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TheStreet Open House

American Eagle Outfitters Reports Second Quarter 2013 Results

Stocks in this article: AEO

American Eagle Outfitters, Inc. (NYSE:AEO) today reported earnings of $0.10 per diluted share for the second quarter ended August 3, 2013, compared to earnings from continuing operations of $0.21 per diluted share in the comparable quarter last year.

Robert Hanson, Chief Executive Officer, stated, “Our second quarter results reflected disappointing product execution in women’s. Additionally, we faced a highly promotional and competitive retail landscape and a decline in traffic, which have continued into the third quarter. We are working hard to strengthen our assortments, marketing efforts and overall execution, while maintaining tight inventories and disciplined expense management. Although extremely disappointed with our results, I’m confident in the strength of our brands, our strategic initiatives including, factory stores, aerie, omni-channel and international, as well as the team’s resolve to regain momentum and improve our bottom line performance.”

Second Quarter 2013 Non-GAAP ResultsThe following discussion is based on Non-GAAP results for the comparable quarter last year, as presented in the accompanying GAAP to Non-GAAP reconciliations.

  • Total net revenue decreased 2% to $727 million, compared to $740 million last year.
  • Consolidated comparable sales, including AEO Direct, decreased 7%, compared to an 8% increase last year. Second quarter 2013 comparable sales are compared to the 13 weeks ended August 4, 2012.
  • Gross profit decreased 11% to $245 million and, as a rate to revenue, decreased 360 basis points to 33.8%. The decline is primarily the result of higher markdowns and the deleverage of rent on negative comps.
  • Selling, general and administrative expense of $186 million increased 5% from last year and deleveraged 160 basis points to 25.6% as a rate to revenue.
  • Operating income decreased 56% to $29 million, resulting in a rate of 4.1% compared to 9.1% last year.
  • EPS of $0.10 compared to adjusted EPS from continuing operations of $0.21 last year, a 52% decrease.

InventoryTotal merchandise inventory at the end of the second quarter declined slightly to $461 million compared to $462 million last year. At cost per foot, inventory decreased 1%.

Capital ExpendituresIn the second quarter, capital expenditures totaled $78 million. Due to the retiming of projects, the company now expects capital expenditures of $230 to $250 million for fiscal 2013. This compares to previous expectations of $250 to $280 million. The capital spending plan includes new store growth, remodels, a new distribution center to support omni-channel growth and the implementation of new and upgraded technology.

Real EstateIn the second quarter, total square footage increased 1% from last year. The company opened 26 new stores, including 18 factory stores, and closed 7 locations, including 6 aerie stores. As a result of the terminated licensed agreement previously announced, the company assumed operation of 6 existing stores in Hong Kong and China. Additionally, the company had 57 international franchise locations in 12 countries. For additional second quarter 2013 actual and fiscal 2013 projected real estate information, see the accompanying table.

Cash and InvestmentsThe company ended the quarter with total cash and short-term investments of $405 million compared to $702 million last year. The reduction in cash reflects share repurchases of $33 million in the first quarter of 2013 and $174 million in the fourth quarter of 2012. In addition to regular quarterly dividends, the company paid a special cash dividend of $1.50 per share in the third quarter of 2012 for $296 million.

Third Quarter OutlookManagement is issuing third quarter EPS guidance of $0.14 to $0.16 per diluted share, based on a mid- to high-single digit decline in comparable sales. This compares to EPS from continuing operations of $0.41 last year.

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.

Non-GAAP MeasuresThis 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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