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American Eagle Outfitters Reports Record First Quarter Sales

May 31, 2018

Comparable Sales Rise 9%
EPS Increases 57%
2.3 Million Shares Repurchased

PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS of $0.22 for the quarter ended May 5, 2018, compared to $0.14 for the quarter ended April 29, 2017. Excluding restructuring charges of $0.01, the company’s adjusted EPS increased 44% to $0.23, compared to adjusted EPS of $0.16 last year.

Adjusted amounts are based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.

First Quarter 2018 Results

  • Total net revenue increased 8% to $823 million compared to $762 million last year.
  • Consolidated comparable sales increased 9% over the comparable period ending May 6, 2017.
  • By brand, American Eagle’s comparable sales increased 4% and Aerie’s comparable sales increased 38%.
  • Gross profit increased 10% to $304 million from $278 million. The gross margin rate increased 50 basis points to 37.0% of revenue compared to 36.5% last year, reflecting rent leverage and a favorable markdown rate, partially offset by increased digital delivery expense.
  • Selling, general and administrative expense of $210 million leveraged 10 basis points to 25.5% as a rate to revenue due to strong comparable sales. Higher store compensation and incentive expense drove the majority of the increase from $195 million last year.
  • Depreciation expense increased 4% to $42 million from $40 million last year, leveraging 20 basis points to 5.1% as a rate to revenue.
  • Operating income of $51 million, which includes $1.6 million of restructuring charges, compared to $37 million last year. Adjusted operating income increased 23% to $52 million from $42 million last year, leveraging 80 basis points to 6.4% as a rate to revenue.
  • EPS of $0.22 increased 57% compared to EPS of $0.14 last year. Adjusted EPS of $0.23 increased 44% compared to adjusted EPS of $0.16 last year.

Jay Schottenstein, AEO’s Chief Executive Officer commented, “I'm very pleased to see our momentum continue. The first quarter marked our 13th consecutive quarter of positive comparable sales, leading to an increased operating margin and earnings growth, which exceeded our expectations. American Eagle leveraged strong brand equity and its dominant jeans business to deliver comparable sales gains across brick and mortar stores and e-commerce. After starting a body positivity movement, Aerie is posting record growth rates and striking a real emotional connection with its expanding customer base. We are highly focused on our strategic plan, centered on expanding American Eagle, accelerating Aerie’s growth, elevating the customer experience and delivering strong financial returns.”

Restructuring Charges

In the first quarter, the company incurred restructuring charges primarily related to corporate severance, totaling $1.6 million, or approximately $0.01 per share.

Inventory

Total ending inventories at cost increased 11% to $404 million, in line with the company’s expectations. The increase reflected the company’s clearance store strategy and the support of strong sales trends in American Eagle and Aerie. Looking forward, we expect second quarter ending inventory to be up in the high-single digits.

Capital Expenditures

In the first quarter, capital expenditures totaled $47 million, with more than half related to store remodeling projects and new openings, and the balance to support the digital business, omni-channel tools and general corporate maintenance.

Shareholder Returns, Cash and Investments

During the first quarter, the company returned $69 million to shareholders through cash dividends and share repurchases. We repurchased 2.3 million shares for $45 million and paid dividends of $24 million. As a result of strong free cash flow, we ended the quarter with total cash and investments of $310 million compared to $225 million last year.

Store Information

During the quarter, the company opened 4 American Eagle stores and closed 2, ending with 935 American Eagle stores, including 118 Aerie side-by-side locations. Additionally, the company opened 1 Aerie stand-alone store and closed 1, ending with 109 Aerie stand-alone stores. Internationally, the company ended the quarter with 217 licensed stores. For additional store information, see the accompanying table.

Second Quarter Outlook

Based on an anticipated comparable sales increase in the mid-single digits, management expects second quarter 2018 EPS to be approximately $0.27 to $0.29. This guidance excludes potential asset impairment and restructuring charges. Last year’s second quarter reported EPS of $0.12 included approximately $0.07 per share of restructuring and related charges. Excluding these items, last year’s second quarter adjusted EPS was $0.19. See the accompanying table for the GAAP to Non-GAAP reconciliation.

