American Eagle Outfitters Reports Second Quarter 2013 Results

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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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 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 59 international franchise stores in 12 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 third quarter 2013 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 3, February 2, July 28,
2013 2013 2012
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 345,188 $ 509,119 $ 696,077
Short-term investments 59,678 121,873 5,995
Merchandise inventory 461,080 332,452 462,013
Assets held for sale 4,669 9,499 19,850
Accounts receivable 45,965 46,321 40,202
Prepaid expenses and other 115,595 73,805 76,584
Deferred income taxes 41,807   58,230   55,607  
Total current assets 1,073,982   1,151,299   1,356,328  
Property and equipment, net 593,879 500,134 534,886
Intangible assets, net 44,658 38,136 38,682
Goodwill 13,814 11,484 11,445
Non-current deferred income taxes 25,441 31,282 22,477
Other assets 28,311   23,718   15,064  
Total Assets $ 1,780,085   $ 1,756,053   $ 1,978,882  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 292,120 $ 176,874 $ 171,655
Accrued compensation and payroll taxes 20,496 65,533 54,168
Accrued rent 74,052 77,873 78,514
Accrued income and other taxes 9,614 29,155 15,822
Unredeemed gift cards and gift certificates 26,389 46,458 24,342
Current portion of deferred lease credits 14,104 13,381 14,679
Other current liabilities and accrued expenses 28,024   26,628   26,694  
Total current liabilities 464,799   435,902   385,874  
Deferred lease credits 67,461 59,571 69,598
Non-current accrued income taxes 19,722 19,011 26,285
Other non-current liabilities 24,430   20,382   18,711  
Total non-current liabilities 111,613   98,964   114,594  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 587,905 627,065 574,671
Accumulated other comprehensive income 24,397 29,297 28,073
Retained earnings 1,588,094 1,553,058 1,770,546
Treasury stock (999,219 ) (990,729 ) (897,372 )
Total stockholders' equity 1,203,673   1,221,187   1,478,414  
Total Liabilities and Stockholders' Equity $ 1,780,085   $ 1,756,053   $ 1,978,882  
 
Current Ratio 2.31 2.64 3.51
 
             
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
GAAP Basis
13 Weeks Ended
August 3, % of July 28, % of
2013   Revenue     2012   Revenue
 
Total net revenue $ 727,313 100.0 % $ 739,680 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 481,818   66.2 % 463,116     62.6 %
Gross profit 245,495 33.8 % 276,564 37.4 %
Selling, general and administrative expenses 186,336 25.6 % 182,125 24.6 %
Depreciation and amortization 29,734   4.1 % 32,643     4.4 %
Operating income 29,425 4.1 % 61,796 8.4 %
Other (expense) income, net 1,149   0.1 % (343 )   -0.1 %
Income before income taxes 30,574 4.2 % 61,453 8.3 %
Provision for income taxes 10,980   1.5 % 18,607     2.5 %
Income from continuing operations 19,594 2.7 % 42,846 5.8 %
Loss from discontinued operations, net of tax -   0.0 % (23,819 )   -3.2 %
Net income $ 19,594   2.7 % $ 19,027     2.6 %
 
Basic income per common share:
Income from continuing operations $ 0.10 $ 0.22
Loss from discontinued operations 0.00   (0.12 )
Net income per basic share $ 0.10 $ 0.10  
 
Diluted income per common share:
Income from continuing operations $ 0.10 $ 0.21
Loss from discontinued operations 0.00   (0.12 )
Net income per diluted share $ 0.10 $ 0.09  
 
Weighted average common shares
outstanding - basic 192,731 196,160
Weighted average common shares
outstanding - diluted 195,951 199,807
 
26 Weeks Ended
August 3, % of July 28, % of
2013   Revenue     2012   Revenue
 
Total net revenue $ 1,406,790 100.0 % $ 1,448,375 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 897,686   63.8 % 896,898     61.9 %
Gross profit 509,104 36.2 % 551,477 38.1 %
Selling, general and administrative expenses 368,589 26.2 % 360,664 24.9 %
Depreciation and amortization 65,273   4.6 % 64,709     4.5 %
Operating income 75,242 5.4 % 126,104 8.7 %
Other income, net 467   0.0 % 3,164     0.2 %
Income before income taxes 75,709 5.4 % 129,268 8.9 %
Provision for income taxes 28,139   2.0 % 42,387     2.9 %
Income from continuing operations 47,570 3.4 % 86,881 6.0 %
Loss from discontinued operations, net of tax -   0.0 % (28,157 )   -1.9 %
Net income $ 47,570   3.4 % $ 58,724     4.1 %
 
