SPOTTI N G THE HIDDEN IDENTITY
URBN outfitters
inc.
annual report
2013
Urban Outfitters, Inc. 5000 South Broad Street Philadelphia, PA 19112-1495 (215) 454-5500
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We are a leading lifestyle specialty retail company that operates under the Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN brands. We also operate a wholesale segment under the Free People brand. We have over 41 years of experience creating and managing retail stores that offer highly differentiated collections of fashion apparel, accessories and home goods in inviting and dynamic store settings. Our core strategy is to provide unified store environments that establish emotional bonds with the customer. In addition to our retail stores, we offer our products and market our brands directly to the consumer through our e-commerce websites and also through our Urban Outfitters, Anthropologie and Free People catalogs. We have achieved compounded annual sales growth of approximately 15% over the past five years, with sales of approximately $2.5 billion in fiscal 2013.
RETAIL STORE REVENUE
4-5
Thoughts from Richard to you
6-9
Operations: Urban OutďŹ tters
10- 13
Anthropologie
14 -15
Free People
16
BHLDN
17
Terrain
18-21
Finances
Fiscal Year Ends January 31st 2013
2012
2011
2010
2009
Income Statement Data: Net sales
$ 2,473,801
$ 2,274,102
$ 1,937,815
$ 1,834,618
$ 1,507,724
Gross Profit
860,536
936,620
786,145
713,478
576,772
Income from Operations
284,725
414,203
338,984
299,435
224,945
Net Income
185,251
272,958
219,893
199,364
160,231
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Dear Shareh ol ders, Created near the University of Pennsylvania in 1970, URBN has 37 years of experience creating and managing retail stores. These stores offer decidedly “differentiated collections of fashion a parel, accessories and home goods to a highly defined market niche.” Urban Outfitters is a pioneering “lifestyle merchandising company” that operates specialty retail stores under the Urban Outfitters, Anthropologie and Free People brands. Urban Outfitters’ highly defined market niche is best marketed through differentiation, rather than cost leadership, in order to achieve their competitive advantage. Anthropologie tailors its merchandise and inviting store environment to sophisticated and contemporary women aged 28 to 45. Anthropologie’s unique and eclectic product assortment includes
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women’s casual apparel and accessories, shoes,
as an eclectic mix of apartment wares and gifts.
home furnishings and a diverse array of gifts and
Aparment wares range from rugs, pillows and
decorative items. The home furnishings range
shower curtains to books, candles and novelties.
from furniture, rugs, lighting and antiques to
Our stores are located in large metropolitan ar-
table top items, bedding and gifts. As of January
eas, select university communities, specialty cen-
31, 2012, we operated 168 Anthropologie stores
ters and enclosed malls. Our stores accommodate
in North America and Europe, as well as two
our customers’ propensity not only to shop, but
websites and the Anthropologie catalog. We plan
also to congregate with their peers. As of Janu-
to open approximately 14 Anthropologie stores,
ary 31, 2012, we operated 197 Urban Outfitters
globally, in fiscal 2013. Anthropologie’s North
stores in North America and Europe, as well as
American and European store sales accounted for four websites and the Urban Outfitters catalog. approximately 32.8% and 0.9% of consolidated
We plan to open approximately 23 Urban Outfit-
net sales, respectively, for fiscal 2012.
ters stores, globally, in fiscal 2013. Urban Outfitters’ North American and European store sales
Urban Outfitters targets young adults aged 18
accounted for approximately 31.4% and 5.9% of
to 28 through its unique merchandise mix and
consolidated net sales, respectively, for fiscal 2012.
compelling store environment. We have established a reputation with these young adults, who
Our Free People retail stores primarily offer
are culturally sophisticated, self-expressive and
Free People branded merchandise targeted to
concerned with acceptance by their peer group.
