# Urban Outfitters Inc: Form 10-Q for the period ended Oct 31, 2022

- Company: [Urban Outfitters Inc](/companies/urbn.md) (CIK 912615)
- Form: 10-Q
- Filed: 2022-12-12
- Accepted by EDGAR: Dec 12, 2022, 16:17 ET
- Period: 2022-10-31
- Accession: 0000950170-22-026390
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/912615/000095017022026390/urbn-20221031.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/912615/000095017022026390/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-10-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-08-01 to 2022-10-31 | $1.18bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-02-01 to 2022-10-31 | $3.41bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-08-01 to 2022-10-31 | $817.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-02-01 to 2022-10-31 | $2.35bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-08-01 to 2022-10-31 | $357.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-02-01 to 2022-10-31 | $1.05bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-08-01 to 2022-10-31 | $299.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-02-01 to 2022-10-31 | $865.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-08-01 to 2022-10-31 | $57.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-02-01 to 2022-10-31 | $189.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-08-01 to 2022-10-31 | $15.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-02-01 to 2022-10-31 | $51.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-08-01 to 2022-10-31 | $37.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-02-01 to 2022-10-31 | $128.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-08-01 to 2022-10-31 | $0.40 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-02-01 to 2022-10-31 | $1.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-08-01 to 2022-10-31 | $0.40 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-02-01 to 2022-10-31 | $1.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-08-01 to 2022-10-31 | 93,036,066 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-02-01 to 2022-10-31 | 94,322,783 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-02-01 to 2022-10-31 | −$6.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-02-01 to 2022-10-31 | $143.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-02-01 to 2022-10-31 | $112.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-10-31 | $147.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-10-31 | $1.35bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-10-31 | $3.72bn | us-gaap:Assets |
| Current liabilities | at 2022-10-31 | $1.01bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-10-31 | $1.98bn | us-gaap:Liabilities |
| Shareholders' equity | at 2022-10-31 | $1.74bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,161 characters.

*Certain matters contained in this filing with the United States Securities and Exchange Commission (“SEC”) may contain forward-looking statements and are being made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words “project,” “believe,” “plan,” “will,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Any one, or all, of the following factors could cause actual financial results to differ materially from those financial results mentioned in the forward-looking statements: the impacts of public health crises such as the coronavirus (COVID-19) pandemic, overall economic and market conditions (including current levels of inflation) and worldwide political events and the resultant impact on consumer spending patterns and our pricing power, 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 the United Kingdom’s withdrawal from membership in the European Union (commonly referred to as “Brexit”), including currency fluctuations, economic conditions and legal or regulatory changes, any effects of war (including geopolitical instability), 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, raw material costs and transportation 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 to U.S. and foreign trade policies (including the enactment of tariffs, border adjustment taxes or increases in duties or quotas), the closing or disruption of, or any damage to, any of our distribution centers, our ability to protect our intellectual property rights, 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 the SEC, including those set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed on April 1, 2022. We disclaim any intent or obligation to update forward-looking statements even if experience or future changes make it clear that actual results may differ materially from any projected results expressed or implied therein.*

*Unless the context otherwise requires, all references to the “Company,” “we,” “us” or “our” refer to Urban Outfitters, Inc., together with its subsidiaries.*

### Overview

We operate under three reportable segments – Retail, Wholesale and Nuuly. 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, social media and third-party digital platforms, catalogs and customer contact centers and franchisee-owned stores. 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, activewear and shoes. Our Nuuly segment consists of the Nuuly brand, which offers customers a more sustainable way to explore fashion. Nuuly Rent is a monthly women’s apparel subscription rental service. Nuuly Thrift, which launched in October 2021, is a peer-to-peer resale marketplace where users can buy and sell women’s, men’s and kids’ clothes, shoes and accessories.

Our fiscal year ends on January 31. All references to our fiscal years refer to the fiscal years ended on January 31 in those years. For example, our fiscal year 2023 will end on January 31, 2023, and our fiscal year 2022 ended on January 31, 2022.

