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American Eagle Outfitters Reports Strong Third Quarter Sales and EPS Growth

December 02, 2015

Comparable Sales Increase 9% and EPS Rises 59% to $0.35

PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS from continuing operations of $0.35 for the third quarter ended October 31, 2015, a 59% increase from adjusted EPS of $0.22 for the comparable quarter last year. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, chief executive officer commented, “We are extremely pleased with our third quarter results. Both the American Eagle and Aerie brands performed exceptionally well, delivering increased sales and profitability. It is gratifying to see positive momentum, which speaks volumes to the strength of our teams, brands and operations.”

“The holiday season is off to a solid start, and we are optimistic as we look ahead. We will continue executing on our priorities to further strengthen and grow our business, while delivering returns to shareholders,” he continued.

Third Quarter 2015 Results

The following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.

  • Total net revenue increased 8% to a record $919 million from $854 million last year.
  • Consolidated comparable sales increased 9%, compared to a 5% decrease last year.
  • Gross profit increased 17% to $368 million and the gross margin rate leveraged 310 basis points to 40.0%. Approximately 250 basis points of margin improvement was due to lower markdowns as the company continued to reduce promotional activity. Buying, occupancy and warehousing leveraged 60 basis points reflecting rent leverage, partially offset by higher incentive costs.
  • Selling, general and administrative expense of $221 million increased 8% from $205 million last year. The increase in dollars was primarily the result of higher incentive costs related to strong sales and margin performance. Planned investments in digital marketing also contributed to the increase, and had a positive effect on AEO direct sales. As a rate to revenue, SG&A remained flat to last year at 24.0%.
  • Operating income increased to $109 million from $74 million last year, and the operating margin expanded 320 basis points to 11.9% as a rate to revenue.
  • EPS from continuing operations of $0.35 increased 59% from adjusted EPS of $0.22 last year.

Inventory

Total merchandise inventories at the end of the third quarter increased 2% to $480 million compared to $469 million last year. Fourth quarter 2015 ending inventory at cost is expected to be up in the high single-digits. The increase is primarily due to earlier receipts, as the company laps last year’s delays caused by the port slow down.

Capital Expenditures

In the third quarter, capital expenditures totaled $30 million. For fiscal 2015, the company continues to expect capital expenditures of approximately $150 million. The company expects capital spending to be in the range of $150 to $175 million in 2016.

Store Information

In the quarter, the company opened 12 new stores, including six mainline, five factory and one aerie stand alone stores, and closed one AE store. Internationally, the company opened 13 licensed stores during the quarter, including the first stores in Chile and Greece. For additional third quarter 2015 actual and fiscal 2015 projected store information, see the accompanying table.

Cash, Share Repurchases

The company ended the quarter with total cash of $363 million, an increase of $83 million compared to $280 million last year. During the quarter, the company repurchased one million shares for $15 million. The remaining authorization under the current repurchase program is for 17.4 million shares, which expires on January 28, 2017.

Fourth Quarter Outlook

Based on an anticipated mid single-digit increase in comparable sales, management expects fourth quarter 2015 EPS to be approximately $0.40 to $0.42. This guidance excludes potential asset impairment and restructuring charges, and compares to EPS from continuing operations of $0.36 last year.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at 4:15 p.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to http://americaneagleir2016.q4web.com to access the webcast and audio replay. Also, a financial results presentation is posted on the company’s website.

Non-GAAP Measures

This press release includes information on non-GAAP financial measures (“non-GAAP” or “adjusted”), including earnings per share information. 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, Hong Kong and the United Kingdom, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 140 international stores operated by licensees in 22 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, including fourth quarter 2015 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 31, January 31, November 1,
2015 2015 2014
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 363,116 $ 410,697 $ 280,445
Merchandise inventory 479,729 278,972 468,628
Accounts receivable 63,775 67,894 55,875
Prepaid expenses and other 78,091 70,477 73,095
Deferred income taxes 65,636   59,102   53,445  
Total current assets 1,050,347   887,142   931,488  
Property and equipment, net 709,261 698,227 714,166
Intangible assets, net 46,756 47,206 47,864
Goodwill 12,978 13,096 13,512
Non-current deferred income taxes 17,052 14,035 26,598
Other assets 51,442   37,202   38,444  
Total Assets $ 1,887,836   $ 1,696,908   $ 1,772,072  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 304,989 $ 191,146 $ 309,348
Accrued compensation and payroll taxes 66,466 44,884 49,562
Accrued rent 77,892 78,567 77,102
Accrued income and other taxes 43,721 33,110 27,472
Unredeemed gift cards and gift certificates 28,259 47,888 27,712
Current portion of deferred lease credits 13,055 12,969 13,392
Other current liabilities and accrued expenses 43,761   50,529   41,893  
Total current liabilities 578,143   459,093   546,481  
Deferred lease credits 53,877 54,516 58,988
Non-current accrued income taxes 4,876 10,456 11,312
Other non-current liabilities 41,667   33,097   35,044  
Total non-current liabilities 100,420   98,069   105,344  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 588,293 569,675 566,449
Accumulated other comprehensive income (19,797 ) (9,944 ) 10,876
Retained earnings 1,602,550 1,543,085 1,506,519
Treasury stock (964,269 ) (965,566 ) (966,093 )
Total stockholders' equity 1,209,273   1,139,746   1,120,247  
Total Liabilities and Stockholders' Equity $ 1,887,836   $ 1,696,908   $ 1,772,072  
 
