,528,698
issued at July 31, 1997 and January 31,
1997, respectively........................ 2 2
Additional paid-in capital................... 20,420 20,396
Retained earnings............................ 60,572 55,294
------- -------
Total shareholders' equity...................... 80,994 75,692
------- -------
$99,069 $89,675
======= =======
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 July 31 Six Months Ended July 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 41,316 $ 35,898 $ 78,513 $ 69,532
Cost of sales 20,966 17,496 39,555 34,066
----------- ----------- ----------- -----------
Gross profit 20,350 18,402 38,958 35,466
Selling, general and administrative
expenses 15,824 13,743 30,586 26,086
----------- ----------- ----------- -----------
Income from operations 4,526 4,659 8,372 9,380
Interest (income) (406) (355) (783) (725)
Other expenses (income), net 52 123 133 189
----------- ----------- ----------- -----------
Income before income taxes 4,880 4,891 9,022 9,916
Income tax expense 2,025 2,042 3,744 4,140
----------- ----------- ----------- -----------
Net income $ 2,855 $ 2,849 $ 5,278 $ 5,776
=========== =========== =========== ===========
Net income per common share $ .16 $ .16 $ .30 $ .33
=========== =========== =========== ===========
Weighted average common shares
outstanding 17,812,835 17,831,946 17,775,716 17,759,373
=========== =========== =========== ===========
</TABLE>
See accompanying notes
3
<PAGE>
URBAN OUTFITTERS, INC.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31
-------------------------
(UNAUDITED) (UNAUDITED)
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income 5,278 $ 5,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,237 1,682
Provision for losses on accounts receivable 106 119
Changes in assets and liabilities:
Increase in receivables (2,061) (2,489)
Increase in inventory (3,335) (5,819)
(Increase) decrease in prepaid expenses and other assets 655 (742)
Increase in payables, accrued expenses and other liabilities 4,092 4,254
-------- --------
Net cash provided by operating activities 6,972 2,781
-------- --------
Cash flows from investing activities:
Capital expenditures (1,703) (4,319)
Purchase of investments held-to-maturity (3,648) (14,096)
Purchase of investments available-for-sale (3,800) (1,750)
Maturities of investments held-to-maturity 5,230 6,499
Sale of investments available-for-sale 1,200 3,861
-------- --------
Net cash used in investing activities (2,721) (9,805)
-------- --------
Cash flows from financing activities:
Exercise of stock options 24 684
-------- --------
Net cash provided by financing activities 24 684
-------- --------
Increase (decrease) in cash and cash equivalents 4,275 (6,340)
Cash and cash equivalents at beginning of period 14,581 20,095
-------- --------
Cash and cash equivalents at end of period $ 18,856 $ 13,755
======== ========
</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:
July 31, 1997 January 31, 1997
------------- ----------------
Current portion
Held-to-maturity................ $ 7,607 $ 8,955
Available-for-sale.............. 2,900 300
------- -------
10,507 9,255
------- -------
Noncurrent portion
Held-to-maturity................ 11,813 12,047
------- -------
Total marketable securities ...... $22,320 $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 April 30, 1998. The
Company does not expect the adoption of FASB Statement 128 to have a material
effect on its calculations of earnings per share.
6
<PAGE>
PART I
FINANCIAL INFORMATION (continued)
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Company sales growth in the second quarter and the first six months of this year
was 15 percent and 13 percent, respectively. Those growth rates compare to 20
percent in the same two periods of the prior year. The source of the sales
growth in the four comparative periods (second quarter and six months of both
years) differs significantly. Last year sales growth was primarily from
comparable store sale increases supplemented by new stores and the Wholesale
company sales growth. Conversely, this year's comparable store sales were flat
during the second quarter and down during the six months. New stores contributed
more to sales growth this year, while Wholesale sales growth was about flat. The
flat and down comparable store sales resulted from a combination of very high
"comp" sales comparisons in the prior year periods, as well as some fashion
misses in two Urban Retail product divisions.
The current year sales growth sources contributed less to profit growth than
last year's sources. Indeed, the current year's flat and negative comparable
store sales made no contribution to profit growth.
o High comparative store sales in the prior year's periods resulted in
lower markdowns, higher gross profit margins and lower operating
expenses as a percentage to sales. Flat and negative comparable store
sales this year did the reverse.
o New store sales growth, though higher this year, does not contribute
as much to profit as does high comparable store sales. New store sales
do not, by themselves, contribute to higher gross profit margins and,
unlike comparable store sales, have full store operating expenses to
burden the gross profit margin contributions.
o The Wholesale company sales growth contributed to earnings at about
the same level as the prior year's second quarter and six months.