#### Current Trends

### Impact of the Coronavirus Pandemic on Fiscal 2022

The COVID-19 pandemic continued to negatively impact the Company’s store operations during the first nine months of fiscal 2022 with residual impacts on store traffic and store sales resulting from store closures, primarily in Europe and Canada, occupancy restrictions and reduced store hours globally. During the second quarter of fiscal 2022, all remaining COVID-19 government mandated store closures in Europe and Canada expired, although some capacity restrictions continued in certain European and Canadian stores. The COVID-19 pandemic and general unfavorable macroeconomic conditions also disrupted the Company’s global supply chain in fiscal 2022, leading to COVID-19 related factory and port closures, continued port congestion and shipping delays, which resulted in inventory receipt delays and an increase in inbound transportation costs. The Company made a strategic decision to accelerate receipt of certain product categories earlier in the third and fourth quarters of fiscal 2022 in an attempt to minimize the impact of such disruptions on the ability to fulfill customer demand.

### Impact of the Coronavirus Pandemic and Macroeconomic Uncertainties on Fiscal 2023 and Future Operations

The COVID-19 pandemic and its effects on the global economy continued to impact the Company’s operations through the third quarter of fiscal 2023 and related government and private sector responsive actions could continue to affect its business operations. In the first half of fiscal 2023, the Company continued to experience global supply chain disruptions resulting in inventory receipt delays and in response, the Company continued to further diversify its supply chain. In the third quarter of fiscal 2023, timing of supply chain deliveries started to improve, resulting in earlier than planned receipts of inventory. The Company expects that its operations will continue to be influenced by economic pressures such as inflation and labor shortages, resulting in higher wage expense and lower levels of discretionary spending by its customers, particularly customers of the Urban Outfitters brand. Additionally, fluctuations in foreign currency rates may impact the Company's operating results. The Company cannot reasonably estimate the duration and severity of existing and future macroeconomic conditions or current global issues that may have a material effect on the Company's business and the global economy. As a result, current financial information may not be necessarily indicative of future operating results.

#### 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 digital 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, social media and third-party digital platforms, websites and mobile applications and a product offering that includes women’s and men’s fashion apparel, activewear, intimates, footwear, accessories, home goods, electronics and beauty. A large portion of our merchandise is exclusive to Urban Outfitters, consisting of an assortment of products designed internally or designed in collaboration with third-party brands. Urban Outfitters stores are in street locations in large metropolitan areas and select university communities, specialty centers and enclosed malls that accommodate our customers’ propensity not only to shop, but also to congregate with their peers. Urban Outfitters operates websites and mobile applications in North America and Europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores and sells merchandise through franchisee-owned stores in the Middle East. Urban Outfitters’ North American Retail segment net sales accounted for approximately 23.6% of consolidated net sales for the nine months ended October 31, 2022, compared to approximately 28.1% for the comparable period in fiscal 2022. European Retail segment net sales accounted for 8.8% of consolidated net sales for the nine months ended October 31, 2022, compared to approximately 9.0% for the comparable period in fiscal 2022.

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 internally designed and third-party brand product assortment includes women’s 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, the Anthropologie Group operates expanded format stores that include multiple Anthropologie Group brands, which allows for the presentation of an expanded assortment of products in certain categories. Anthropologie Group stores are located in specialty centers, upscale street locations and enclosed malls. The Anthropologie Group operates websites and mobile applications in North America and Europe that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found in its stores, offers a catalog in North America that markets select merchandise, most of which is also available in Anthropologie brand stores and sells merchandise through franchisee-owned stores in the Middle East. The Anthropologie Group’s North American Retail segment net sales accounted for approximately 38.8% of consolidated net sales for the nine months ended October 31, 2022, compared to approximately 36.6% for the comparable period in fiscal 2022. European Retail segment net sales accounted for 1.8% of consolidated net sales for the nine months ended October 31, 2022, and the comparable period in fiscal 2022.

