Business valuation of a company

Business Valuation on Urban outfitters company Part 2
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Urban Outfitters Company Business Valuation

Urban Outfitters Company Business Valuation

Introduction

Businesses and companies are formed purposely to make profits. However, this is not always the case as such firms are also prone to making lose. To establish the economic value of any firm, a business valuation is employed. Urban Outfitters was first coined in 1970 by Richard Hayne to provide a wide variety of products that include clothing, accessories, cosmetics, footwear, houseware, and music to its esteemed customers who are located in various parts of the world. The firm mainly serves young adult that comprises of both women and men as their men clients. The purpose of the valuation is to determine the business value of the Urban Outfitters company. The valuation will be useful in the process mergers when the firm considers merging with other companies. The valuation will also be used in settling shareholder disputes, especially during the transfer of shares for any withdrawing shareholders. Finally, the valuation will be used in the buying and selling agreements when transferring equity between partners. The business valuation values the assets, sales volume, level of income based on the cash flow of the Urban Outfitters company. The firm collects revenue of $ 3.9 billion annually. Besides, Urban Outfitters has an operating income of $ 231 million with total assets of $ 3.3 Billion. These form part of the ownership interest being valued. The firm is valued as of 26^th September 2020 for the financial year of 2019-2020. The report of the valuation is scheduled to be received by the 30^th of September 2020. The valuation applies the use of income approach, asset approach, and market approach as the standard of value in the valuation process. The asset valuation standard uses assets to determine the business value of a firm. This standard of evaluation employs the net assets and the amount of capital invested in the firm to establish its worth. The income approach, on the other hand, relies on the net cash flow, discrepancy cash flow, and capitalization of earnings to value the business. Lastly, the market approach relies on the relationship between firms to determine their business value. It compares one firm to another on the basis of their sales volume, market share, market penetration to establish business value or the net worth of the company. The market approach also analyzes the total equity, net income, and operating income as standards of value to determine the net value of the firm. The valuation hypothesizes that Urban outfitters have higher net assets compared to its competitors. The valuation process also hypothesizes that Urban Outfitters experiences shareholder disputes that require a business valuation to solve. Finally, the report hypothesizes that Urban Outfitters is faced with internal disputes in the buying and selling agreements when transferring equity between partners that require a business valuation to solve. It is imperative to note that Urban Outfitters is a specialist in the designing of fashion clothes to meet the expectations of its consumers globally. The report will only be used in the determination of the business value of the Urban Outfitters company.

Analysis of the Company or Entity

Description of the Subject Organization and the State of Incorporation

Urban Outfitters is a global based organization. It deals mainly with clothing, accessories, cosmetics, footwear, houseware, and music. In 2019, the firm recorded a revenue of $3.9 Billion and a net income of $168 million. Besides, the firm recorded the highest value of total assets worth $ 1.4 Billion. Urban Outfitters is a public limited company; hence it publishes financial statements for the public view. As mentioned previously, Urban Outfitters operates in different parts of the world, with its main headquarters in Philadelphia, United States. Its specialization in the hipster subculture and alternative fashion makes teens and young adults to be its main target. The firm has experienced a steady rise in revenue, as illustrated by the figure below.

Figure1: Revenue Analysis (Serfontein, 2020)

Company history and background

As mentioned previously, the firm was first coined by Richard Hayne, Judy Wicks, and Scott Belair in 1970. However, it became incorporated in Pennsylvania in 1976. It is worth noting Urban Outfitters was conceived from the project of entrepreneurship class in Pennsylvania, where it’s currently headquartered.  Urban Outfitters was incorporated to provide a wide variety of products that include clothing, accessories, cosmetics, footwear, houseware, and music to its esteemed customers who are located in various parts of the world. It has over 24,0000 employees globally. The firm began operating as a retail store. It is positioned in the market using various brands such as Free People, Terrain, BHLDN, and the Vetri Family restaurant group. The National Trust for Historic Preservation awarded the firm the National Preservation Honor Award in 2007. It partners with other firms such as the Austrian Entrepreneur Florian Kaps to sell Type 779 instant film as an alternative product.

Ownership Information

The firm is mainly owned by Richard Hayne, Judy Wicks, and Scott Belair, who are the core founders of the organization. The firm is mainly owned by shareholders. Richard Hayne has the highest percentage of ownership with an equity share of 19,514,690, which forms 20% of the total equity shares. He is also the chairman, president, and CEO of the firm. 