young contemporary women aged 25 to 30. Free
The product offering includes women’s and men’s
People offers a unique merchandise mix of casual
fashion apparel, footwear and accessories, as well women’s apparel, intimates, shoes, accessories
and gifts. As of January 31, 2012, we operated 62
January 31, 2012, we operated one Terrain gar-
Free People stores in the United States, as well as
den center and plan on opening a second Terrain
a website and the Free People catalog. We plan to
garden center during the first half of fiscal 2013.
open approximately 16 new Free People stores in fiscal 2013. Free People retail store sales account-
In August 2011, we opened our first BHLDN
ed for approximately 2.7% of our consolidated
store in Houston, Texas. The BHLDN brand
net sales for fiscal 2012.
emphasizes every element that contributes to a wedding. BHLDN offers a curated collection of
Terrain is designed to appeal to men and women
heirloom quality wedding gowns, bridesmaid
interested in a creative, sophisticated outdoor
frocks, party dresses, assorted jewelry, headpieces,
living and gardening experience. Terrain cre-
footwear, lingerie and decorations. BHLDN retail
ates a compelling shopping environment through
sales accounted for less than 1% of our consoli-
its large and free standing site, inspired by the
dated net sales for fiscal 2012. As of January 31,
greenhouse.’ Our Terrain garden center operates
2012, we operated one BHLDN store, as well as a
approximately two acres of outdoor seasonal
website, and we opened a second BHLDN store in
selling space used for its offering of lifestyle home
Chicago, Illinois during the first quarter of fiscal
and garden products, antiques, live plants, flow-
2013.
ers, wellness products and accessories. Terrain also offers a variety of landscape and design service solutions in addition to operating a website.
Richard A. Hayne Chairman of the Board
Terrain retail sales accounted for less than 1% of our consolidated net sales for fiscal 2012. As of
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Urban Outfitters Urban Outfitters is an eclectic lifestyle retailer dedicated to inspiring our customers through a unique combination of product, creativity and cultural understanding. Our mission is to help our customers express and their individuality and connect with their interests, needs, passions and each other. We do this by creating experiential retail environments and curated product assortments. We embrace music, fashion, art, architecture, design and technology as integral to our business and infuse each with our individualistic, nonconformist approach to life. We believe passionately that our customer is constantly evolving, bringing new ideas, new outlooks and new expectations to their world.
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I’m not huge on sparkles, but sometimes I can be a girly girl
net sales URBN inc. Urban Outfitters
We are committed to evolving with them while retaining our fundamental values of creativity, irreverence and authenticity. Founded in 1970, Urban Outfitters operates more than 130 stores in the United States, Canada and Europe, all offering an eclectic mix of merchandise. We stock our stores with what we love, calling on our — and our customer’s — interest in contemporary art, music and fashion. From men’s & women’s apparel and accessories to items for the apartment, we offer a lifestyle-specific shopping experience for the educated, urban-minded individual in the 18 to 30 year-old range -both online and in our stores . The brand opened 6 new stores in the quarter
bringing the global store count to 207. Square footage increased 12% to 1,851,404. Comparable retail segment net sales, which include the direct-to-consumer channel, increased 6%. Domestically, by region, sales were strongest in the East and weakest in Canada. In Europe, sales were strongest in Continental Europe and weakest in London. Domestically, by venue sales were strongest in malls and weakest in metro locations. By merchandise category men’s apparel and accessories were the strongest. In March 2003, Urban Outfitters introduced a direct-to-consumer catalog offering selected merchandise, much of which is also available in our Urban Outfitters stores. During fiscal
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2009, we circulated approximately 12 million Urban Outfitters catalogs. We believe this catalog has expanded our distribution channels and increased brand awareness. We plan to maintain circulation of approximately 12 million catalogs during fiscal 2010 and continue to further invest in web marketing initiatives. We expect catalog circulation to be consistent over the next few years. Urban Outfitters also operates a web site that accepts orders directly from customers. The web site, www.urbanoutfitters.com, was launched in May 2000. The web site captures the spirit of the store by offering a similar selection of merchandise as found in the stores. As with the Urban Outfitters catalog, we believe the web site increases the reputation and recognition of the brand with its target customers, as well as helps to support the strength of Urban Outfitters’ store operations.