The Free People Group consists of the Free 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 in North America and Europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores, as well as substantially all of the Free People and FP Movement wholesale offerings. The Free People Group also offers catalogs that market select merchandise, most of which is also available in our Free People and FP Movement stores. The Free People Group’s North American Retail segment net sales accounted for approximately 17.3% of consolidated net sales for the nine months ended October 31, 2022, compared to approximately 16.4% for the comparable period in fiscal 2022. European Retail segment net sales accounted for less than 1.0% of consolidated net sales for the nine months ended October 31, 2022, and the comparable period in fiscal 2022.

The Menus & Venues brand focuses on the dining and event 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 nine months ended October 31, 2022, and the comparable period in fiscal 2022.

Net sales from the Retail segment accounted for approximately 91.7% of consolidated net sales for the nine months ended October 31, 2022, compared to 93.0% for the comparable period in fiscal 2022.

Store data for the nine months ended October 31, 2022 was as follows:

| Urban Outfitters | January 31, 2022 | Stores Opened | Stores Closed | October 31, 2022 |
| --- | ---: | ---: | ---: | ---: |
| United States | 184 | 3 | (2) | 185 |
| Canada | 18 | — | — | 18 |
| Europe | 59 | 2 | — | 61 |
| **Urban Outfitters Global Total** | **261** | **5** | **(2)** | **264** |
| **Anthropologie Group** |  |  |  |  |
| United States | 206 | 3 | (1) | 208 |
| Canada | 11 | — | — | 11 |
| Europe | 21 | 1 | — | 22 |
| **Anthropologie Group Global Total** | **238** | **4** | **(1)** | **241** |
| **Free People Group** |  |  |  |  |
| United States (1) | 162 | 9 | (1) | 170 |
| Canada | 5 | — | — | 5 |
| Europe | 6 | 4 | — | 10 |
| **Free People Group Global Total** | **173** | **13** | **(1)** | **185** |
| **Menus & Venues** |  |  |  |  |
| United States | 10 | 1 | — | 11 |
| **Menus & Venues Total** | **10** | **1** | **—** | **11** |
| **Total Company-Owned Stores** | **682** | **23** | **(4)** | **701** |
| **Franchisee-Owned Stores (2)** | 3 | 3 | — | 6 |
| **Total URBN** | **685** | **26** | **(4)** | **707** |

(1) Seven FP Movement stores were opened during the nine months ended October 31, 2022. Twenty-seven FP Movement stores were open as of October 31, 2022.

(2) Franchisee-owned stores are located in the Middle East.

Selling square footage by brand as of October 31, 2022 and 2021 was as follows:

| Selling square footage (in thousands): | October 31, 2022 | October 31, 2021 | Change |
| --- | ---: | ---: | ---: |
| Urban Outfitters | 2,282 | 2,270 | 0.5% |
| Anthropologie Group | 1,830 | 1,838 | -0.4% |
| Free People Group (1) | 386 | 362 | 6.6% |
| **Total URBN (2)** | **4,498** | **4,470** | **0.6%** |

(1) Selling square footage for FP Movement was 35 and 18 as of October 31, 2022 and 2021, respectively.

(2) Menus & Venues locations 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.

Projected openings and closings for fiscal 2023 are as follows:

|  | January 31, 2022 | Projected Openings | Projected Closings | January 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Urban Outfitters | 261 | 7 | (5) | 263 |
| Anthropologie Group | 238 | 6 | (5) | 239 |
| Free People Group (1) | 173 | 19 | (5) | 187 |
| Menus & Venues | 10 | 1 | — | 11 |
| **Total Company-Owned Stores** | **682** | **33** | **(15)** | **700** |
| Franchisee-Owned Stores | 3 | 5 | — | 8 |
| **Total URBN** | **685** | **38** | **(15)** | **708** |

(1) Includes 11 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 Group brand and the BDG and “iets frans” brand apparel collections under the Urban Outfitters brand. Our Wholesale segment net sales accounted for approximately 5.8% of consolidated net sales for the nine months ended October 31, 2022, compared to 6.1% for the comparable period in fiscal 2022.