Basic income per common share:
Income from continuing operations $ 0.25 $ 0.44
Loss from discontinued operations -   (0.14 )
Net income per basic share $ 0.25 $ 0.30  
 
Diluted income per common share:
Income from continuing operations $ 0.24 $ 0.44
Loss from discontinued operations -   (0.14 )
Net income per diluted share $ 0.24 $ 0.30  
 
Weighted average common shares
outstanding - basic 192,720 195,525
Weighted average common shares
outstanding - diluted 196,451 198,329
 
                 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
13 Weeks Ended

July 28, 2012

American EagleOutfitters, Inc.(GAAP Basis)
Tax Benefits (1)

RestructuringCosts (1)

American EagleOutfitters, Inc.(Non-GAAP Basis)
% of % of
      Sales               Sales
 
Net sales $ 739,680 100.0 % $ - $ - $ 739,680 100.0 %
Cost of sales, including certain buying, occupancy and warehousing expenses 463,116     62.6 %   -     -     463,116     62.6 %
Gross profit 276,564 37.4 % - - 276,564 37.4 %
Selling, general and administrative expenses 182,125 24.6 % - 4,367 177,758 24.0 %
Depreciation and amortization   32,643     4.4 %   -     710     31,933     4.3 %
Operating income (loss) 61,796 8.4 % - (5,077 ) 66,873 9.1 %
Other (expense), net   (343 )   -0.1 %   -     -     (343 )   -0.1 %
Income (loss) before income taxes 61,453 8.3 % - (5,077 ) 66,530 9.0 %
Provision (benefit) for income taxes   18,607     2.5 %   (4,411 )   (1,882 )   24,900     3.4 %
Income (loss) from continuing operations 42,846     5.8 %   4,411     (3,195 )   41,630     5.6 %
Loss from discontinued operations, net of tax   (23,819 )   -3.2 %   -     -     (23,819 )   -3.2 %
Net income (loss) $ 19,027     2.6 % $ 4,411   $ (3,195 ) $ 17,811     2.4 %
 
Basic income per common share
Income from continuing operations $ 0.22 $ 0.03 $ (0.02 ) $ 0.21
Loss from discontinued operations $ (0.12 )   $ 0.00   $ 0.00   $ (0.12 )
Basic income per common share $ 0.10 $ 0.03 $ (0.02 ) $ 0.09
 
Diluted income per common share
Income from continuing operations $ 0.21 $ 0.02 $ (0.02 ) $ 0.21
Loss from discontinued operations $ (0.12 )   $ 0.00   $ 0.00   $ (0.12 )
Diluted income per common share $ 0.09 $ 0.02 $ (0.02 ) $ 0.09
 
Weighted average common shares
outstanding - basic 196,160 196,160 196,160 196,160
Weighted average common shares
outstanding - diluted 199,807 199,807 199,807 199,807
 

(1) Non-GAAP Items consist of $4.4 million of tax benefits from audit settlements, offset by $3.9 million of pre-tax severance and related costs and $1.2 million of pre-tax asset impairments and asset write offs.
                 
 
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 

Second QuarterComparable Sales

 

2013 (1)
2012
American Eagle Outfitters, Inc. (3) -7 % 8 %
 
AE Total Brand (3) -8 % 8 %
aerie Total Brand (3) -2 % 17 %
AEO Direct 11 % 27 %
 

YTD Second QuarterComparable Store Sales

 

2013 (2)
2012
American Eagle Outfitters, Inc. (3) -6 % 13 %
 
AE Total Brand (3) -7 % 12 %
aerie Total Brand (3) 1 % 19 %

AEO Direct (2)
17 % 24 %
 

(1) Second quarter 2013 comp sales are compared to the sales for the 13 weeks ended August 4, 2012.(2) YTD second quarter 2013 comp sales are compared to the sales for the 26 weeks ended August 4, 2012.(3) AEO Direct is included in consolidated and total brand comparable sales.
               
 
 
AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
 
Second Quarter

YTDSecond Quarter
Fiscal 2013
2013 2013 Guidance
Consolidated stores at beginning of period 1,037 1,044 1,044
Consolidated stores opened during the period
AE Brand (2) 26 33 55 - 60
Consolidated stores closed during the period
AE Brand (1) (5) (20) - (30)
aerie (6) (16) (15) - (20)
Total consolidated stores at end of period 1,056 1,056 1054 - 1064
 
Stores remodeled and refurbished during the period 20 42 50 - 65
Total gross square footage at end of period 6,373,055 6,373,055 Not Provided
 
International franchise stores at end of period (1) 57 57 66
 

(1) International franchise stores are not included in the consolidated store data or the total gross square footage calculation.(2) Includes six franchise stores in Hong Kong and China that were acquired by the company in the second quarter of 2013.

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