13. 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 July 31, 2018, there were 246 Urban Outfitters stores, 227 Anthropologie Group stores, 135 Free People stores, ten restaurants under the Food and Beverage division and two Urban Outfitters franchise locations. 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 90.9% and 90.8% of total consolidated net sales for the three and six months ended July 31, 2018, respectively. Net sales from the Retail segment accounted for approximately 90.6% of total consolidated net sales for the three and six months ended July 31, 2017. The remaining net sales are derived from the Company’s Wholesale segment which consists of the Free People and Anthropologie brands that sell through approximately 2,100 department and specialty stores worldwide, digital businesses and the Company’s 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 brand and home goods including gifts, tabletop and textiles 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.

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, 2018. 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						Six Months Ended
	July 31,						July 31,
	2018			2017			2018			2017
Net sales
Retail operations	$	902,027		$	790,628		$	1,677,591		$	1,480,980
Wholesale operations		93,293			84,254			176,234			157,203
Intersegment elimination		(2,866	)		(1,951	)		(5,683	)		(4,062	)
Total net sales	$	992,454		$	872,931		$	1,848,142		$	1,634,121
Income from operations
Retail operations	$	106,423		$	69,003		$	158,295		$	88,908
Wholesale operations		19,815			20,238			34,620			36,507
Intersegment elimination		48			20			82			30
Total segment operating income		126,286			89,261			192,997			125,445
General corporate expenses		(9,434	)		(14,081	)		(22,249	)		(29,229	)
Total income from operations	$	116,852		$	75,180		$	170,748		$	96,216

	July 31,		January 31,		July 31,
	2018		2018		2017
Inventory
Retail operations	$	328,551	$	300,493	$	320,384
Wholesale operations		47,106		50,902		44,792
Total inventory	$	375,657	$	351,395	$	365,176
Property and equipment, net
Retail operations	$	804,625	$	811,128	$	839,987
Wholesale operations		2,459		2,640		3,071
Total property and equipment, net	$	807,084	$	813,768	$	843,058

The following tables summarize net sales and percentage of net sales from contracts with customers by merchandise category:

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2018			2017			2018			2017
Net sales
Apparel ⁽¹⁾	$	690,447		$	599,374		$	1,290,135		$	1,119,487
Home ⁽²⁾		135,262			129,179			249,610			241,180
Accessories ⁽³⁾		118,335			100,354			217,110			189,942
Other ⁽⁴⁾		48,410			44,024			91,287			83,512
Total net sales	$	992,454		$	872,931		$	1,848,142		$	1,634,121

As a percentage of net sales
Apparel ⁽¹⁾		70	%		69	%		70	%		68	%
Home ⁽²⁾		13	%		15	%		13	%		15	%
Accessories ⁽³⁾		12	%		11	%		12	%		12	%
Other ⁽⁴⁾		5	%		5	%		5	%		5	%
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

Apparel, Home, and Accessories are sold through both the Retail and Wholesale segments. Revenue recognized from the Other category is primarily attributable to the Retail segment.

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:

	July 31,		January 31,		July 31,
	2018		2018		2017
Property and equipment, net
Domestic operations	$	730,024	$	720,890	$	744,388
Foreign operations		77,060		92,878		98,670
Total property and equipment, net	$	807,084	$	813,768	$	843,058

	Three Months Ended				Six Months Ended
	July 31,				July 31,
	2018		2017		2018		2017
Net Sales
Domestic operations	$	865,517	$	764,846	$	1,612,668	$	1,442,799
Foreign operations		126,937		108,085		235,474		191,322
Total net sales	$	992,454	$	872,931	$	1,848,142	$	1,634,121