Even with most of its brick and mortar stores reopened and selling clothes, Urban Outfitters has been working to keep a lower inventory of products in its stores and distribution centers, CFO Frank Conforti told the Wall Street Journal.
Amid a summer of shuttered storefronts, the Philadelphia-based retailer's net sales decreased to $803.3 million, down 16.5% from the same period last year. However, even though the six months ended July 31 saw a net loss of $104 million, the three months ended saw a net income of $34 million, according to its August 25 earnings report.
"[Parent company] URBN produced solid revenues and profits for the second quarter driven by strength in the digital channel," CEO Richard Hayne said in the report. "Notably, all brands were profitable and [are entering] the fall selling season with lean inventories and positive momentum."
Urban Outfitters' recent spike in profitability comes as a welcome upswing for the retailer that, in March, said it would be unable to make its rent payments.
In practice, the "lean inventories" Hayne mentioned refers to ordering fewer items from suppliers than are expected to sell. Decreasing inventory is "key to protecting the company's finances" and "reducing the amount of cash trapped in operations," Conforti told the Journal.
As in-store and online sales expectedly plummeted, inventory also dropped by a fifth. But while the company orders less from its suppliers, it must also ensure a steady stream of its highest-demand products, which include active wear and home decoration, the Journal said.
But, as some of its factories closed their doors amid the lockdown mandates, Urban Outfitters faced a dried-up supply chain and empty shelves. So the company, which works with over 2,000 global suppliers, pivoted to work with other factories that had remained open.
The breadth of the company's portfolio, which includes brands Anthropologie and Free People, made the pivot a difficult undertaking.
"One of the most complex things we've been managing throughout the pandemic is just managing the sourcing network," Conforti said.
"This period was extremely hard for retailers to manage inventory, especially for Urban with their three brands," Jen Redding, an analyst at financial-services firm Wedbush Securities, told the Journal.
As CFO, Conforti relies on a handful of KPIs to guide his decision-making, including metrics on supply by brand, channel and category. He studies each of these "at least once a week," he said.
While inventory management will often fall to another member of a company's executive team, CFOs tend to focus on working capital like receivables and payables. But retailer finance chiefs tend to be more hands-on, associate principal at advisory firm Hackett Group Josh Nelson told the Journal.
"A savvy CFO will be much more involved with setting targets and keeping on top of the supply chain team to make sure that they don't go overboard with inventory coverage," he said.
Representatives for URBN, parent company of Urban Outfitters, and for Conforti did not immediately respond to requests for comment.