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In August 2006, Urban Outfitters launched a web site targeting our European customers. The web site, www.urbanoutfitters.co.uk, captures the spirit of our European stores by offering a similar selection of merchandise as found in our stores. Fulfillment is provided from a third-party distribution center located in the United Kingdom. We believe the web site increases the reputation and recognition of the brand with our European customers as well as helps to support our Urban Outfitters’ European store operations. I am an artist I find inspiration everywhere I am never afraid to try new things
Adventurious and free spirited I swim against the current and have a fiery perseonality
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net sales URBN inc.
ANTHROPOLOGIE Anthropologie is a lifestyle brand that imparts a sense of beauty, optimism and discovery to our customer. For her, Anthropologie is an escape from the everyday; it is a source of inspiration and delight, where innovative merchandising, customer centricity and a curated array of products come together to create an unimagined experience. Anthropologie products are an expression of our customer’s appreciation for artfulness and good design. To that end, our buyers and designers travel the world to uncover special products and to collaborate with talented artisans. Our assortment includes clothing, accessories, shoes, beauty, home furnishings,
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Anthropologie
Comfort is a priority Loose and free Ready for anything
found objects, gifts and décor that exhibit influences ranging from vintage to global. Twenty years after being founded in Wayne, Pennsylvania, Anthropologie remains a destination for women wanting a curated mix of clothing, accessories, gifts and home décor that reflects their personal style and fuels their lives’ passions, from fashion to art to entertaining. In this, our 20th anniversary year, we are committed to offering our customers signature products and unmatched service, both in our 175 stores throughout the United States, Canada and United Kingdom. Anthropologie tailors its merchandise and inviting store environment to sophisticated and
I wear my heart on my sleeve, literally
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contemporary women aged 30 to 45. Anthropologie’s unique and eclectic product assortment includes women’s casual apparel and accessories, home furnishings and a diverse array of gifts and decorative items. The home furnishings range from furniture, rugs, lighting and antiques to table top items, bedding and gifts. Stores average approximately 7,400 square feet of selling space, typically carry an estimated 40,000 to 45,000 SKUs and are located in specialty retail centers, upscale street locations and enclosed malls. During fiscal 2009, we circulated approximately 21.5 million catalogs and plan to decrease circulation to approximately 18.4 million catalogs in fiscal 2010. We plan to replace reduced circulation expenditures with investments in web marketing initiatives.
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I should been born in another era Vintage fashion finds make my day
I am free spirited and active I have an artistic flare I love the outdoors
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Free People
net sales URBN inc. Free People
During 2001, we realized that it was really Free People that invoked some of our favorite images, those of femininity, courage, and spirit. It was time to get back to our roots.
tomboy to romantic. A girl who likes to keep busy and push life to its limits, with traveling and hanging out and everything in between. Who loves Donovan as much as she loves The Dears, and can’t resist petting any dog that Free People shed its junior image and evolved passes her by on the street. into a more mature, contemporary brand. This allowed twenty-something women to Today we draw, design, sew and buy for her. appreciate the line of clothing that catered to We offer her countless options within our own their intelligence, creativity and individualFree People collection, so that even if she ity, while keeping with its great quality and takes her best pal shopping, they won’t come affordability. out looking at all alike. And if she wants her colors and patterns all mixed up, that’s even And that’s just who we wanted to reach: a better, picking through our sweaters, knits 26-year-old girl, smart, creative, confident and skirts. And our design team is expecting and comfortable in all aspects of her beto offer even greater variety in our intimates ing, free and adventurous, sweet to tough to and accessories.
