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TheStreet Open House

American Eagle Outfitters Reports 37% Increase In Third Quarter EPS

Stocks in this article: AEO

American Eagle Outfitters, Inc. (NYSE:AEO) today announced that income from continuing operations increased 37% to $0.41 per diluted share for the third quarter ended October 27, 2012, compared to $0.30 per diluted share for the comparable quarter last year. Due to the exit of the 77kids business, its results are presented as discontinued operations for all periods and are further discussed below. Net income for the third quarter, which includes a loss from discontinued operations, was $0.39 per diluted share, compared to $0.27 per diluted share last year.

Robert Hanson, chief executive officer stated, “Our third quarter reflected on-going business momentum, profitable sales growth, and a leading brand and product driven customer experience. We’re also pleased to see business strength carry into the fourth quarter and record results over Thanksgiving weekend. As we look forward, we are sharply focused on executing our strategy plan to drive future profitable growth and top tier shareholder returns.”

Third Quarter Results – Continuing Operations (Excluding 77kids)

  • Net sales increased 11% to a record $910 million, compared to $819 million last year.
  • Comparable store sales, including AE Direct, increased 10%, compared to a 7% increase last year.
  • Gross profit increased 21% to $379 million and increased 350 basis points to 41.6% as a rate to sales. Within gross margin, the merchandise margin improved 290 basis points primarily as a result of improved product costs and lower markdowns. Buying, occupancy and warehousing costs leveraged 60 basis points due to strong sales.
  • Selling, general and administrative expense of $219 million increased 140 basis points to 24.1% as a rate to sales. The increase related to incremental incentive compensation and variable selling expenses due to strong business results and a planned incremental investment in advertising.
  • Depreciation and amortization expense of $31 million decreased 80 basis points to 3.4% as a rate to sales.
  • Operating income increased 39% to $129 million. The operating margin expanded 290 basis points to 14.1%, the company’s best margin rate since 2008.
  • Other income of $3 million primarily relates to a settlement recovery from auction rate securities that were previously held.
  • EPS from continuing operations of $0.41 compares to $0.30 last year, a 37% increase.

77kids UpdateOn August 3, 2012, the company completed the sale of its children’s business, 77kids, which included store assets, the online business, inventory and a temporary license to use the 77kids name through January 15, 2013. In conjunction with the sale, the company incurred total year-to-date after-tax losses of approximately $32 million, which includes both operational and exit costs, of which $4 million, or $0.02 per share, was incurred in the third quarter. 77kids results are presented as discontinued operations for all periods. All prior period inventory balances for 77kids have been recorded as an asset held for sale on the company’s consolidated balance sheets.

AEO DirectIn the third quarter, online sales increased 27%, compared to a 21% increase last year. The company’s online business includes ae.com and aerie.com.

InventoryTotal merchandise inventories at the end of the third quarter were $481 million compared to $555 million last year. At cost per foot, inventory decreased 11% compared to last year. Fourth quarter ending inventory cost per foot is expected to be down in the high single-digits.

Capital ExpendituresFor the third quarter, capital expenditures were $23 million, compared to $30 million last year, bringing the year-to-date total to $71 million. For fiscal 2012, the company continues to expect capital expenditures to be approximately $100 million.

Real EstateIn the third quarter, total square footage increased slightly. The company opened four stores, closed four stores, and completed 8 remodels. For additional third quarter 2012 actual and fiscal 2012 projected real estate information, see the accompanying table.

Cash and InvestmentsThe company ended the quarter with total cash and short-term investments of $545 million, compared to $481 million last year, after dividend payments totaling $317 million.

Future OutlookFor the fourth quarter, management now expects EPS to be in the range of $0.54 to $0.56 per diluted share, compared to an adjusted EPS from continuing operations of $0.39 last year, representing growth of 38% to 44%. For the year, management expects EPS from continuing operations of $1.38 to $1.40, compared to an adjusted EPS of $0.97 last year. For the fourth quarter, EPS guidance is based on comparable store sales growth in the mid single-digits and excludes the potential impact of store impairment charges.

Conference Call and Supplemental Financial InformationToday, management will host a conference call and real time webcast at 9:00 a.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to www.ae.com to access the webcast and audio replay. Also, a financial results presentation is posted on the company’s website.