In combination, lower overall sales growth (mid-teens this year compared to 20
in both periods last year) and disappointing comparable store sales led to flat
to lower earnings growth in the second quarter and six months, respectively.
7
<PAGE>
Store openings and the timing of those openings will continue to be a risk due
to the nature of the stores, and management's very deliberate style in selecting
locations and in completing lease negotiations.
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 second quarter and
the first six months of FY98 and FY97.
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by certain income statement data. The following
discussion should be read in conjunction with the table which follows.
SECOND QUARTER ENDED SIX MONTHS ENDED
JULY 31 JULY 31
1997 1996 1997 1996
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 50.7% 48.7% 50.4% 49.0%
Gross profit 49.3% 51.3% 49.6% 51.0%
Selling, general and
administrative expenses 38.3% 38.3% 39.0% 37.5%
------ ------ ------ ------
Income from operations 11.0% 13.0% 10.7% 13.5%
Net interest & other income .9% .6% .8% .8%
------ ------ ------ ------
Income before income taxes 11.8% 13.6% 11.5% 14.3%
Income tax expense 4.9% 5.7% 4.8% 6.0%
------ ------ ------ ------
Net income 6.9% 7.9% 6.7% 8.3%
====== ====== ====== ======
SECOND QUARTER ENDED JULY 31, 1997 COMPARED
TO THE SECOND QUARTER ENDED JULY 31, 1996
Net sales increased during the second quarter ended July 31, 1997 to $41.3
million, up 15.1 percent from $35.9 million during the same period of the prior
year. The $5.4 million increase over the prior year's second quarter was split
between new stores of $4.6 million, and Wholesale sales growth of $.8 million.
Comparable store sales were flat.
Gross profit during the second quarter ended July 31, 1997 was $20.4 million, up
$1.9 million or 10.6 percent from the prior year quarter. The dollar increase
resulted from the volumes described above, offset by higher markdowns in Urban
Retail. The percentage of sales decline in gross profit margin
8
<PAGE>
was due to the markdowns previously discussed and a higher sales mix of lower
gross profit margin divisions (Wholesale and Anthropologie).
Selling, general and administrative expenses during the second quarter ended
July 31, 1997 were $15.8 million, up $2.1 million or 15.1 percent from the prior
year quarter. These dollar increases were almost entirely attributed to new
store openings. Stated as a percentage of sales, selling, general and
administrative expenses stayed the same at 38.3 percent.
Income from operations during the second quarter ended July 31, 1997 was $4.5
million, just slightly below the prior year's second quarter.
The effective income tax rate for the quarter of 42 percent remains unchanged
from last year.
Net income during the second quarter ended July 31, 1997 was $2.9 million,
essentially flat to the prior year's second quarter.
SIX MONTHS ENDED JULY 31, 1997
COMPARED TO THE SIX MONTHS ENDED JULY 31, 1996
Net sales increased during the six months ended July 31, 1997 to $78.5 million,
up 12.9 percent from $69.5 million during the same period last year. The $9.0
million increase over the prior year's first six months was split between sales
from new stores of $9.3, and Wholesale sales growth of $1.7 million. Offsetting
the sales increases were negative comparable store sales of $2.0 million in the
first six months of this year when compared to last.
Gross profit during the six months ended July 31, 1997 was $39.0 million, up
$3.5 million from the same prior year period, a 9.8 percent increase. The dollar
increases came from the volume growth previously described. Gross profit margins
stated as a percentage of sales decreased from 51.0 percent last year to 49.6
percent this year. The reasons for the decrease were higher markdowns on
negative comparable store sales combined with a higher sales mix of lower gross
profit margin divisions (Wholesale and Anthropologie).
Selling, general and administrative expenses during the six months ended July
31, 1997 were $30.6 million, up $4.5 million or 17.2 percent from the same
period in the prior year. These dollar increases were attributed almost entirely
to newly opened stores. Stated as a percentage of sales, selling, general and
administrative expenses increased to 39.0 percent from 37.5 percent during the
six months compared to the same period in the preceding year. The percent is
almost entirely from Urban Retail, which in the prior year experienced excellent
leveraging in high comparable store sales. This year, reverse leveraging on
negative comparable store sales was the case.
Income from operations during the six months ended July 31, 1997 was $8.4
million, down $1.0 million or 10.7 percent from the same period in the prior
year.
9
<PAGE>
The effective income tax rate for the six months of 42 percent remains unchanged
from last year.