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I’m always on the edge of my seat I hate pink
Trendy and artsy taste Big personality
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BHLDN An understated word with significant meaning charmed us. And so began, BHLDN. Inspired by the Dutch word for “to keep,” as well as countless tales from family and friends of the extraordinary weddings they’d been part of, we began dreaming up something new. Unveiled Valentine’s Day, 2011, BHLDN offers brides, party goers, and party throwers an inspired alternative for life’s most anticipated milestones. Catering to a small coterie of smart, creative women and focused on personalization, BHLDN goes beyond the wedding dress — bringing together inspiration, community, and a compelling,
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net sales URBN inc. BHLDN
original product assortment. Heirloom-quality gowns, artisanal hair adornments, bridesmaid frocks, party dresses, footwear, jewelry, and lingerie are available through an online shop. We want, more than anything, to help a woman create an event that reflects her own unique perspective… to a tee. We want to give a bride that edit she’s been searching for—with heirloom-quality wedding gowns, artisanal hair adornments, footwear, and lingerie. And we want happy bridesmaids—in mix-and-match frocks with rich hues and unexpected details.
terrain Founded in 2008, Terrain transforms the local garden center into a celebration of nature. Our flagship location in Glen Mills, Pennsylvania was inspired by the idea of merging house and garden to create an experience for the senses, catering to our customer with a curated assortment of plants for all seasons, as well as inspired items for the home and garden. Situated in a luxurious indoor-outdoor environment, our on-site nursery is flanked by a cafe and garden terrace, providing the ideal environment to host events and workshops.
Fashion is non-negotiable I am a girly girly at heart My shoes are my children
net sales URBN inc. Terrain
The idea for taking the retail concept into the garden came while Hayne, an anthropology graduate of LeHigh and an avid tomato grower, observed the clientele while shopping at a local garden center. In January of 2008, he announced the purchase of J. Franklin Styers Nursery, a highly reputable 118-year old business that offered a wellrespected brand for Terrain to build upon. A 2008 company press release promised a “new standard in garden retailing... artfully marrying home fashion and horticulture from around the world... a gardening experience savored by all the senses.� Polka dots never go out of style Maybe a little bit quirky
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S h e i s s p u n ky a n d q u i r ky w it h a n e y e for d e s i g n .
H e r o f f - b e a t a p p r o a c h t o l i fe i s
captivating 18
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Financials Net sales
Fiscal 2012 Quarter Ended (1) April 30, 2011
July 31, 2011
October 31, 2011
January 31, 2012
$ 524,019
$ 609,181
$ 609,953
$ 730,648
Gross Profit
193,365
231,090
216,103
219,978
Net Income
39,255
38,624
56.693
50,679
Net Income per common share- basic
0.24
0.36
0.34
0.27
Net Income per common share- diluted
0.23
0.35
0.33
0.27
Net sales
21%
25%
25%
29%
Net income
21%
31%
27%
21%
My lips never go naked I am genuinely happy and carefree most of the time
As a Percentage of Fiscal Year:
Fiscal 2013 Quarter Ended (1) April 30, 2012 Net sales
July 31, 2012
October 31, 2012
January 31, 2013
$ 479,961
$ 552,159
$ 573,592
$ 668,390
Gross Profit
200,786
234,781
235,993
265,060
Net Income
52,957
71,657
73,106
75,238
Net Income per common share- basic
0.31
0.42
0.44
0.46
Net Income per common share- diluted
0.31
0.42
0.43
0.45
Net sales
21%
24%
25%
30%
Net income
19%
26%
27%
28%
As a Percentage of Fiscal Year:
(1) The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.
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I’m not hiding anything Pink is my color Alternative music is my therapy
Fiscal 2012 Compared to Fiscal 2011 Net sales in fiscal 2012 increased by 8.8% to $2.47 billion, from $2.27 billion in the prior fiscal year. The $200 million increase was attributable to a $187 million or 8.7% increase, in retail segment net sales and a $13 million or 10.6% increase in our wholesale segment net sales. The growth in our retail segment net sales during fiscal 2012 was driven by increases of $175 million in non-comparable and new store net sales and $71 million, or 16.4%, in directto- consumer net sales. A decrease of $59 million, or 3.8%, in comparable store net sales was a partial offset. The net increase in comparable retail segment net sales was comprised of increases of 17.0% and 1.4% at Free People and Urban Outfitters, respectively and a decrease of 3.2% at Anthropologie. The increase in our wholesale segment net sales was due to a $16 million, or a 14.7% increase, at Free People wholesale, partially offset by a $3 million decrease at Leifsdottir wholesale resulting from the
discontinuation of wholesale distribution of the Leifsdottir brand, which occurred in the first quarter of fiscal 2012.