#### Nuuly Segment

Our Nuuly segment consists of the Nuuly brand, which includes Nuuly Rent and Nuuly Thrift. Nuuly Rent is a monthly women’s apparel subscription rental service. For a monthly fee, Nuuly subscribers can select rental product from a wide selection of the Company’s own brands, third-party brands 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. Nuuly Thrift, which launched in October 2021, is a peer-to-peer resale marketplace where customers can buy and sell women’s, men’s and kids’ apparel, shoes and accessories. Sellers on Nuuly Thrift can transfer their earnings to their bank account or convert them to “Nuuly Cash,” a gift card with a bonus to be used at any of the Company’s brands. The Company earns a commission based on sales made in the marketplace. Our Nuuly segment net sales accounted for approximately 2.5% of consolidated net sales for the nine months ended October 31, 2022, compared to less than 1.0% for the comparable period in fiscal 2022.

### Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.

Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Notes to our Consolidated Financial Statements for the fiscal year ended January 31, 2022, which are included in our Annual Report on Form 10-K filed with the SEC on April 1, 2022. 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. We are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates. There have been no significant changes to our critical accounting policies during the nine months ended October 31, 2022.

### Results of Operations

#### As a Percentage of Net Sales

The table below sets forth, for the periods indicated, certain income statement data and the percentage of our net sales represented by such data. The table should be read in conjunction with the discussion that follows.

### Three Months Ended October 31, 2022 (Fiscal 2023) Compared To

### Three Months Ended October 31, 2021 (Fiscal 2022)

*(amounts in millions)*

|  | Three Months Ended October 31, 2022 |  | 2021 |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,175.3 | 100.0% | $1,131.4 | 100.0% |
| Cost of sales (excluding store impairment) | 817.3 | 69.5 | 740.7 | 65.5 |
| Store impairment | 1.0 | 0.1 | — | — |
| Gross profit | 357.0 | 30.4 | 390.7 | 34.5 |
| Selling, general and administrative expenses | 299.7 | 25.5 | 274.8 | 24.3 |
| Income from operations | 57.3 | 4.9 | 115.9 | 10.2 |
| Other loss, net | (5.0) | (0.5) | (0.5) | (0.0) |
| Income before income taxes | 52.3 | 4.4 | 115.4 | 10.2 |
| Income tax expense | 15.1 | 1.2 | 26.5 | 2.3 |
| Net income | $37.2 | 3.2% | $88.9 | 7.9% |

Net sales for the third quarter of fiscal 2023 were $1.18 billion, compared to $1.13 billion in the third quarter of fiscal 2022. The $43.9 million increase was attributable to a $23.6 million, or 2.3%, increase in Retail segment net sales and an increase in Nuuly segment net sales of $22.6 million, or 178.1%, partially offset by a $2.3 million, or 3.1%, decrease in Wholesale segment net sales. Retail segment net sales for the third quarter of fiscal 2023 accounted for 90.8% of total net sales compared to 92.3% of total net sales in the third quarter of fiscal 2022.

The increase in our Retail segment net sales during the third quarter of fiscal 2023 was due to an increase of $36.0 million, or 3.6%, in Retail segment comparable net sales, partially offset by a decrease of $12.4 million in non-comparable net sales. Retail segment comparable net sales increased 13.1% at the Anthropologie Group and 8.1% at the Free People Group and decreased 9.1% at Urban Outfitters. Retail segment comparable net sales increased in both North America and Europe. The overall increase in Retail segment comparable net sales was driven by mid-single-digit positive digital channel sales and low single-digit positive retail store sales. The digital channel net sales increase was driven by increases in sessions and average order value, while conversion rate and units per transaction decreased. Comparable store net sales increased as higher store traffic, transactions and average unit retail price were offset by a decrease in conversion rate and units per transaction. The decrease in non-comparable net sales during the third quarter of fiscal 2023 was primarily due to the negative impact of foreign currency translation of approximately 200 basis points, partially offset by the 51 new Company-owned stores and restaurants opened and 16 Company-owned stores and restaurants closed since the prior comparable period.

