12. Segment Reporting

The Company offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands. The Company operates two reportable segments— “Retail” and “Wholesale.” The Company’s Retail segment consists of the “Anthropologie,” “Bhldn,” “Free People,” “Terrain” and “Urban Outfitters” brands and the Food and Beverage division. The Anthropologie, Bhldn and Terrain brands make up the “Anthropologie Group.” As of October 31, 2017, there were 245 Urban Outfitters stores, 227 Anthropologie Group stores, 132 Free People stores and 12 restaurants under the Food and Beverage division. Each of Urban Outfitters, the Anthropologie Group and Free People, including their stores and direct-to-consumer channels, and the restaurants operated under the Company’s Food and Beverage division are considered an operating segment. Net sales from the Retail segment accounted for approximately 90.6% of total consolidated net sales for the three and nine months ended October 31, 2017. Net sales from the Retail segment accounted for approximately 91.0% and 91.5% of total consolidated net sales for the three and nine months ended October 31, 2016, respectively. The remaining net sales are derived from the Company’s Wholesale segment that consists of the Free People and Anthropologie Group wholesale divisions that primarily design, develop and market young women’s contemporary casual apparel, including intimates and activewear, shoes and home goods sold through approximately 1,900 department and specialty stores worldwide, third-party websites and the Retail segment. The Anthropologie Group wholesale division was established in the third quarter of fiscal 2018.

The Company has aggregated its brands into the Retail segment based upon their shared management, customer base and economic characteristics. Reporting in this format provides management with the financial information necessary to evaluate the success of the segments and the overall business. The Company evaluates the performance of the segments based on the net sales and pre-tax income from operations (excluding intercompany charges) of the segment. Corporate expenses include expenses incurred and directed by the corporate office that are not allocated to segments. The principal identifiable assets for each reporting segment are inventory and property and equipment.

Other assets are comprised primarily of general corporate assets, which principally consist of cash and cash equivalents, marketable securities, deferred taxes and prepaid expenses, which are typically not allocated to the Company’s segments. The Company accounts for intersegment sales and transfers as if the sales and transfers were made to third parties making similar volume purchases.

The Company’s omni-channel strategy enhances its customers’ brand experience by providing a seamless approach to the customer shopping experience. All available shopping channels are fully integrated, including stores, websites, mobile applications, catalogs and customer contact centers. The Company’s investments in areas such as marketing campaigns and technology advancements are designed to generate demand for the omni-channel and not the separate store or direct-to-consumer channels. Store sales are primarily fulfilled from that store’s inventory, but may also be shipped from any of the Company’s fulfillment centers or from a different store location if an item is not available at the original store. The Company also allows customers to view in-store inventory from its websites and mobile applications. Direct-to-consumer orders are primarily shipped to the Company’s customers through its fulfillment centers, but may also be shipped from any store, or a combination of fulfillment centers and stores depending on the availability of a particular item. Direct-to-consumer orders may also be picked up at a store location. Customers may also return certain merchandise purchased through direct-to-consumer channels at store locations. As the Company’s customers continue to shop across multiple channels, the Company has adapted its approach towards meeting this demand. Due to the availability of like product in a variety of shopping channels, the Company sources these products utilizing single stock keeping units based on the omni-channel demand rather than the demand of the separate channels. These and other technological capabilities allow the Company to better serve its customers and help it to complete sales that otherwise may not have occurred due to out-of-stock positions. As a result of changing customer behavior and the substantial integration of the operations of the Company’s store and direct-to-consumer channels, the Company manages and analyzes its performance based on a single omni-channel rather than separate channels and believes that the omni-channel results present the most meaningful and appropriate measure of the Company’s performance. Over the next several years the Company plans to continue to shift investment to the direct-to-consumer channel to align with changing customer preferences, and focus on improving its speed-to-customer capabilities.

The accounting policies of the reportable segments are the same as the policies described in Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2017. Both the Retail and Wholesale segments are highly diversified. No one customer constitutes more than 10% of the Company’s total consolidated net sales. A summary of the information about the Company’s operations by segment is as follows:

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	2017			2016			2017			2016
Net sales
Retail operations	$	808,546		$	785,026		$	2,289,526		$	2,300,981
Wholesale operations		88,663			81,552			245,866			222,712
Intersegment elimination		(4,435	)		(4,087	)		(8,497	)		(8,057	)
Total net sales	$	892,774		$	862,491		$	2,526,895		$	2,515,636
Income from operations
Retail operations	$	61,667		$	67,981		$	150,575		$	234,022
Wholesale operations		20,866			17,006			57,373			44,213
Intersegment elimination		61			(317	)		91			(568	)
Total segment operating income		82,594			84,670			208,039			277,667
General corporate expenses		(9,706	)		(14,365	)		(38,935	)		(38,667	)
Total income from operations	$	72,888		$	70,305		$	169,104		$	239,000

	October 31,		January 31,		October 31,
	2017		2017		2016
Inventory
Retail operations	$	403,631	$	301,519	$	415,923
Wholesale operations		46,326		37,071		37,903
Total inventory	$	449,957	$	338,590	$	453,826
Property and equipment, net
Retail operations	$	826,296	$	864,396	$	869,042
Wholesale operations		2,810		3,390		3,267
Total property and equipment, net	$	829,106	$	867,786	$	872,309

The following table summarizes the percentage of net sales by merchandise category for the Company:

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	2017			2016			2017			2016
Net sales
Apparel ⁽¹⁾		69	%		68	%		69	%		69	%
Home ⁽²⁾		14	%		14	%		14	%		14	%
Accessories ⁽³⁾		12	%		13	%		12	%		13	%
Other ⁽⁴⁾		5	%		5	%		5	%		4	%
Total net sales		100	%		100	%		100	%		100	%

(1) Apparel includes intimates and activewear
(2) Home includes home furnishings, electronics, gifts and decorative items
(3) Accessories includes footwear, jewelry and handbags
(4) Other includes beauty, shipping and handling revenues and the Food and Beverage division

The Company has foreign operations primarily in Europe and Canada. Revenues and long-lived assets, based upon the Company’s domestic and foreign operations, are as follows:

	October 31,		January 31,		October 31,
	2017		2017		2016
Property and equipment, net
Domestic operations	$	735,731	$	766,419	$	767,916
Foreign operations		93,375		101,367		104,393
Total property and equipment, net	$	829,106	$	867,786	$	872,309

	Three Months Ended				Nine Months Ended
	October 31,				October 31,
	2017		2016		2017		2016
Net Sales
Domestic operations	$	779,790	$	760,074	$	2,222,589	$	2,211,925
Foreign operations		112,984		102,417		304,306		303,711
Total net sales	$	892,774	$	862,491	$	2,526,895	$	2,515,636