American Eagle Outfitters Reports Third Quarter 2013 Results

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.

* * * *

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 the United States, Canada, Mexico, China, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 62 licensed 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 fourth 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)
   
November 2, February 2, October 27,
2013 2013 2012
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 354,284 $ 509,119 $ 544,683
Short-term investments 2,930 121,873 -
Merchandise inventory 518,904 332,452 481,208
Assets held for sale 4,666 9,499 9,682
Accounts receivable 59,277 46,321 47,432
Prepaid expenses and other 107,292 73,805 65,326
Deferred income taxes 46,510   58,230   59,203  
Total current assets 1,093,863   1,151,299   1,207,534  
Property and equipment, net 630,206 500,134 527,376
Intangible assets, net 44,427 38,136 38,459
Goodwill 13,792 11,484 11,492
Non-current deferred income taxes 19,086 31,282 23,199
Other assets 38,712   23,718   25,073  
Total Assets $ 1,840,086   $ 1,756,053   $ 1,833,133  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 353,228 $ 176,874 $ 213,197
Accrued compensation and payroll taxes 32,522 65,533 51,992
Accrued rent 75,680 77,873 76,769
Accrued income and other taxes 9,002 29,155 38,133
Unredeemed gift cards and gift certificates 24,689 46,458 23,089
Current portion of deferred lease credits 13,954 13,381 13,886
Other current liabilities and accrued expenses 29,382   26,628   26,432  
Total current liabilities 538,457   435,902   443,498  
Deferred lease credits 65,004 59,571 63,220
Non-current accrued income taxes 20,777 19,011 27,110
Other non-current liabilities 23,139   20,382   15,734  
Total non-current liabilities 108,920   98,964   106,064  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 577,108 627,065 599,343
Accumulated other comprehensive income 23,483 29,297 29,179
Retained earnings 1,587,320 1,553,058 1,522,805
Treasury stock (997,698 ) (990,729 ) (870,252 )
Total stockholders' equity 1,192,709   1,221,187   1,283,571  
Total Liabilities and Stockholders' Equity $ 1,840,086   $ 1,756,053   $ 1,833,133  
 
Current Ratio 2.03 2.64 2.72
 
             
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
GAAP Basis
13 Weeks Ended
November 2, % of October 27, % of
2013   Revenue     2012   Revenue
 
Total net revenue $ 857,305 100.0 % $ 910,374 100.0 %

Cost of sales, including certain buying, occupancy and warehousing expenses
558,430   65.1 % 531,284     58.4 %
Gross profit 298,875 34.9 % 379,090 41.6 %
Selling, general and administrative expenses 205,725 24.0 % 219,128 24.1 %
Loss on impairment of assets 19,316 2.3 %

-
0.0 %
Depreciation and amortization 31,998   3.8 % 31,421     3.4 %
Operating income 41,836 4.8 % 128,541 14.1 %
Other income, net 520   0.1 % 2,822     0.3 %
Income before income taxes 42,356 4.9 % 131,363 14.4 %
Provision for income taxes 17,453   2.0 % 48,922     5.4 %
Income from continuing operations 24,903 2.9 % 82,441 9.0 %
Loss from discontinued operations, net of tax -   0.0 % (3,833 )   -0.4 %
Net income $ 24,903   2.9 % $ 78,608     8.6 %
 
Basic income per common share:
Income from continuing operations $ 0.13 $ 0.42
Loss from discontinued operations 0.00 (0.02 )
Net income per basic share $ 0.13 $ 0.40  
 
Diluted income per common share:
Income from continuing operations $ 0.13 $ 0.41
Loss from discontinued operations 0.00 (0.02 )
Net income per diluted share $ 0.13 $ 0.39  
 

Weighted average common shares outstanding - basic
192,818 197,173

Weighted average common shares outstanding - diluted
194,612 201,967
 
GAAP Basis
39 Weeks Ended
November 2, % of October 27, % of
2013   Revenue     2012   Revenue
 