Description of the Organizational Structure and Management Team

The organizational structure comprises 34 executives that form the management team of the organization. The firm adopts a hierarchical organizational structure. The management team comprises of the chief executive office, 7 directors, chief financial officer in charge of the financial operation of the firm. Other management teams include chief operating officer, chief marketing officer, among other management positions.

Description of Officers and Directors

The management team comprises of various officers and directors. Richard Hayne is the CEO of the firm in charge of the overall management of the firm. The organization is also managed by 7 directors. The seven directors include Edward Antoian, Harry Chicken, Scott Galloway, Elizabeth Lambert, Wesley MacDonald, Todd Morgenfeld, and Sukhinder Singh, who are in charge of overseeing the daily operations of the firm. Frank Conforti is the chief financial officer in charge of the financial management of the firm.

Description of the Key Employees

Urban Outfitters company has over 24,000 employees in different parts of the world. Some of the key employees include the CEO of the firm in charge of the overall management of the firm. The chief financial officer is in charge of the financial management of the firm. The organization also has quality assurance personnel in charge of ensuring only quality products are sold to the clients. 

Description of The Entity’s Products

The firm deals mainly with clothing, accessories, cosmetics, footwear, houseware, and music. Urban Outfitters partners with other firms such as the Austrian Entrepreneur Florian Kaps to sell Type 779 instant film as an alternative product, it specializes in the hipster subculture and alternative fashion that makes teens and young adults be its main clients.

Description of The Entity’s Geographic Markets

The firm has its market in different parts of the world. The United States, Canada, and Europe, form the major geographical markets for different products offered by Unburn Outfitter. The United States provides the largest market of Urban Outfitters, followed by Europe. Anthropologie Group does better in Europe than in Canada. The table below summarizes the geographic markets for different brands of products offered by the Urban outfitter. 

Table 1.1: Geographic Markets for the Urban Outfitters.

Description of Key Customers and Suppliers

The key customer and suppliers to the Urban Outfitters can be identified with respect to each of the brands offered by the firm. The young adults aged 18 to 28 form the key customers for the Urban Outfitters brand. Women aged 28 to 45 form the key customers to the Anthropologie Group brand. Moreover, young women, age 25 to 30, form the main customers for the Free People brand. Both domestic and foreign vendors form the key supplies of the organization.

Description of the Entity’s Competition

The firm competes favorably with other firms in both domestic and international markets. The organization employs various strategies such as the provision of quality products, favorable pricing of products, and suitable location of their stores to differentiate its products from those of competitors. Competitors for the firm ranges from boutique to well established wholesale companies in different parts of the world. The figure below illustrates the level of competition faced by the firm

Figure 2: competition analysis (Westney, 2016).

Description of Other Business Risks Faced by the Entity

Just like any other firm, Urban Outfitters faces a variety of business risks. The operations of the firm are significantly affected by the closure of its stores in different parts of the world due to the recent Coronavirus outbreak. The firm also faces the risk of harsh economic conditions and market disruptions, as most of its stores are sensitive to such risks. The organization also faces the risk of the inability to timely identify changes in fashion since the customers’ tastes and fashion are subject to rapid change. The company is faced with stiff competition from its major competitors. Legal, regulatory, political, economic, and public health risksalso affect the organization’s ability to expand its operations internationally.

Analysis of Economic Conditions

Global regions

The Organization is negatively affected by harsh economic conditions experienced globally in the recent past due to the outbreaks of Covid-19. Europe, which is the second-largest market for the organization’s products, has witnessed a sudden severe market decline, which has, in turn, reduced the demand for secondary wants goods such clothing. The increased political instability in different parts of the world has also negatively affected the profitability of the farm’s produce.  The impacts of economic conditions on sales volume

Figure 3: The impacts of economic conditions on sales volume (Andrews et al., 2019)

The U.S. Or Other Nations Economic Conditions

The United States forms the largest market for the company’s products. The harsh economic conditions experienced by the United States has translated into a decrease in the demand for the Free People products. The United States is the largest hit by the pandemic, which has, in turn, affected consumer purchasing power. The reduced purchasing power is stimulated by the decline of wages as well as the loss of jobs. The economic, capital, and credit market conditions of the United States and other countries in the world have become unpredictable, which threatens the future success of the firm. The restrictions and regulations imposed by the United States government to prevent the spread of the virus have further reduced the sales volume for the products. The United States is currently in disagreement with China, which also contributes to the sharp decline in the sales volume of the products. The harsh economic conditions resulting from increased taxation, fuel, and energy prices have affected the pricing of the products hence reduced sales volumes.

