16. 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, as well as the Food and Beverage division. The Anthropologie, Bhldn and Terrain brands make up the “Anthropologie Group.” As of January 31, 2018, there were 245 Urban Outfitters stores, 226 Anthropologie Group stores, 132 Free People stores and ten restaurants under the Food and Beverage division. Each of Urban Outfitters, the Anthropologie Group and Free People, including their stores and digital 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 91.3%, 91.9% and 92.4% of total consolidated net sales for the fiscal years ended January 31, 2018, 2017 and 2016, respectively. The remaining net sales are derived from the Company’s Wholesale segment that consists of the Free People and Anthropologie brands that sell through approximately 2,100 department and specialty stores worldwide, customer websites and the Retail segment. The Wholesale segment primarily designs, develops and markets young women’s contemporary casual wear (including intimates and activewear) and shoes under the Free People brand and home goods under the Anthropologie brand. The Anthropologie 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 digital 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. We also allow customers to view in-store inventory from our websites and mobile applications. Digital 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. In addition, customers can pick up digital orders and return certain merchandise purchased through digital channels at retail 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 a sale that otherwise may not have occurred due to out-of-stock positions. We manage and analyze our performance based on a single omni-channel rather than separate channels and believe that the omni-channel results present the most meaningful and appropriate measure of our performance. Over the next several years we plan to continue to shift investment to the digital channel to align with changing customer preferences and focus on improving our 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.” 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:

	Fiscal Year
	2018			2017			2016
Net sales
Retail operations	$	3,299,714		$	3,256,890		$	3,184,955
Wholesale operations		327,539			298,566			273,603
Intersegment elimination		(11,239	)		(9,662	)		(13,424	)
Total net sales	$	3,616,014		$	3,545,794		$	3,445,134
Income from operations
Retail operations	$	233,844		$	325,666		$	342,885
Wholesale operations		71,877			58,169			54,444
Intersegment elimination		151			(614	)		(1,096	)
Total segment operating income		305,872			383,221			396,233
General corporate expenses		(45,980	)		(44,694	)		(42,654	)
Total income from operations	$	259,892		$	338,527		$	353,579
Depreciation expense for property and equipment
Retail operations	$	124,935		$	132,150		$	137,963
Wholesale operations		885			980			918
Total depreciation expense for property and equipment	$	125,820		$	133,130		$	138,881
Inventory
Retail operations	$	300,493		$	301,519
Wholesale operations		50,902			37,071
Total inventory	$	351,395		$	338,590
Property and equipment, net
Retail operations	$	811,128		$	864,396
Wholesale operations		2,640			3,390
Total property and equipment, net	$	813,768		$	867,786
Cash paid for property and equipment
Retail operations	$	83,768		$	142,872		$	134,627
Wholesale operations		45			842			323
Total cash paid for property and equipment	$	83,813		$	143,714		$	134,950

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

	Fiscal Year
	2018			2017			2016
Net sales
Apparel ⁽¹⁾		67	%		66	%		68	%
Home ⁽²⁾		16	%		16	%		15	%
Accessories ⁽³⁾		12	%		13	%		13	%
Other ⁽⁴⁾		5	%		5	%		4	%
Total net sales		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:

	Fiscal Year
	2018		2017		2016
Net Sales
Domestic operations	$	3,163,074	$	3,114,014	$	3,005,595
Foreign operations		452,940		431,780		439,539
Total net sales	$	3,616,014	$	3,545,794	$	3,445,134
Property and equipment, net
Domestic operations	$	720,890	$	766,419
Foreign operations		92,878		101,367
Total property and equipment, net	$	813,768	$	867,786