American Eagle Outfitters Reports Third Quarter 2011 Results

PITTSBURGH--()--American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings for the third quarter ended October 29, 2011 of $0.27 per diluted share, compared to adjusted income from continuing operations of $0.29 per diluted share last year, which excludes a realized loss from the sale of investment securities of $0.12 per diluted share.

Jim O’Donnell, chief executive officer, said, “I am encouraged by our progress in the third quarter and the continued momentum into the holiday season. Strong top line growth is evidence of the success of our key item strategy and merchandise improvements. Looking ahead to 2012, we have tremendous opportunity to capitalize on the strength of our brands and drive future profitable growth.”

Third Quarter Results – Continuing Operations
Total sales for the quarter increased 11% to $832 million, compared to $752 million last year. Third quarter comparable store sales increased 5%, compared to a 1% increase last year. For additional comparable store sales information for the period, see the accompanying table.

Gross profit was $309 million, or 37.1% as a rate to sales, compared to $312 million, or 41.6% as a rate to sales, last year. While merchandise profit dollars increased slightly due to stronger sales, higher cotton costs and markdowns pressured the merchandise margin, which decreased 480 basis points. Buying, occupancy and warehousing costs improved 30 basis points as a rate to sales, primarily due to top line growth driven by a 5% comparable store sales increase.

Selling, general and administrative expense increased 3% to $191 million due to higher sales, new store openings and a planned investment in advertising, partially offset by continued expense savings. SG&A improved 170 basis points to 22.9% as a rate to sales, compared to 24.6% last year.

Operating income for the quarter was $83 million, compared to $91 million last year.

AEO Direct
In the third quarter, online sales reached a record third quarter high increasing 21% due to increased traffic and conversion. The company’s online business includes ae.com, aerie.com and 77kids.com.

Inventory
Total merchandise inventories at the end of the third quarter were $572 million, an increase of 35% on a cost per foot basis, compared to last year. Units per foot increased 20%, due to the company’s key item strategy and planned expansion of accessory shops to 400 stores for the holiday season. The inventory position also reflects the impact of higher product costs.

Fourth quarter average weekly inventory levels are planned similar to third quarter to support peak holiday shopping periods during November and December. As we look forward to next year, we expect the inventory increase to moderate compared to the back half of 2011.

Capital Expenditures
For the third quarter, capital expenditures were $31 million, compared to $26 million last year. Of the third quarter capital expenditures, approximately $22 million related to new and remodeled stores. The balance of the capital expenditures related to distribution center, information technology and other home office projects. For Fiscal 2011, the company expects capital expenditures to be approximately $100 million, which includes the holiday accessory expansion initiative.

Real Estate
In the third quarter, the company opened six AE and seven aerie stores. In addition, the company remodeled five stores, bringing the year-to-date total to 59. The company continues to expect fiscal 2011 total square footage to increase in the low single-digits. For additional third quarter 2011 actual and fiscal 2011 real estate information, please refer to the accompanying table.

Cash and Investments and Share Repurchases
The company ended the third quarter with total cash and investments of $482 million. During the quarter, 1.4 million shares were repurchased for a total of $15 million.

Fourth Quarter Outlook
Strong sales over Thanksgiving weekend were driven by increased traffic and conversion. Powerful unit sales growth reflected a positive customer response to the holiday assortment and planned promotions.

Regarding fourth quarter earnings, the company expects EPS to be in the range of $0.40 to $0.44 per diluted share. The guidance assumes that sales momentum continues, particularly during peak holiday shopping periods. Additionally, the company expects margin pressure related to higher cotton costs and its planned promotional strategy. For the year, SG&A dollars are expected to increase in the low single-digits.

Conference Call Information
At 9:00 a.m. Eastern Time on November 30, 2011, the company’s management team will host a conference call to review the financial results. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 five to seven minutes prior to the scheduled start time. The conference call will also be simultaneously broadcast over the Internet at www.ae.com. Anyone unable to listen to the call can access a replay beginning November 30, 2011 at 12:00 p.m. Eastern Time through December 21, 2011. To listen to the replay, dial 1-877-870-5176, or internationally dial 1-858-384-5517, and reference confirmation code 372061. An audio replay of the conference call will also be available at www.ae.com.

Non-GAAP Measures
This press release includes information on non-GAAP earnings per diluted share (“non-GAAP” or “adjusted”). This measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles ("GAAP") and is not necessarily comparable to similar measures presented by other companies. The company believes that this non-GAAP information is useful as an additional means for investors to evaluate the company's operating performance, when reviewed in conjunction with the company's GAAP financial statements. This amount is not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company's business and operations.