Net income during the six months ended July 31, 1997 was $5.3 million, down $.5
million or 8.6 percent from the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $4.3 million to $18.9 million at July 31,
1997 from $14.6 million at January 31, 1997. The increase in cash and cash
equivalents during the six months was a net result of cash provided by operating
activity of $7.0 million, less net purchase of investments of $1.0 million and
capital expenditures of $1.7 million.
The Company's net working capital increased from $39.2 million at January 31,
1997 to $45.8 million at July 31, 1997. The $6.6 million net working capital
increase is primarily a result of cash from operating activity kept as cash/cash
equivalents and current marketable securities.
The Company maintains a line of credit of $10.0 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 the LIBOR rate
plus 1/2 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 July 31,
1997 were $4.3 million and $7.7 million, respectively. The Company has never
borrowed against the available cash line of credit. The last long-term borrowing
was paid down to zero during the second quarter of fiscal 1994. There were no
loan balances at January 31, 1997 or July 31, 1997.
The Company expects that capital expenditures during FY98 will be approximately
$6 to $10 million depending upon the number of stores opened and stores enlarged
or improved during the year. In future years, the Company expects to invest an
amount equal to or greater than that figure, again depending on new and existing
store plans. The Company believes that existing cash, marketable securities at
July 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: September 12, 1997
12
Urban Outfitters, Inc. Exhibit 11
INCOME PER SHARE CALCULATION:
JULY 31, 1997 & 1996
<TABLE>
<CAPTION>
INCOME PER SHARE CALCULATION:
Three Months Ended July 31
--------------------------------------------------------------
1997 1996
---------------------------- -----------------------------
$ Per Share $ Per Share
<S> <C> <C> <C> <C>
NET INCOME 2,855,000 $0.16 2,849,000 $0.16
============ ========= ============ ==========
WEIGHTED AVERAGE COMMON
SHARES & COMMON SHARE
EQUIVALENTS OUTSTANDING 17,812,836 17,831,946
========== ===========
COMPUTATION OF COMMON SHARES
& COMMON SHARE EQUIVALENTS OUTSTANDING:
<CAPTION>
Three Months Ended July 31,
--------------------------------------------------------------
1997 1996
---------------------------- -----------------------------
End of Period Weighted Ave. End of Period Weighted Ave.
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
COMMON SHARES OUTSTANDING 17,588,696 17,588,696 17,505,966 17,471,225
---------- ----------
COMMON SHARE EQUIVALENTS:
OPTIONS 546,270 546,270 495,669 530,411
ASSUMED REPURCHASED
AT AVERAGE PRICE (322,130) (169,690)
---------- ----------
WEIGHTED AVERAGE COMMON
EQUIVALENTS 224,140 360,721
---------- ----------
TOTAL WEIGHTED AVERAGE
COMMON SHARES & COMMON
SHARE EQUIVALENTS OUTSTANDING 17,812,836 17,831,946
========== ==========
<CAPTION>
INCOME PER SHARE CALCULATION:
Six Months Ended July 31
--------------------------------------------------------------
1997 1996
---------------------------- -----------------------------
$ Per Share $ Per Share
<S> <C> <C> <C> <C>
NET INCOME 5,278,000 $0.30 5,776,000 $0.33
============ ========= ============ ==========
WEIGHTED AVERAGE COMMON
SHARES & COMMON SHARE
EQUIVALENTS OUTSTANDING 17,775,716 17,759,373
========== ===========
COMPUTATION OF COMMON SHARES
& COMMON SHARE EQUIVALENTS OUTSTANDING:
<CAPTION>
Six Months Ended July 31,
--------------------------------------------------------------
1997 1996
---------------------------- -----------------------------
End of Period Weighted Ave. End of Period Weighted Ave.
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
COMMON SHARES OUTSTANDING 17,588,696 17,563,078 17,505,966 17,334,014
---------- ----------
COMMON SHARE EQUIVALENTS:
OPTIONS 546,270 535,221 495,669 598,961
ASSUMED REPURCHASED
AT AVERAGE PRICE (322,583) (173,602)
---------- ----------
WEIGHTED AVERAGE COMMON
EQUIVALENTS 212,638 425,359
---------- ----------
TOTAL WEIGHTED AVERAGE
COMMON SHARES & COMMON
SHARE EQUIVALENTS OUTSTANDING 17,775,716 17,759,373
========== ==========
</TABLE>
<TABLE> <S> <C>
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<NAME> Quarterly Report
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<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JUL-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 18,856
<SECURITIES> 10,507
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<INCOME-TAX> 3,744
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