American Eagle Outfitters Reports Second Quarter 2014 Results

PITTSBURGH--()--American Eagle Outfitters, Inc. (NYSE:AEO) today reported earnings of $0.03 per diluted share for the second quarter ended August 2, 2014, compared to earnings of $0.10 per diluted share for the comparable quarter last year.

Jay Schottenstein, Interim CEO, commented, “Although the second quarter results were slightly ahead of our expectations, they do not reflect our potential. We did, however make significant progress on our priorities to build a sustainable path to higher profitability. We successfully cleared through spring and summer merchandise and entered the second half of the year in a good inventory position. We made progress on merchandise improvements, which will ramp up through the holiday season. The teams also continued to implement omni-channel initiatives and strengthen the customer experience. We remain vigilant on expense management, while pursuing strategic initiatives crucial to our future success. We are confident that these efforts will position AEO to achieve stronger operating results and deliver increasing shareholder value.”

Second Quarter 2014 Results

  • Total net revenue decreased 2% to $711 million from $727 million last year. Revenue from new store growth nearly offset the decline in comparable sales.
  • Consolidated comparable sales decreased 7%, following a 7% decrease last year.
  • Gross profit decreased 3% to $238 million and declined 40 basis points to 33.4% as a rate to revenue. Gross margin reflected the de-leverage of buying, occupancy and warehousing costs on negative comparable sales, which was largely offset by favorability in merchandise and design costs and a slight improvement in the markdown rate.
  • Selling, general and administrative expense of $190 million increased 2% or $3.7 million. As a rate to revenue, SG&A increased 110 basis points to 26.7%. Investments in advertising, international growth, factory stores and omni-channel initiatives drove the increase, and were partially offset by reductions in overhead and variable expenses.
  • Operating income decreased 59% to $12 million. The operating margin decreased 240 basis points to 1.7%.
  • EPS of $0.03 compares to EPS of $0.10 last year.

Inventory

Total merchandise inventories at the end of the second quarter declined 15% to $393 million compared to $461 million last year. At cost per foot, inventory decreased 18%. Inventories reflect a change to ownership terms completed late last year, as we began taking ownership of inventory at the receiving port rather than the port of departure. Excluding the change in terms, inventory at cost per foot decreased in the mid single-digits. Clearance units were well below last year. Third quarter 2014 ending inventory at cost per foot is expected to decline in the low double-digits, or mid single-digits excluding the change in ownership terms.

Capital Expenditures

In the second quarter, capital expenditures totaled $74 million. For fiscal 2014, the company continues to expect capital expenditures of approximately $230 million, primarily related to new and remodeled stores, the Hazleton distribution center and information technology. In 2015, capital spending is expected to be approximately $150 million.

Real Estate

In the quarter, the company opened 20 new stores consisting of the following:

  • 5 new North American mainline stores opened in underpenetrated markets,
  • 10 Factory stores, and
  • 3 stores in Mexico and 2 stores in China.

The company closed 5 locations, including 2 aerie stores. Additionally, the company added 7 international licensed stores and ended the quarter with 84 licensed stores in 13 countries. For 2014, the company is planning to close approximately 50 AE and 25 aerie stores in North America. For additional second quarter 2014 actual and fiscal 2014 projected real estate information, see the accompanying table.

Cash and Investments

The company ended the quarter with total cash and investments of $263 million compared to $405 million last year.

Third Quarter Outlook

Based on a mid single-digit decline in comparable sales, management expects third quarter EPS to be approximately $0.17 to $0.19 compared to adjusted earnings of $0.19 per diluted share last year. The guidance excludes potential asset impairment and restructuring charges.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at 11:00 a.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to http://investors.ae.com to access the webcast and audio replay. Also, a financial results presentation is posted on the company’s website.

Non-GAAP Measures

This press release includes information on non-GAAP financial measures (“non-GAAP” or “adjusted”), including earnings per share information and the consolidated results of operations excluding non-GAAP items. These financial measures are not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and are 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. These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company’s business and operations.

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About American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle Outfitters® and Aerie® brands. The company operates more than 1,000 stores in the United States, Canada, Mexico, China, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 86 licensed international franchise stores in 13 countries. For more information, please visit www.ae.com.

"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, including regarding third quarter 2014 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)
 