American Eagle Outfitters, Inc., through its subsidiaries, (“AEO, Inc.”) offers high-quality, on-trend clothing, accessories and personal care products at affordable prices. The American Eagle Outfitters® brand targets 15 to 25 year old girls and guys, with 937 stores in the U.S. and Canada and online at www.ae.com. aerie® by american eagle offers Dormwear® and intimates collections for the AE® girl, with 158 standalone stores in the U.S. and Canada and online at www.aerie.com. The latest brand, 77kids® by american eagle®, is available online at www.77kids.com, as well as at 21 stores across the nation. The 77kids brand offers “kid cool,” durable clothing and accessories for kids ages zero to 14. AE.COM®, the online home of the brands of AEO, Inc. ships to 77 countries worldwide.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements, which represent our expectations or beliefs concerning future events, specifically regarding fourth quarter results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors beyond the company's control. Such factors include, but are not limited to the risk that the company’s operating, financial and capital plans may not be achieved and the risks described in the Risk Factor Section of the company's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or implied will not be realized.

           
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
 
October 29, January 29,

October 30,

2011 2011 2010
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 380,284 $ 667,593 $ 630,775
Short-term investments 101,036 67,102 3,700
Merchandise inventory 571,751 301,208 409,509
Accounts receivable 41,138 36,721 40,346
Prepaid expenses and other 64,378 53,727 52,757
Deferred income taxes 47,254   48,059   50,910  
Total current assets 1,205,841   1,174,410   1,187,997  
Property and equipment, net 629,486 643,120 652,361
Intangible assets, net 40,088 7,485 6,694
Goodwill 11,511 11,472 11,395
Long-term investments 648 5,915 5,915
Non-current deferred income taxes 8,833 19,616 27,475
Other assets 14,045   17,980   17,287  
Total Assets $ 1,910,452   $ 1,879,998   $ 1,909,124  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 222,894 $ 167,723 $ 196,504
Accrued compensation and payroll taxes 18,677 34,954 30,289
Accrued rent 74,888 70,390 71,133
Accrued income and other taxes 19,552 32,468 11,620
Unredeemed gift cards and gift certificates 22,456 41,001 20,266
Current portion of deferred lease credits 15,512 16,203 16,465
Other current liabilities and accrued expenses 22,570   25,098   21,285  
Total current liabilities 396,549   387,837   367,562  
Deferred lease credits 74,981 78,606 81,730
Non-current accrued income taxes 38,527 38,671 36,302
Other non-current liabilities 17,853   23,813   22,246  
Total non-current liabilities 131,361   141,090   140,278  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 550,110 546,597 543,265
Accumulated other comprehensive income 29,174 28,072 26,751
Retained earnings 1,744,280 1,711,929 1,745,912
Treasury stock (943,518 ) (938,023 ) (917,140 )
Total stockholders' equity 1,382,542   1,351,071   1,401,284  
Total Liabilities and Stockholders' Equity $ 1,910,452   $ 1,879,998   $ 1,909,124  
 
Current Ratio 3.04 3.03 3.23
 
             
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
October 29, % of October 30, % of
2011   Sales 2010   Sales
 
Net sales $ 831,826 100.0 % $ 751,507 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 522,859       62.9 % 439,198     58.4 %
Gross profit 308,967 37.1 % 312,309 41.6 %
Selling, general and administrative expenses 190,583 22.9 % 185,050 24.6 %
Depreciation and amortization 35,199       4.2 % 35,804     4.8 %
Operating income 83,185 10.0 % 91,455 12.2 %
Realized loss on sale of investment securities - 0.0 % (24,201 ) -3.2 %
Other (expense) income, net (407 )     0.0 % 1,986     0.2 %
Income before income taxes 82,778 10.0 % 69,240 9.2 %
Provision for income taxes 30,351       3.7 % 36,049     4.8 %
Income from continuing operations 52,427 6.3 % 33,191 4.4 %
Loss from discontinued operations, net of tax -       0.0 % (167 )   0.0 %
Net income $ 52,427       6.3 % $ 33,024     4.4 %
 
Basic income per common share:
Income from continuing operations $ 0.27 $ 0.17
Loss from discontinued operations -     -    
Net income per basic share $ 0.27     $ 0.17    
 
Diluted income per common share:
Income from continuing operations $ 0.27 $ 0.17
Loss from discontinued operations -     -    
Net income per diluted share $ 0.27     $ 0.17    
 
Weighted average common shares
outstanding - basic 194,378 195,590
Weighted average common shares
outstanding - diluted 195,985 197,323
 
 
39 Weeks Ended
October 29, % of October 30, % of
2011   Sales 2010   Sales
 
Net sales $ 2,117,091 100.0 % $ 2,051,471 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 1,344,302       63.5 % 1,241,758     60.5 %
Gross profit 772,789 36.5 % 809,713 39.5 %
Selling, general and administrative expenses 516,173 24.4 % 519,188 25.3 %
Depreciation and amortization 105,754       5.0 % 107,378     5.3 %
Operating income 150,862 7.1 % 183,147 8.9 %
Realized loss on sale of investment securities - 0.0 % (24,426 ) -1.2 %
Other income, net 5,536       0.3 % 1,222     0.1 %
Income before income taxes 156,398 7.4 % 159,943 7.8 %
Provision for income taxes 55,977       2.7 % 65,047     3.2 %
Income from continuing operations 100,421 4.7 % 94,896 4.6 %
Loss from discontinued operations, net of tax -       0.0 % (41,287 )   -2.0 %
Net income $ 100,421       4.7 % $ 53,609     2.6 %
 
