Analyzing Urban Outfitters Inventory Trends and Economic Risks

School

University of Pennsylvania**We aren't endorsed by this school

Course

ACCT 101

Subject

Accounting

Date

Dec 10, 2024

Pages

Uploaded by DrOxideBat33

CASE: URBAN OUTFITTERS – SOLUTIONProf. Hail, Nicoletti, Schafhäutle, and Keeve – Fall 2024ACCT 1010 – Session #14

Urban Outfitters (URBN)Urban Outfitters opened its first store in 1970 near the University of Pennsylvania campus in Philadelphia. In 1993, it went public by listing its shares on NASDAQ. The firm considers itself a leading lifestyle products and services company that operates a portfolio of global consumer brands comprised of the Anthropologie, Bhldn, Free People, FP Movement, Terrain, Urban Outfitters, Nuuly, and Menus & Venues brands.It achieved compounded annual sales growth of approximately 4% from the fiscal year ended January 31, 2016, through the fiscal year ended January 31, 2020. However, the COVID-19 pandemic hit the company hard and had a negative impact on its results for the first quarter of fiscal year 2021.https://www.urbanoutfitters.com

Question #1What was the value of URBN’s inventory on April 30, 2020, and January 31, 2020? What percentage of total current assets does it represent? April 30, 2020: January 31, 2020:

Question #1What was the value of URBN’s inventory on April 30, 2020, and January 31, 2020? What percentage of total current assets does it represent? April 30, 2020: inventory / current assets = 335.6 / 1,176.9 = 28.5%January 31, 2020:

Question #2What was responsible for the significant change in inventory? What are the economic risks associated with such a significant change in inventory?

Question #2What was responsible for the significant change in inventory? What are the economic risks associated with such a significant change in inventory? •19% (16%) decrease in retail (wholesale) segment inventory amid the Coronavirus pandemic.•Cancelling of orders to align with store closures, reduced consumer demand, as well as an increase in inventory obsolescence reserves.•Economic risks: potential obsolescence, having working capital tied up, new clothing collections designed and ordered, etc.

Question #3How large was the provision for excess and obsolete inventory that URBN recorded during the fiscal quarter ended April 30, 2020?

Question #3How large was the provision for excess and obsolete inventory that URBN recorded during the fiscal quarter ended April 30, 2020? $43.3 million (from footnote; also mentioned in WSJ article)

Question #4How much inventory did URBN write off during the fiscal quarter ended April 30, 2020?Allowance for Inventory Obsolescence

Question #4How much inventory did URBN write off during the fiscal quarter ended April 30, 2020?Allowance for Inventory ObsolescenceBeginning Balance $22.5Ending Balance $60.8

Question #4How much inventory did URBN write off during the fiscal quarter ended April 30, 2020?Allowance for Inventory ObsolescenceBeginning Balance $22.5Provision for Obsolescence $43.3 (from footnote)Ending Balance $60.8

Question #4How much inventory did URBN write off during the fiscal quarter ended April 30, 2020?Allowance for Inventory ObsolescenceBeginning Balance $22.5Inventory Write-offs$5.0 (plug)Provision for Obsolescence $43.3 (from footnote)Ending Balance $60.8

Question #5What was the total gross value of URBN’s inventory (i.e., the original historical cost) at the end of the fiscal quarter on April 30, 2020, as well as at the end of the previous quarter on January 31, 2020? What percentage of total inventory does the reserve for obsolescence represent?April 30, 2020:Gross Inventory = $335.6 + $60.8 = $396.4Percentage of Inventory Reserved = $60.8 / $396.4 = 15.3%January 31, 2020:

Question #6How did the provision for excess and obsolete inventory that URBN recorded during the fiscal quarter ended April 30, 2020, affect its cash flows from operating activities?

Question #6How did the provision for excess and obsolete inventory that URBN recorded during the fiscal quarter ended April 30, 2020, affect its cash flows from operating activities?dr. Provision for excess and obsolete inventory (COGS) $43.3cr. Allowance for inventory obsolescence (B/S) $43.3•No cash involved. Provision is included as an expense in net (loss) income, it needs to be added back to net (loss) income to obtain OCF because it is a non-cash expense.•$43.3 does not show up as separate line item in SCF. Rather, it is included in the net change in inventory that is added to net (loss) income in the operating section of the SCF (i.e., $71.8).•Net change includes increase in the reserves for inventory obsolescence of $43.3 (which increases COGS but has no current cash flow implications) as well as decrease in inventory by an estimated amount of $28.5 (i.e., $71.8 from OCF minus $43.3) due to selling beginning of period inventory and not replacing it (i.e., COGS recognized this period, but cash paid last period).