 
August 2, February 1, August 3,
2014 2014 2013
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 262,628 $ 418,933 $ 345,188
Short-term investments - 10,002 59,678
Merchandise inventory 393,316 291,541 461,080
Accounts receivable 47,028 73,882 45,965
Prepaid expenses and other 86,055 83,724 115,595
Deferred income taxes 41,646   45,478   41,807  
Total current assets 830,673   923,560   1,069,313  
Property and equipment, net 732,834 637,417 598,548
Intangible assets, net 48,510 49,271 44,658
Goodwill 13,616 13,530 13,814
Non-current deferred income taxes 13,534 24,835 25,441
Other assets 40,894   45,551   28,311  
Total Assets $ 1,680,061   $ 1,694,164   $ 1,780,085  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 254,802 $ 203,872 $ 292,120
Accrued compensation and payroll taxes 25,917 23,560 20,496
Accrued rent 75,649 76,397 74,052
Accrued income and other taxes 6,225 5,778 9,614
Unredeemed gift cards and gift certificates 29,092 47,194 26,389
Current portion of deferred lease credits 13,635 13,293 14,104
Other current liabilities and accrued expenses 34,469   45,384   28,024  
Total current liabilities 439,789   415,478   464,799  
Deferred lease credits 62,779 59,510 67,461
Non-current accrued income taxes 11,089 16,543 19,722
Other non-current liabilities 32,557   36,455   24,430  
Total non-current liabilities 106,425   112,508   111,613  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 559,694 573,008 587,905
Accumulated other comprehensive income 15,949 12,157 24,397
Retained earnings 1,522,856 1,569,851 1,588,094
Treasury stock (967,148 ) (991,334 ) (999,219 )
Total stockholders' equity 1,133,847   1,166,178   1,203,673  
Total Liabilities and Stockholders' Equity $ 1,680,061   $ 1,694,164   $ 1,780,085  
 
Current Ratio 1.89 2.22 2.30
 
             
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
August 2, % of August 3, % of
2014   Revenue     2013   Revenue
 
Total net revenue $ 710,595 100.0 % $ 727,313 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 473,048   66.6 % 481,818   66.2 %
Gross profit 237,547 33.4 % 245,495 33.8 %
Selling, general and administrative expenses 190,078 26.7 % 186,336 25.6 %
Depreciation and amortization 35,422   5.0 % 29,734   4.1 %
Operating income 12,047 1.7 % 29,425 4.1 %
Other income, net 850   0.1 % 1,149   0.1 %
Income before income taxes 12,897 1.8 % 30,574 4.2 %
Provision for income taxes 7,084   1.0 % 10,980   1.5 %
Net income $ 5,813   0.8 % $ 19,594   2.7 %
 
Net income per basic share $ 0.03 $ 0.10
 
Net income per diluted share $ 0.03 $ 0.10
 

Weighted average common shares outstanding - basic

194,511 192,731

Weighted average common shares outstanding - diluted

194,747 195,951
 
 
26 Weeks Ended
August 2, % of August 3, % of
2014   Revenue     2013   Revenue
 
Total net revenue $ 1,356,724 100.0 % $ 1,406,790 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 893,332   65.8 % 897,686   63.8 %
Gross profit 463,392 34.2 % 509,104 36.2 %
Selling, general and administrative expenses 375,136 27.7 % 368,589 26.2 %
Depreciation and amortization 67,784   5.0 % 65,273   4.6 %
Operating income 20,472 1.5 % 75,242 5.4 %
Other income, net 1,536   0.1 % 467   0.0 %
Income before income taxes 22,008 1.6 % 75,709 5.4 %
Provision for income taxes 12,329   0.9 % 28,139   2.0 %
Net income $ 9,679   0.7 % $ 47,570   3.4 %
 
Net income per basic share $ 0.05 $ 0.25
 
Net income per diluted share $ 0.05 $ 0.24
 

Weighted average common shares outstanding - basic

194,285 192,720

Weighted average common shares outstanding - diluted

194,751 196,451
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP to Non-GAAP EPS reconciliation
(unaudited)
 
 

13 Weeks Ended
November 2, 2013

 
GAAP Diluted EPS

$

0.13

 

Add back: Non-cash asset impairment charges, net of tax (1)   0.06
Non-GAAP Diluted EPS $ 0.19
 
(1) Non-GAAP adjustments consist of $19.3 million of pre-tax asset impairments ($11.9 million after-tax) related to the Warrendale Distribution Center.
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
 

Second Quarter
Comparable Sales

2014 2013
American Eagle Outfitters, Inc. (1) -7 % -7 %
 
AE Total Brand (1) -8 % -8 %
aerie Total Brand (1) 9 % -2 %
 
 

YTD Second Quarter
Comparable Store Sales

2014 2013
American Eagle Outfitters, Inc. (1) -9 % -6 %
 
AE Total Brand (1) -9 % -7 %
aerie Total Brand (1) 2 % 1 %
 
(1) AEO Direct is included in consolidated and total brand comparable sales.
 
               
 
AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
 
 
Second Quarter

YTD
Second Quarter

Fiscal 2014
Fiscal 2014 Fiscal 2014 Guidance
Consolidated stores at beginning of period 1,057 1,066 1,066
Consolidated stores opened during the period
AE Brand 20 31 50 - 60
Consolidated stores closed during the period
AE Brand (3) (9) (50)
aerie (2)     (16)     (25)
Total consolidated stores at end of period 1,072 1,072 1,041 - 1,051
 
Stores remodeled and refurbished during the period 13 35 45
Total gross square footage at end of period 6,632,056 6,632,056 Not Provided
 
International franchise stores at end of period (1) 84 84 106
 

(1) International franchise stores are not included in the consolidated store data or the total gross square footage calculation.

 

Contacts

American Eagle Outfitters, Inc.
Kristen Zaccagnini, 412-432-3300

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Contacts

American Eagle Outfitters, Inc.
Kristen Zaccagnini, 412-432-3300