Urban Outfitters Inc (NASDAQ: URBN) Investor Securities Class Action Lawsuit 03/31/2011

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Company Name(s): 
Urban Outfitters
Case Name: 
Urban Outfitters Shareholder Class Action Lawsuit 03/31/2011
Case Status: 
Case Dismissed
Affected Securities
NASDAQ: URBN
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
03/31/2011
Class Period Begin: 
11/15/2010
Class Period End: 
03/07/2011
Court of Filing: 
U.S. District Court for the Eastern District of Pennsylvania
Deadline To File for Lead: 
05/31/2011
Case Dismissed: 
06/17/2011
Summary: 

June 17, 2011 - The parties filed a stipulation of voluntary dismissal.

March 31, 2011 - An investor in shares of Urban Outfitters Inc (NASDAQ: URBN) filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania against Urban Outfitters Inc over alleged violations of Federal Securities Laws in connection with certain allegedly false and misleading statements made between November 15, 2010 and March 7, 2011.

According to the complaint the plaintiff alleges on behalf of purchaser of common stock of Urban Outfitters Inc (NASDAQ: URBN) during the period November 15, 2010 and March 7, 2011 that Urban Outfitters Inc and certain of its officers violated the Securities Exchange Act of 1934.

The plaintiff claims that between November 15, 2010 through March 7, 2011 defendants discussed an emerging shift in fashion trends that defendants represented was an opportunity for Urban Outfitters Inc and represented to investors that Urban Outfitters Inc would be able to manage the trend, that Urban Outfitters Inc had effective inventory management controls and systems, and that Urban Outfitters Inc's inventory would "grow more in-line with sales growth." It is alleged, however, that defendants knew, or had reason to know, that Urban Outfitters Inc was not managing the shift in fashion trends of several reasons.

Urban Outfitters Inc’s 12 months Total Revenue went from $1.507 billion reported on January 31, 2008 to $2.27 4 billion reported on January 31, 2011. Its Net Income went over the same time frame from $160.23 million to $272.96 million.

Shares of Urban Outfitters Inc (NASDAQ: URBN) traded during 2006 as low as $14.65 and increased to $36.49 during September 2008. In 2009 NASDAQ: URBN shares fell in March to as low as $14.13 per share but recovered until the end of 2009 to almost $35 per share.

On August 16, 2010 Urban Outfitters Inc (NASDAQ: URBN) reported its second quarter financial results with a 46% earnings increase and on November 15, 2010 Urban Outfitters Inc reported its third quarter financial results with a 17% earnings increase. Shares of Urban Outfitters Inc (NASDAQ: URBN) increased to $38.46 per share on November 23, 2010. While Urban Outfitters Inc (NASDAQ: URBN) shares fell to $33.59 per share in the beginning of February 2011, URBN shares increased to as high as $38.50 per share on March 4, 2011.

Then on March 7, 2011 Urban Outfitters Inc reported its fourth quarters financial results with a record fourth quarter operating profit. However Urban Outfitters Inc also disclosed a decline in quarterly Net Income from $77.675 million to $75.238 million.

On March 8, 2011, Seeking Alpha published a report that stated, in part, the following:

“There are a few of interesting items of note related to today’s earnings debacle relative to expectations.

Q3 2010’s Bloated Inventory Was Not an Anomaly. We’re amazed that URBN management seemingly forgot what they told the investment community at the ICR Conference in mid-January 2011 regarding inventory. At that time, CEO Glen Senk suggested that Q3 2010’s bloated inventory was an anomaly. During a well attended break-out session, he clearly said that at the end of Q4 2010 inventory would "grow more in-line with sales growth."

This was approximately 2 weeks prior to the end of the fiscal quarter. When he made the above statement, Urban Outfitters Inc’s CFO and IR rep jumped in to add additional color to support Mr. Senk’s suggestion that Q3 2010’s inventory was an anomalous "point in time" issue. This does not reflect well on Urban Outfitters Inc’s senior management.

To suggest on the Q4 2010 conference call that bloated inventory at the end of Q4 2010 was a result of January sales weakness at Urban Outfitters Inc and unforeseen in-transit inventory is simply weak.

Why No Incremental Markdown Reserves at End of Q4 2010? Early in the conference call (see Kimberly Greenberger question), URBN management suggests that "we did not make any unusual adjustments relative to anticipated markdowns or end of year reserves that were out of the norm."

Yes, there’s much subjectivity regarding markdown reserves. But, given Q4 2010 was the second straight quarter with materially higher inventory growth versus sales growth, we’re surprised that URBN’s auditors would sign-off on a lack of unusual reserves at the end of Q4 2010 versus LY.

Urban Outfitters Inc management (and the auditors) could have slept better at night by more aggressively reserving for markdowns at the end of Q4 2010. Also, this would have allowed Urban Outfitters Inc to "clear the decks" and report stronger profitability improvements in FY 2011.”

Shares of Urban Outfitters Inc (NASDAQ: URBN) fell from $38.02 on March 7, 2011 to under $30 on March 29, 2011.