Current Ratio 1.82 1.93 1.70
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
       
 
13 Weeks Ended
October 31, % of November 1, % of
2015   Revenue     2014   Revenue
 
Total net revenue $ 919,072 100.0% $ 854,290 100.0%

Cost of sales, including certain buying, occupancy and warehousing expenses

551,540   60.0% 538,818   63.1%
Gross profit 367,532 40.0% 315,472 36.9%
Selling, general and administrative expenses 220,798 24.0% 204,641 24.0%
Loss on impairment of assets - 0.0% 33,468 3.9%
Restructuring charges - 0.0% 17,752 2.1%
Depreciation and amortization 37,623   4.1% 36,528   4.2%
Operating income 109,111 11.9% 23,083 2.7%
Other income, net 521   0.0% 649   0.1%
Income before income taxes 109,632 11.9% 23,732 2.8%
Provision for income taxes 40,367   4.4% 14,697   1.7%
Income from continuing operations 69,265 7.5% 9,035 1.1%
Gain from discontinued operations, net of tax 4,847   0.5% -   0.0%
Net income $ 74,112   8.0% $ 9,035   1.1%
 
Basic income per common share:
Income from continuing operations $ 0.35 $ 0.05
Gain from discontinued operations 0.03 -
Net income per basic share $ 0.38 $ 0.05
 
Diluted income per common share:
Income from continuing operations $ 0.35 $ 0.05
Gain from discontinued operations 0.03 -
Net income per diluted share $ 0.38 $ 0.05
 
Weighted average common shares
outstanding - basic 195,215 194,573
Weighted average common shares
outstanding - diluted 197,478 195,221
 
 
39 Weeks Ended
October 31, % of November 1, % of
2015   Revenue     2014   Revenue
 
Total net revenue $ 2,416,020 100.0% $ 2,211,014 100.0%

Cost of sales, including certain buying, occupancy and warehousing expenses

1,501,237   62.1% 1,432,150   64.8%
Gross profit 914,783 37.9% 778,864 35.2%
Selling, general and administrative expenses 601,680 24.9% 579,777 26.2%
Loss on impairment of assets - 0.0% 33,468 1.5%
Restructuring charges - 0.0% 17,752 0.8%
Depreciation and amortization 108,861   4.5% 104,312   4.7%
Operating income 204,242 8.4% 43,555 2.0%
Other income, net 4,254   0.2% 2,185   0.1%
Income before income taxes 208,496 8.6% 45,740 2.1%
Provision for income taxes 76,915   3.2% 27,027   1.2%
Income from continuing operations 131,581 5.4% 18,713 0.9%
Gain from discontinued operations, net of tax 4,847   0.2% -   0.0%
Net income $ 136,428   5.6% $ 18,713   0.9%
 
Basic income per common share:
Income from continuing operations $ 0.67 $ 0.10
Gain from discontinued operations 0.02 -
Net income per basic share $ 0.70 $ 0.10
 
Diluted income per common share:
Income from continuing operations $ 0.67 $ 0.10
Gain from discontinued operations 0.02 -
Net income per diluted share $ 0.69 $ 0.10
 
Weighted average common shares
outstanding - basic 195,308 194,381
Weighted average common shares
outstanding - diluted 197,017 194,934
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP to Non-GAAP EPS reconciliation
(unaudited)
       
 
13 Weeks Ended

November 1, 2014

  52 Weeks Ended

January 31, 2015

Operating
income

 

Diluted
income per
common
share

Operating
income

 

Diluted
income per
common
share

GAAP Basis from Continuing Operations $ 23,083 $ 0.05 $ 155,765 $ 0.46
Add back: Asset Impairment and Corporate Overhead Reduction Charges(1):   51,220       0.17   51,220       0.17
Non-GAAP Basis from Continuing Operations $ 74,303     $ 0.22 $ 206,985     $ 0.63
 
% of Total Net Revenue 8.7 % 6.3 %
 
(1) Non-GAAP adjustments consist of $33.5 million of corporate and store asset impairments and $17.7 million of severance and related employee costs and corporate charges.
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
   
Third Quarter

Comparable Sales

2015 2014
American Eagle Outfitters, Inc. (1) 9% -5%
 
AE Total Brand (1) 8% -6%
aerie Total Brand (1) 21% 3%
 
YTD Third Quarter

Comparable Sales

2015 2014
American Eagle Outfitters, Inc. (1) 9% -7%
 
AE Total Brand (1) 9% -8%
aerie Total Brand (1) 17% 3%
 
(1) AEO Direct is included in consolidated and total brand comparable sales.
 
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
         
Third Quarter YTD

Third Quarter

Fiscal 2015
Fiscal 2015 Fiscal 2015 Guidance
Consolidated stores at beginning of period 1,057 1,056 1,056
Consolidated stores opened during the period
AE Brand 11 21 21
aerie 1 1 1
Consolidated stores closed during the period
AE Brand (1) (6) (27 - 31)
aerie -   (4)   (7 - 10)
Total consolidated stores at end of period 1,068 1,068 1,037 - 1,044
 
Stores remodeled and refurbished during the period 5 20

25 - 30

Total gross square footage at end of period 6,712,312 6,712,312 Not Provided
 
International license stores at end of period (1) 126 126 143
 
(1) International license stores are not included in the consolidated store data or the total gross square footage calculation.

Source: American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc.

Kristen Zaccagnini, 412-432-3300

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