Basic income per common share:
Income from continuing operations $ 0.52 $ 0.47
Loss from discontinued operations -       (0.20 )  
Net income per basic share $ 0.52     $ 0.27    
 
Diluted income per common share:
Income from continuing operations $ 0.51 $ 0.46
Loss from discontinued operations -       (0.20 )  
Net income per diluted share $ 0.51     $ 0.26    
 
Weighted average common shares
outstanding - basic 194,659 201,678
Weighted average common shares
outstanding - diluted 196,430 203,539
 
 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP EPS RECONCILIATION
(unaudited)
 
 
13 Weeks Ended
October 30, 2010
 
GAAP diluted EPS from continuing operations $ 0.17
Add back: Realized loss on sale of investment securities   0.12  
Non-GAAP diluted EPS from continuing operations $ 0.29  
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
39 Weeks Ended
October 29, October 30,
2011 2010
Operating activities:
Net income $ 100,421 $ 53,609
Loss from discontinued operations -   41,287  
Income from continuing operations 100,421 94,896
 
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Depreciation and amortization 107,694 110,247
Share-based compensation 9,065 21,929
Provision for deferred income taxes 11,253 5,222
Tax benefit from share-based payments 293 12,848
Excess tax benefit from share-based payments (152 ) (4,265 )
Foreign currency transaction (gain) loss (277 ) 44
Net impairment loss recognized in earnings - 1,248
Realized loss on sale of investment securities - 24,426
Changes in assets and liabilities:
Merchandise inventory (270,538 ) (89,988 )
Accounts receivable (4,426 ) (7,454 )
Prepaid expenses and other (10,627 ) (4,879 )
Other assets 3,935 (677 )
Accounts payable 60,033 40,326
Unredeemed gift cards and gift certificates (18,609 ) (18,916 )
Deferred lease credits (4,354 ) (2,868 )
Accrued compensation and payroll taxes (16,297 ) (24,379 )
Accrued income and other taxes (13,036 ) (13,647 )
Accrued liabilities (2,461 ) 2,336  
Total adjustments (148,504 ) 51,553  
Net cash (used for) provided by operating activities from continuing operations $ (48,083 ) $ 146,449
Investing activities:
Capital expenditures for property and equipment (96,745 ) (65,363 )
Acquisition of intangible assets (33,886 ) (1,849 )
Purchase of available-for-sale securities (186,328 ) -
Sale of available-for-sale securities 157,994   177,472  
Net cash (used for) provided by investing activities from continuing operations $ (158,965 ) $ 110,260
Financing activities:
Payments on capital leases (2,343 ) (1,774 )
Repayment of note payable - (30,000 )
Repurchase of common stock as part of publicly announced programs (15,160 ) (192,268 )
Repurchase of common stock from employees (2,189 ) (18,024 )
Net proceeds from stock options exercised 2,680 5,762
Excess tax benefit from share-based payments 152 4,265
Cash used to net settle equity awards - (6,434 )
Cash dividends paid (64,273 ) (64,659 )
Net cash used for financing activities from continuing operations $ (81,133 ) $ (303,132 )
Effect of exchange rates on cash 872   1,553  
 
Cash flows of discontinued operations
Net cash used for operating activities - (18,309 )
Net cash used for investing activities - (6 )
Net cash used for financing activities - -
Effect of exchange rate on cash -   -  
Net cash used for discontinued operations $ -   $ (18,315 )
 
Net decrease in cash and cash equivalents $ (287,309 ) $ (63,185 )
Cash and cash equivalents - beginning of period 667,593   693,960  
Cash and cash equivalents - end of period $ 380,284   $ 630,775  
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE STORE SALES RESULTS BY BRAND
(unaudited)
 
 

Third Quarter
Comparable Store Sales

2011 2010
American Eagle Outfitters, Inc. 5% 1%
 
AE Brand 5% Flat
aerie 8% 11%
AEO Direct (1) 21% -2%
 
 

YTD Third Quarter
Comparable Store Sales

2011 2010
American Eagle Outfitters, Inc. -1% 1%
 
AE Brand -1% 1%
aerie Flat 10%
AEO Direct (1) 13% -3%
 

(1) AEO Direct is comprised of ae.com, aerie.com and 77kids.com. AEO Direct is not included in consolidated comparable store sales.

           
 
 
AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
 
   
Third Quarter YTD

Third Quarter

Fiscal 2011
Fiscal 2011 Fiscal 2011 Guidance
Consolidated stores at beginning of period 1,103 1,086 1,086
Consolidated stores opened during the period
AE Brand 6 11 11
aerie 7 10 10
77kids - 12 12
Consolidated stores closed during the period
AE Brand -   (3)   (15) - (25)
Total consolidated stores at end of period 1,116 1,116 1,094 - 1,104
 
Stores remodeled during the period 5 59 60 - 65
Total gross square footage at end of period 6,536,564 6,536,564 Not Provided
 

Contacts

American Eagle Outfitters Inc.
Judy Meehan, 412-432-3300

Contacts

American Eagle Outfitters Inc.
Judy Meehan, 412-432-3300