Total net revenue $ 2,264,095 100.0 % $ 2,358,749 100.0 %

Cost of sales, including certain buying, occupancy and warehousing expenses
1,456,116   64.3 % 1,428,182     60.5 %
Gross profit 807,979 35.7 % 930,567 39.5 %
Selling, general and administrative expenses 574,314 25.4 % 579,350 24.6 %
Loss on impairment of assets 19,316 0.8 % 442 0.0 %
Depreciation and amortization 97,271   4.3 % 96,130     4.1 %
Operating income 117,078 5.2 % 254,645 10.8 %
Other income, net 987   0.0 % 5,986     0.3 %
Income before income taxes 118,065 5.2 % 260,631 11.1 %
Provision for income taxes 45,592   2.0 % 91,309     3.9 %
Income from continuing operations 72,473 3.2 % 169,322 7.2 %
Loss from discontinued operations, net of tax -   0.0 % (31,990 )   -1.4 %
Net income $ 72,473   3.2 % $ 137,332     5.8 %
 
Basic income per common share:
Income from continuing operations $ 0.38 $ 0.86
Loss from discontinued operations - (0.16 )
Net income per basic share $ 0.38 $ 0.70  
 
Diluted income per common share:
Income from continuing operations $ 0.37 $ 0.85
Loss from discontinued operations - (0.16 )
Net income per diluted share $ 0.37 $ 0.69  
 

Weighted average common shares outstanding - basic
192,753 196,177

Weighted average common shares outstanding - diluted
195,021 200,041
 
               
 
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

November 2, 2013

American Eagle Outfitters, Inc.(GAAP Basis)
 

DistributionCenter Charges (1)
 

American Eagle Outfitters, Inc.(Non-GAAP Basis)
% of % of
      Sales           Sales
 
Net sales $ 857,305 100.0 % $ - $ 857,305 100.0 %
Cost of sales, including certain buying, occupancy and warehousing expenses 558,430   65.1 %   -     558,430   65.1 %
Gross profit 298,875 34.9 % - 298,875 34.9 %
Selling, general and administrative expenses 205,725 24.0 % - 205,725 24.0 %
Loss on impairment 19,316 2.3 % 19,316 - 0.0 %
Depreciation and amortization   31,998   3.8 %   -     31,998   3.8 %
Operating income (loss) 41,836 4.8 % (19,316 ) 61,152 7.1 %
Other income, net   520   0.1 %   -     520   0.1 %
Income (loss) before income taxes 42,356 4.9 % (19,316 ) 61,672 7.2 %
Provision (benefit) for income taxes   17,453   2.0 %   (7,398 )   24,851   2.9 %
Net income (loss) 24,903 2.9 % (11,918 ) 36,821 4.3 %
 
Basic income per common share $ 0.13 $ (0.06 ) $ 0.19
 
Diluted income per common share $ 0.13 $ (0.06 ) $ 0.19
 

Weighted average common shares outstanding - basic
192,818 192,818 192,818

Weighted average common shares outstanding - diluted
194,612 194,612 194,612
 

(1)
    Non-GAAP Items consist of $19.3 million of pre-tax asset impairments related to the Warrendale Distribution Center.
 
         
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
Third Quarter

Comparable Sales
2013 (1) 2012
American Eagle Outfitters, Inc. (3) -5% 10%
 
AE Total Brand (3) -5% 10%
aerie Total Brand (3) -3% 7%
AEO Direct 17% 26%
 
 
YTD Third Quarter

Comparable Store Sales

2013 (2)
2012
American Eagle Outfitters, Inc. (3) -6% 11%
 
AE Total Brand (3) -6% 11%
aerie Total Brand (3) -1% 15%
AEO Direct 17% 25%
 

(1)
   

Third quarter 2013 comp sales are compared to the sales for the 13 weeks ended November 3, 2012.

(2)

YTD second quarter 2013 comp sales are compared to the sales for the 39 weeks ended November 3, 2012.

(3)

AEO Direct is included in consolidated and total brand comparable sales.
 
               
 
AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
 
Third Quarter YTD

Third Quarter
Fiscal 2013
2013 2013 Guidance
Consolidated stores at beginning of period 1,056 1,044 1,044
Consolidated stores opened during the period
AE Brand (2) 13 46 60 - 65
Consolidated stores closed during the period
AE Brand (2) (7) (15) - (20)
aerie (3)     (19)     (25) - (30)
Total consolidated stores at end of period 1,064 1,064 1054 - 1069
 
Stores remodeled and refurbished during the period 12 54 50 - 65
Total gross square footage at end of period 6,455,497 6,455,497 Not Provided
 

International franchise stores at end of period (1)
61 61 66
 

(1)
   

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

(2)

YTD and Fiscal 2013 Guidance 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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