Future Outlook for The Regions in Which the Entity Operates

The future economic, capital, and credit market conditions of the United States and other countries in the world have become unpredictable, which threatens the future success of the firm. Economist predicts a sharp decline in the sales volume due to the decline in the consumer’s confidence in the products produced by the firms. The current situations may result in the global financial crisis, which will, in turn, affect the purchasing power of the company. The impacts of the pandemic may force the government of the regions in which the company operates to increase taxation rates on non-essential produce, which will, in turn, affect the growth of the organization.

Analysis of Industry Conditions

Identity of the Applicable Industries

The firm operates under the portfolio of global consumer brands as a clothing industry.  Urban Outfitters is a lifestyle product and services. It provides ranges of products such as Anthropologie, Bhldn, Free People, Terrain, Urban Outfitters, and Nuuly brands and our Menus & Venues. The above brands of products are offered in three major segments; Retail, Wholesale, Subscription. The firm employs its own stores and third-party stores to provide the products to its customers.

Description of the Applicable Industries

The industry operates globally, offering a different variety of goods and services. The operations of the firms can be since its inception in 1970 when the first brand First Urban Outfitters store, was introduced in the University of Pennsylvania campus in Philadelphia, Pennsylvania (Getachew, 2017). The firm has since then experienced growth, introducing a variety of brands. The launch of the Nuuly brand is the most recent brand introduced in 2019. The variety of brands introduced is to improve customers’ experience.

Information Regarding Suppliers or Sources of Supply

The company relies on both domestic and foreign vendors has the key suppliers of the organization. The firm heavily invests in domestic suppliers as a means of detecting any slight changes in the consumers’ taste and fashion. The organization has also initiated a policy that ensures that no venders hold more than 10% of the supply.

Information Regarding Applicable Government Regulation

Government regulations are used to regulate various industrial operations. The United States imposes import duty to regulate the number of goods imported. Besides, the firm operates under the US Textile Labelling Rules to ensure all the industries operating in the clothing industries labels their products. Other government regulation includes the Federal Hazardous Substances Act (FHSA) to protect consumers from hazardous household goods.

Industry Risks

Just like other industries, the clothing industry faces different risks.  The recent outbreak of the virus has significantly affected the industries. Its effects can be analyzed in terms of the purchasing power of the consumers. Most of the customers have reduced purchasing power due to the loss of jobs and reduced wages. The Industry also faces the risk of harsh economic conditions and market disruptions, as most of its stores are sensitive to such risks.

Future Outlook for Industry

The future outlook of the Industry has become unpredictable due to uncertainty on the future impacts of the economic, capital, and credit market conditions of the United States and other countries in the world. The decline in consumer’ confidence in the company’s products will result in reduced sales volume. The current situations may result in the global financial crisis, which will, in turn, affect the purchasing power of the company.

Impact of Economic Conditions in Specific Industries That Will Have Influence On Entity

The impact of the harsh economic conditions experienced by other firms directly or indirectly related to the firm will also affect the operations of the Urban Outfitters. Such conditions may result in a reduced supply of clothing products. The harsh economic conditions resulting from increased taxation, fuel, and energy prices will also have an effect on the pricing of the products hence reduced sales volumes.

Summary of The Overall Industry Risk

In sum, Urban Outfitters is likely to experience a decline in consumer’ confidence in the company’s products, which will result in reduced sales volume. The closure of stores in different parts of the world due to the recent Coronavirus outbreak will affect the operations of the firm. Since most of the stores are sensitive to the changes in economic conditions and market disruptions, the negative economic conditions will affect its operations. The industry also faces the risk of the inability to timely identify changes in fashion since the customers’ tastes and fashion are subject to rapid change. 

References

Andrews, J. M., Farias, V. F., Khojandi, A. I., & Yan, C. M. (2019). Primal–Dual Algorithms for Order Fulfillment at Urban Outfitters, Inc. INFORMS Journal on Applied Analytics, 49(5), 355-370.

Getachew, S. (2017). Unicolors, Inc. v. Urban Outfitters, Inc. 853 F. 3D 980 Fed. Cir. 2017. Intell. Prop. & Tech. LJ, 22, 97.

Serfontein, P. (2020). Will Urban Outfitters’ gradual price action continue?-offshore: marketplace-share view. finweek, 2020(5 March), 23-23.

Westney, A. (2016). Navajo Nation, Urban Outfitters Settle Trademark Dispute.

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