The decrease in Wholesale segment net sales in the third quarter of fiscal 2023, as compared to the third quarter of fiscal 2022, was primarily due to a $2.6 million, or 3.8%, decrease in sales for the Free People Group, partially offset by an increase in Urban Outfitters wholesale sales. The Free People Group wholesale sales decrease was primarily due to a decrease in sales to department stores, partially offset by an increase in sales to specialty accounts. The increase in Nuuly segment net sales was due to a 185% increase in our subscribers during the third quarter of fiscal 2023 as compared to the third quarter of fiscal 2022.

Gross profit percentage for the third quarter of fiscal 2023 decreased to 30.4% of net sales, from 34.5% of net sales in the third quarter of fiscal 2022. Gross profit decreased to $357.0 million in the third quarter of fiscal 2023 from $390.7 million in the third quarter of fiscal 2022. The decrease in gross profit rate and dollars was primarily due to higher markdowns at all three brands as compared to record low markdown rates in the comparable prior year quarter, with the Urban Outfitters brand experiencing the largest year-over-year decline primarily due to elevated inventory levels and macroeconomic trends.

Total inventory at October 31, 2022, as compared to October 31, 2021, increased by $116.5 million, or 18.6%, to $743.6 million. Retail segment inventory increased by 17.0% driven by higher costs, earlier than planned receipts due to improved timing of supply chain deliveries and excess inventory of slower selling product in certain categories. Wholesale segment inventory increased by 38.7% due to softness in department store sales.

Selling, general and administrative expenses increased by $24.9 million, or 9.1%, in the third quarter of fiscal 2023, compared to the third quarter of fiscal 2022. Selling, general and administrative expenses as a percentage of net sales increased in the third quarter of fiscal 2023 to 25.5% of net sales, compared to 24.3% of net sales for the third quarter of fiscal 2022. The increase in rate as a percentage of net sales and increase in selling, general and administrative dollars was primarily related to increased store payroll expenses incurred due to increased store associate hours to support increased customer traffic and higher average wages in order to attract and retain employees, as well as marketing expenses to support increased sales and customer growth.

Income from operations was 4.9% of net sales, or $57.3 million, for the third quarter of fiscal 2023 compared to 10.2% of net sales, or $115.9 million, for the third quarter of fiscal 2022. The decrease in dollars and rate was primarily due to lower gross profit.

Our effective tax rate for the third quarter of fiscal 2023 was 28.8% compared to 23.0% in the third quarter of fiscal 2022. The change in effective tax rate for the three months ended October 31, 2022, was attributable to the ratio of foreign taxable earnings to global taxable earnings, tax rate law changes and the prior year favorable impact of equity activity.

### Nine Months Ended October 31, 2022 (Fiscal 2023) Compared To

### Nine Months Ended October 31, 2021 (Fiscal 2022)

*(amounts in millions)*

|  | Nine Months Ended October 31, 2022 |  | 2021 |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $3,410.7 | 100.0% | $3,216.6 | 100.0% |
| Cost of sales (excluding store impairment) | 2,354.8 | 69.1 | 2,089.9 | 65.0 |
| Store impairment | 1.0 | 0.0 | — | — |
| Gross profit | 1,054.9 | 30.9 | 1,126.7 | 35.0 |
| Selling, general and administrative expenses | 865.5 | 25.3 | 771.4 | 24.0 |
| Income from operations | 189.4 | 5.6 | 355.3 | 11.0 |
| Other loss, net | (9.3) | (0.3) | (2.5) | (0.0) |
| Income before income taxes | 180.1 | 5.3 | 352.8 | 11.0 |
| Income tax expense | 51.9 | 1.5 | 83.1 | 2.6 |
| Net income | $128.2 | 3.8% | $269.7 | 8.4% |

Net sales for the nine months ended October 31, 2022 were $3.41 billion, compared to $3.22 billion in the comparable period of fiscal 2022. The $194.1 million increase was attributable to a $135.7 million, or 4.5%, increase in Retail segment net sales, an increase in Nuuly segment net sales of $56.5 million, or 185.4%, and a $1.9 million, or 1.0%, increase in Wholesale segment net sales. Retail segment net sales for the nine months ended October 31, 2022 accounted for 91.7% of total net sales compared to 93.0% of total net sales in the nine months ended October 31, 2021.

