American Eagle Outfitters Reports 38% Increase In First Quarter Adjusted EPS And 18% Sales Growth

American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings of $0.20 per diluted share for the first quarter ended April 28, 2012, compared to $0.14 per diluted share for the comparable quarter last year. Adjusted earnings for the quarter were $0.22 per diluted share, which excludes the operating results for 77kids, compared to adjusted earnings of $0.16 per diluted share last year. Please see the following tables for a complete reconciliation of GAAP to non-GAAP results for all periods presented.

Robert Hanson, chief executive officer stated, “I’m extremely pleased by our performance this quarter and appreciate the team’s accomplishments. We remain focused on delivering continued improvements in the near term, while fortifying our core brands and capabilities to pursue incremental profitable growth and consistent returns to shareholders.”

GAAP First Quarter Results

• Net sales increased 18% to $719 million, compared to $610 million last year.
• Comparable store sales, including AE Direct, increased 17%, compared to a 7% decrease last year.
• Gross profit increased 18% to $273 million, or 37.9% as a rate to sales, compared to $232 million, or 38.0% as a rate to sales, last year. Higher product costs, driven by the spike in cotton and incremental incentive costs, adversely affected the merchandise margin. This was offset by a 220 basis point improvement in buying, occupancy and warehousing due to strong sales.
• Selling, general and administrative expense of $183 million improved 60 basis points to 25.4%, as a rate to sales, compared to 26.0% last year.
• Operating income of $57 million increased 49%, compared to $38 million last year. The operating margin rate of 8.0% compared to 6.3% last year.
• Other income of $4 million primarily relates to a settlement recovery from auction rate securities.
• EPS of $0.20 compared to $0.14 last year, a 43% increase.

Non-GAAP First Quarter Results

The following discussion of first quarter results excludes the operating results for the 77kids brand.

• Net sales increased 18% to $709 million, compared to $603 million last year.
• Comparable store sales, including AE Direct, increased 17%, compared to a 7% decrease last year.
• Gross profit increased 18% to $275 million. The gross margin rate of 38.8% was flat to last year. Higher product costs, driven by the spike in cotton and incremental incentive costs, adversely affected the merchandise margin. This was offset by a 220 basis point improvement in buying, occupancy and warehousing due to strong sales.
• Selling general and administrative expense of $179 million improved 60 basis points to 25.2%, compared to 25.8% last year.
• Operating income increased 46% to $64 million. The operating margin expanded to 9.1% compared to 7.3% last year.
• EPS of $0.22 compared to $0.16 last year, a 38% increase.

77kids Update

On May 18, 2012, the company announced plans to exit its children’s business, 77kids, which includes 22 stores and the online business. The company is currently exploring options for the business, which include a full or partial disposition of assets to a third party.

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