The increase in Free People wholesale net sales was driven by increases in transactions and average unit sale prices.
The increase in net sales attributable to noncomparable and new stores was primarily the result of opening 57 new stores in fiscal 2012 and 46 new stores in fiscal 2011 that were considered non-comparable during fiscal 2012. Direct-to-consumer net sales in fiscal year 2012 increased over the prior year primarily due to increased traffic to our websites combined with an increase in average order value, which more than offset a decrease in conversion rate. Catalog circulation across all brands increased by 4.1 million, or 9.3%. Comparable store net sales decrease was primarily the result of a decrease in the average unit sales prices combined with a decrease in the number of transactions. Thus far during the first quarter, comparable retail segment net sales are low single-digit positive.
Gross profit rates in fiscal 2012 decreased to 34.8% of net sales, or $861 million, from 41.2% of net sales, or $937 million, in fiscal 2011. This decrease was principally due to increased merchandise markdowns to clear slow-moving inventory, primarily associated with women’s apparel inventory at Anthropologie and Urban Outfitters, as well as deleveraging of store occupancy expense as a result of negative comparable store net sales. Total Company inventory increased 8.9% to $250 million from $230 million in the prior year. Comparable retail segment inventory (which includes our direct-to-consumer channel) grew 1.8%, while comparable store inventories decreased 2.5%.
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I am a professional I am a dancer I am flexible
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Selling, general and administrative expenses, as a percentage of net sales for fiscal 2012, increased to 23.3% of net sales versus 23.0% of net sales for fiscal 2011. This increase was primarily due to higher marketing and related e-commerce investments as well as the deleveraging of direct store controllable expenses driven by the negative comparable stores sales in fiscal 2012. These increases were partially offset by lower incentive based compensation versus the prior fiscal year as well as an equity compensation expense reversal due to the departure of an executive officer. In fiscal 2012, selling, general and administrative expenses increased by $54 million, or 10.2%, to $576 million, from $522 million in fiscal 2011. The dollar increase versus the prior year is primarily related to the operating expenses of new and non-comparable stores.
Income from operations decreased to 11.5% of net sales, or $285 million, for fiscal 2012 compared to 18.2% of net sales, or $414 million, for fiscal 2011. Our annual effective income tax rate for January 31, 2012 increased to 35.9% of income before income taxes for fiscal 2012 compared to 34.6% of income before income taxes for fiscal 2011. The fiscal 2011 effective tax rate was favorably affected by a non-recurring federal rehabilitation credit relating to the expansion of our home office in Philadelphia, Pennsylvania. See Note 8 “Income Taxes� in our notes to the consolidated financial statements, for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rate. We expect the tax rate for fiscal 2013 to be approximately 36.5%.
Fiscal Year Ended January 31, 2013
2012
2011
Net sales
100.0 %
100.0 %
100.0 %
Cost of sales, including certain buying, distribution and occupancy costs
65.2
58.8
59.4
34.8
41.2
40.6
23.3
23.0
23.1 17.5
Net Income Selling, general and administrative expenses
11.5
18.2
Interest income
Income from operations
0.2
0.1
0.3
Other income
---
---
---
Other expenses
---
---
---
11.7
18.3
17.8
4.2
6.3
6.4
7.5%
12.0%
11.4%
Income before income taxes Income tax expense Net income Period over Period Change: Net sales
8.8%
17.45
5.6%
Gross profit
-8.1%
19.1%
10.2%
Income from operations
-31.3%
22.2%
13.2%
Net income
-32.1%
24.1%
10.3%
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Urban Outfitters, Inc. 5000 South Broad Street Philadelphia, PA 19112-1495 (215) 454-5500