The increase in our Retail segment net sales during the first nine months of fiscal 2023 was due to an increase of $136.6 million, or 4.8%, in Retail segment comparable net sales, partially offset by a decrease of $0.9 million in non-comparable net sales. Retail segment comparable net sales increased 12.5% at the Anthropologie Group and 9.9% at the Free People Group and decreased 6.0% at Urban Outfitters. Retail segment comparable net sales increased in both North America and Europe. The relative proportion of Retail segment sales attributable to store and digital channels changed due in large part to the temporary global store closures and occupancy restrictions in the first nine months of the prior year due to the COVID-19 pandemic. With those restrictions lifted in the current year, Retail segment comparable sales increased due to double-digit growth in retail store sales driven by higher traffic and transactions as well as an increase in average unit selling price, partially offset by a decrease in units per transaction and a decrease in conversion rate. Digital channel net sales were flat as an increase in average order value was offset by decreases in sessions, units per transaction and conversion rate. The decrease in non-comparable net sales during the first nine months of fiscal 2023 was primarily due to the negative impact of foreign currency translation of approximately 140 basis points, partially offset by the 79 new Company-owned stores and restaurants opened and 22 Company-owned stores and restaurants closed since the prior comparable period.

The increase in Wholesale segment net sales in the first nine months of fiscal 2023, as compared to the first nine months of fiscal 2022, was primarily due to a $4.1 million, or 2.3%, increase in sales for the Free People Group, which was primarily driven by an increase in sales to specialty accounts, partially offset by a decline in Urban Outfitters wholesale sales. The increase in Nuuly segment net sales was due to a 200% increase in our subscribers during the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022.

Gross profit percentage for the first nine months of fiscal 2023 decreased to 30.9% of net sales, from 35.0% of net sales in the comparable period in fiscal 2022. Gross profit decreased to $1,054.9 million for the first nine months of fiscal 2023 from $1,126.7 million in the comparable period in fiscal 2022. The decrease in gross profit rate and dollars was primarily due to higher markdowns at all three brands as compared to record low markdown rates in the comparable prior year period, as well as lower initial merchandise markups driven largely by higher inbound transportation expenses.

Selling, general and administrative expenses increased by $94.1 million, or 12.2%, to $865.5 million in the first nine months of fiscal 2023, compared to the comparable period in fiscal 2022. Selling, general and administrative expenses as a percentage of net sales increased in the first nine months of fiscal 2023 to 25.3% of net sales, compared to 24.0% of net sales for the comparable period in fiscal 2022. The increase in rate as a percentage of net sales and increase in selling, general and administrative dollars was primarily related to higher store payroll expenses to support retail store sales growth in the nine months ended October 31, 2022, along with increased store associate hours to support increased customer traffic and higher average wages in order to attract and retain employees. Additionally, marketing expenses increased to support sales and customer growth.

Income from operations was 5.6% of net sales, or $189.4 million, for the first nine months of fiscal 2023 compared to 11.0%, or $355.3 million, for the first nine months of fiscal 2022. The decrease in dollars was primarily due to the increase in selling, general and administrative expenses and gross margin impact noted above. The decrease in operating income rate was primarily due to lower gross profit rate and deleverage in selling, general and administrative expenses during the first nine months of fiscal 2023.

Our effective tax rate for the first nine months of fiscal 2023 was 28.8% compared to 23.6% in the first nine months of fiscal 2022. The increase in effective tax rate for the nine months ended October 31, 2022 was attributable to the ratio of foreign taxable earnings to global taxable earnings, tax rate law changes and the prior year favorable impact of equity activity.

