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American Eagle Outfitters, Inc. (NYSE:AEO) today reported adjusted earnings of $0.19 per diluted share for the third quarter ended November 2, 2013, compared to earnings from continuing operations of $0.41 per diluted share for the third quarter ended October 27, 2012. GAAP earnings of $0.13 per diluted share include non-cash charges of ($0.06) per diluted share associated with the company’s previously disclosed plans to close its Warrendale, PA distribution center upon the opening of its new facility in Hazleton, PA.
Robert Hanson, CEO stated, “Our financial performance is clearly unsatisfactory and not consistent with our objectives. As we continue to navigate through an intensely promotional North American retail landscape, we are making improvements in merchandising and marketing, while aggressively pursuing efficiency gains, expense reductions and ensuring disciplined inventory management. We are continuing to invest in important areas of growth including omni-channel, global expansion and factory stores -- all high-return segments, which diversify our business and will be key drivers of our future growth and success.”
Third Quarter 2013 Non-GAAP ResultsThe following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.
Total net revenue of $857 million decreased 6% compared to $910 million last year. On comparable weeks, total revenue would have decreased in the low single-digits.
Consolidated comparable sales, including AEO Direct, decreased 5%, compared to a 10% increase last year. Third quarter 2013 comparable sales are compared to the 13 weeks ended November 3, 2012.
Gross profit decreased 21% to $299 million and 670 basis points to 34.9% of revenue, primarily as the result of higher promotional activity and the deleverage of rent on negative comparable sales.
Selling, general and administrative expense of $206 million decreased 6% from last year and leveraged 10 basis points to 24.0% as a rate to revenue. Lower incentive compensation and travel costs contributed to the improvement.
Operating income decreased 52% to $61 million, resulting in a rate of 7.1% compared to 14.1% last year.
Adjusted EPS of $0.19 compared to EPS from continuing operations of $0.41 last year, a 54% decline.
InventoryTotal merchandise inventory at the end of the third quarter increased to $519 million compared to $481 million last year. At cost per foot, inventory increased 6% against an 11% decline last year, which reflects the impact of timing shifts of merchandise receipts due to the 53
rd week last year. On comparable weeks, inventory at cost per foot would have increased in the low single-digits.
Capital ExpendituresIn third quarter 2013, capital expenditures totaled $93 million. The company expects capital expenditures of $250 million for fiscal 2013. The capital spending plan includes new store growth, store remodels, a new distribution center to support omni-channel growth and the implementation of new and upgraded technology.
Real EstateIn the third quarter, total square footage increased 2% from last year. The company opened 13 new stores, including 6 factory stores, and closed 5 locations, including 3 aerie stores. Additionally, the company had 61 international franchise locations in 12 countries. For additional third 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 investments of $367 million compared to $545 million last year.
Fourth Quarter OutlookManagement is issuing fourth quarter earnings guidance of $0.26 to $0.30 per diluted share, based on a mid single-digit decline in comparable sales. Guidance excludes potential asset impairment and restructuring charges. This compares to adjusted EPS of $0.55 last year, which excludes a tax benefit of $0.04 per share and restructuring and store impairment charges of ($0.12) per share.
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 certain 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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