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 North America, and ships to 77 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at approximately 48 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, specifically regarding fourth quarter and fiscal 2012 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 27, January 28, October 29,
2012 2012 2011
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 544,683 $ 719,545 $ 380,284
Short-term investments - 25,499 101,036
Merchandise inventory 481,208 367,514 554,900
Assets held for sale - 10,912 16,851
Accounts receivable 47,432 40,310 41,138
Prepaid expenses and other 65,326 74,947 64,378
Deferred income taxes 59,203   48,761   47,254  
Total current assets 1,197,852   1,287,488   1,205,841  
Property and equipment, net 537,058 582,162 629,486
Intangible assets, net 38,459 39,832 40,088
Goodwill 11,492 11,469 11,511
Non-current deferred income taxes 23,199 13,467 8,833
Other assets 25,073   16,384   14,692  
Total Assets $ 1,833,133   $ 1,950,802   $ 1,910,451  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 213,197 $ 183,783 $ 222,894
Accrued compensation and payroll taxes 51,992 42,625 18,677
Accrued rent 76,769 76,921 74,888
Accrued income and other taxes 38,133 20,135 19,552
Unredeemed gift cards and gift certificates 23,089 44,970 22,456
Current portion of deferred lease credits 13,886 15,066 15,512
Other current liabilities and accrued expenses 26,432   21,901   22,570  
Total current liabilities 443,498   405,401   396,549  
Deferred lease credits 63,220 71,880 74,981
Non-current accrued income taxes 27,110 35,471 38,527
Other non-current liabilities 15,734   21,199   17,853  
Total non-current liabilities 106,064   128,550   131,361  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 599,343 552,797 550,167
Accumulated other comprehensive income 29,179 28,659 29,116
Retained earnings 1,522,805 1,771,464 1,744,280
Treasury stock (870,252 ) (938,565 ) (943,518 )
Total stockholders' equity 1,283,571   1,416,851   1,382,541  
Total Liabilities and Stockholders' Equity $ 1,833,133   $ 1,950,802   $ 1,910,451  
 
Current Ratio 2.70 3.18 3.04
 
               
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
October 27, % of October 29, % of
2012   Sales       2011   Sales
 
Net sales $ 910,374 100.0 % $ 819,419 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 531,284     58.4 % 507,164     61.9 %
Gross profit 379,090 41.6 % 312,255 38.1 %
Selling, general and administrative expenses 219,128 24.1 % 185,687 22.7 %
Depreciation and amortization 31,421     3.4 % 34,415     4.2 %
Operating income 128,541 14.1 % 92,153 11.2 %
Other income (expense), net 2,822     0.3 % (407 )   0.0 %
Income before income taxes 131,363 14.4 % 91,746 11.2 %
Provision for income taxes 48,922     5.4 % 33,795     4.1 %
Income from continuing operations 82,441 9.0 % 57,951 7.1 %
Loss from discontinued operations, net of tax (3,833 )   -0.4 % (5,524 )   -0.7 %
Net income $ 78,608     8.6 % $ 52,427     6.4 %
 
Basic income per common share:
Income from continuing operations $ 0.42 $ 0.30
Loss from discontinued operations (0.02 )     (0.03 )  
Net income per basic share $ 0.40     $ 0.27    
 
Diluted income per common share:
Income from continuing operations $ 0.41 $ 0.30
Loss from discontinued operations (0.02 )     (0.03 )  
Net income per diluted share $ 0.39     $ 0.27    
 
Weighted average common shares
outstanding - basic 197,173 194,378
Weighted average common shares
outstanding - diluted 201,967 195,985
 
 
39 Weeks Ended
October 27, % of October 29, % of
2012   Sales       2011   Sales
 
Net sales $ 2,358,749 100.0 % $ 2,091,623 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 1,428,182     60.5 % 1,309,371     62.6 %
Gross profit 930,567 39.5 % 782,252 37.4 %
Selling, general and administrative expenses 579,792 24.6 % 504,052 24.1 %
Depreciation and amortization 96,130     4.1 % 103,848     5.0 %
Operating income 254,645 10.8 % 174,352 8.3 %
Other income, net 5,986     0.3 % 5,536     0.3 %
Income before income taxes 260,631 11.1 % 179,888 8.6 %
Provision for income taxes 91,309     3.9 % 64,974     3.1 %
Income from continuing operations 169,322 7.2 % 114,914 5.5 %
Loss from discontinued operations, net of tax (31,990 )   -1.4 % (14,493 )   -0.7 %
Net income $ 137,332     5.8 % $ 100,421     4.8 %
 
Basic income per common share:
Income from continuing operations $ 0.86 $ 0.59
Loss from discontinued operations (0.16 )     (0.07 )  
Net income per basic share $ 0.70     $ 0.52    
 