### 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)*

|  | October 31, 2022 | January 31, 2022 | October 31, 2021 |
| --- | ---: | ---: | ---: |
| Cash, cash equivalents and marketable securities | $389.0 | $669.6 | $694.5 |
| Working capital | 336.6 | 304.3 | 320.3 |

|  | Nine Months Ended October 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(6.2) | $222.3 |
| Net cash provided by (used in) investing activities | 65.3 | (363.4) |
| Net cash used in financing activities | (118.3) | (19.8) |

The increase in working capital as of October 31, 2022, as compared to January 31, 2022 and October 31, 2021, was primarily due to the increase in inventory and the timing of disbursements, partially offset by the net decrease in cash, cash equivalents and current marketable securities.

During the last two years, we have satisfied our cash requirements primarily through our cash flow from operating activities, and additionally, in the first nine months of fiscal 2023, through the sale and maturities of marketable securities. Our primary uses of cash have been to fund business operations, purchase inventory, expand our 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. Cash used in operating activities in the first nine months of fiscal 2023 compared to cash provided by operating activities in the first nine months of 2022 was primarily due to lower net income, the timing of disbursements and an investment in additional Nuuly rental product to support the growth in the business.

#### Cash Flows from Investing Activities

Cash provided by investing activities in the first nine months of fiscal 2023 primarily related to sales and maturities of marketable securities, partially offset by the purchases of property and equipment and marketable securities. Cash used in investing activities in the first nine months of fiscal 2022 primarily related to purchases of marketable securities and property and equipment, partially offset by the sales and maturities of marketable securities. Cash paid for property and equipment in the first nine months of fiscal 2023 and 2022 was $143.4 million and $159.0 million, respectively, which was primarily used to expand our fulfillment center network and store base in both periods.

#### Cash Flows from Financing Activities

Cash used in financing activities in the first nine months of fiscal 2023 and 2022 primarily related to repurchases of our common shares under our share repurchase programs and from employees to meet payroll tax withholding requirements on vested awards.

#### 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 2023, we plan to substantially complete construction on a new omni-channel fulfillment center in Kansas City, Kansas (which we expect to be fully operational in fiscal 2024), open approximately 33 new Company-owned retail locations, expand or relocate certain existing retail locations, increase capacity at our Nuuly fulfillment center in response to the growth in subscribers, invest in new products, markets and brands, purchase inventory and rental product for our operating segments at levels appropriate to maintain our planned sales, upgrade our systems, improve and expand our digital capabilities, invest in omni-channel marketing when appropriate and 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 2023, we plan to continue our investment in these initiatives for all brands. We anticipate our capital expenditures during fiscal 2023 to be approximately $225 million, primarily to support new and expanded fulfillment and distribution centers and new store openings. All fiscal 2023 capital expenditures are expected to be financed by cash flow from operating activities, existing cash and cash equivalents and sales and maturities of marketable securities. We believe that our new store investments generally have the potential to generate positive cash flow within a year. We may also enter into one or more acquisitions or transactions related to the expansion of our brand offerings, including additional franchise and joint venture agreements. We believe that our existing cash and cash equivalents, availability under our current credit facilities and future cash flows provided by operations will be sufficient to fund these initiatives.

#### Share Repurchases

See Note 9, “Shareholders’ Equity,” of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding the Company’s share repurchases.

### 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.

## Market risk

As filed, 250 characters.

There have been no material changes to our quantitative or qualitative disclosures found in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.

## Controls and procedures

As filed, 1,246 characters.

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of these disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no changes in our internal controls over financial reporting during the three months ended October 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 229 characters.

There have been no material changes in our risk factors since January 31, 2022. Please refer to our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on April 1, 2022, for our risk factors.

Filed Dec 12, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-026390. Last ingested by Listed: Nov 2, 2026, 19:14 ET. No prices; not investment advice.