Diluted income per common share:
Income from continuing operations $ 0.85 $ 0.58
Loss from discontinued operations (0.16 )     (0.07 )  
Net income per diluted share $ 0.69     $ 0.51    
 
Weighted average common shares
outstanding - basic 196,177 194,659
Weighted average common shares
outstanding - diluted 200,041 196,430
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
 
39 Weeks Ended
October 27, October 29,
2012 2011
Operating activities:
Net income $ 137,332 $ 100,421
Loss from discontinued operations 31,990   14,493  
Income from continuing operations 169,322 114,914
Adjustments to reconcile income from continuing operations to net cash from operating activities of continuing operations:
Depreciation and amortization 97,720 105,787
Share-based compensation 45,458 8,591
Provision for deferred income taxes (21,233 ) 11,252
Tax benefit from share-based payments 5,072 293
Excess tax benefit from share-based payments (4,365 ) (152 )
Foreign currency transaction loss (gain) 24 (277 )
Loss on impairment of assets 449 -
Changes in assets and liabilities:
Merchandise inventory (113,509 ) (261,138 )
Accounts receivable (7,735 ) (3,209 )
Prepaid expenses and other 8,896 (10,398 )
Other assets (9,574 ) 3,936
Accounts payable 36,713 56,569
Unredeemed gift cards and gift certificates (21,908 ) (18,607 )
Deferred lease credits (6,896 ) (5,714 )
Accrued compensation and payroll taxes 9,461 (16,329 )
Accrued income and other taxes 9,642 (12,105 )
Accrued liabilities 13,280   7,560  
Total adjustments 41,495   (133,941 )
Net cash provided by (used for) operating activities from continuing operations $ 210,817 $ (19,027 )
Investing activities:
Capital expenditures for property and equipment (71,223 ) (86,228 )
Acquisition of intangible assets (958 ) (33,886 )
Purchase of available-for-sale securities (10,069 ) (186,328 )
Sale of available-for-sale securities 36,415   157,994  
Net cash used for investing activities from continuing operations $ (45,835 ) $ (148,448 )
Financing activities:
Payments on capital leases (2,515 ) (2,343 )
Repurchase of common stock as part of publicly announced programs - (15,160 )
Repurchase of common stock from employees (4,125 ) (2,189 )
Net proceeds from stock options exercised 43,914 2,680
Excess tax benefit from share-based payments 4,365 152
Cash dividends paid (360,498 ) (64,273 )
Net cash used for financing activities from continuing operations $ (318,859 ) $ (81,133 )
Effect of exchange rates on cash 264   872  
 
Cash flows of discontinued operations
Net cash used for operating activities (20,481 ) (29,056 )
Net cash used for investing activities (768 ) (10,517 )
Net cash used for financing activities - -
Effect of exchange rate on cash -   -  
Net cash used for discontinued operations $ (21,249 ) $ (39,573 )
 
Net decrease in cash and cash equivalents $ (174,862 ) $ (287,309 )
Cash and cash equivalents - beginning of period 719,545   667,593  
Cash and cash equivalents - end of period $ 544,683   $ 380,284  
 
 
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE STORE SALES RESULTS BY BRAND
(unaudited)
 
           

Third Quarter Comparable Store Sales (1)

2012   2011
American Eagle Outfitters, Inc. (2) 10% 7%
 
AE Brand 8% 5%
aerie 5% 8%
AEO Direct (2) 27% 21%
 

YTD Third Quarter Comparable Store Sales (1)

2012 2011
American Eagle Outfitters, Inc. (2) 12% 1%
 
AE Brand 10% -1%
aerie 12% Flat
AEO Direct (2) 26% 13%
 

(1)

   

Comparable store sales are from continuing operations and exclude 77kids.

(2)

AEO Direct is comprised of ae.com and aerie.com. AEO Direct is included in consolidated comparable store sales.

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

YTD Third Quarter

Fiscal 2012
Fiscal 2012 Fiscal 2012 Guidance
Consolidated stores at beginning of period (1) 1,063 1,069 1,069
Consolidated stores opened during the period
AE Brand 4 13 16
Consolidated stores closed during the period
AE Brand (3) (15) (25) - (30)
aerie (1)     (4)     (5) - (10)
Total consolidated stores at end of period 1,063 1,063 1045 - 1055
 
Stores remodeled and refurbished during the period 8 46 48 - 50
Total gross square footage at end of period 6,300,662 6,300,662 Not Provided
 
International franchise stores at end of period (2) 44 44 49
 

(1)

 

Consolidated store data and total gross square footage exclude all 77kids store locations.

(2)

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

 




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