Conference Call and Supplemental Financial Information

Today, 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 http://investors.ae.com to access the webcast and audio replay. Additionally, 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 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. Management believes that this non-GAAP information is useful for an alternate presentation of the company’s 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 more than 200 international locations operated by licensees in 24 countries. For more information, please visit www.ae.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This release and related statements by management contain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which represent our expectations or beliefs concerning future events, including second quarter 2018 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on many important factors, some of which may be beyond the company’s control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," “potential,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise and even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The following factors, in addition to the risks disclosed in Item 1A., Risk Factors, of the company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and in any subsequently-filed Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for second quarter 2018 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this release or otherwise made by management: the risk that the company’s operating, financial and capital plans may not be achieved; our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately; seasonality of our business; our inability to achieve planned store financial performance; our inability to react to raw material cost, labor and energy cost increases; our inability to gain market share in the face of declining shopping center traffic; our inability to respond to changes in e-commerce and leverage omni-channel demands; our inability to expand internationally; difficulty with our international merchandise sourcing strategies; challenges with information technology systems, including safeguarding against security breaches; and changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, which could have a material adverse effect on our business, results of operations and liquidity.

 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
       
May 5, February 3, April 29,
2018 2018 2017
 
 
ASSETS
Cash and cash equivalents $ 289,700 $ 413,613 $ 225,197
Short-term investments 20,000 - -
Merchandise inventory 404,264 398,213 364,274
Accounts receivable 72,800 78,304 79,432
Prepaid expenses and other 87,832   78,400   94,769  
Total current assets 874,596   968,530   763,672  
Property and equipment, net 732,179 724,239 710,500
Intangible assets, net 45,966 46,666 48,462
Goodwill 14,962 15,070 14,772
Non-current deferred income taxes 9,105 9,344 33,408
Other assets 54,106   52,464   62,379  
Total Assets $ 1,730,914   $ 1,816,313   $ 1,633,193  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 207,774 $ 236,703 $ 208,857
Accrued compensation and payroll taxes 27,904 54,324 31,106
Accrued rent 83,524 83,312 78,018
Accrued income and other taxes 22,048 12,781 12,446
Unredeemed gift cards and gift certificates 39,918 52,347 39,744
Current portion of deferred lease credits 10,657 11,203 12,743
Other current liabilities and accrued expenses 42,979   34,551   37,677  
Total current liabilities 434,804   485,221   420,591  
Deferred lease credits 53,630 47,977 56,551
Non-current accrued income taxes 7,326 7,269 4,655
Other non-current liabilities 27,773   29,055   33,523  
Total non-current liabilities 88,729   84,301   94,729  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 565,033 593,770 582,512
Accumulated other comprehensive income (34,936 ) (30,795 ) (32,671 )
Retained earnings 1,904,190 1,883,592 1,774,315
Treasury stock (1,229,402 ) (1,202,272 ) (1,208,779 )
Total stockholders' equity 1,207,381   1,246,791   1,117,873  
Total Liabilities and Stockholders' Equity $ 1,730,914   $ 1,816,313   $ 1,633,193  
 
Current Ratio 2.01 2.00 1.82
 
         
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
GAAP Basis
13 Weeks Ended
May 5, % of April 29, % of
2018   Revenue   2017   Revenue
 
Total net revenue $ 822,961 100.0 %

$

761,836 100.0 %

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

518,518   63.0 % 484,014   63.5 %
Gross profit 304,443 37.0 % 277,822 36.5 %
Selling, general and administrative expenses 210,234 25.5 % 194,979 25.6 %
Restructuring charges 1,568 0.2 % 5,448 0.7 %
Depreciation and amortization 41,935   5.1 % 40,446   5.3 %
Operating income 50,706 6.2 % 36,949 4.9 %
Other income, net 502   0.0 % 403   0.0 %
Income before income taxes 51,208 6.2 % 37,352 4.9 %
Provision for income taxes 11,279   1.4 % 12,116   1.6 %
Net income $ 39,929   4.8 %

$

25,236   3.3 %
 
Net income per basic share $ 0.23

$

0.14
Net income per diluted share $ 0.22

$

0.14
 

Weighted average common shares outstanding - basic

176,853 179,312

Weighted average common shares outstanding - diluted

178,273 181,678
 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
     
13 Weeks Ended
  May 5, 2018

Diluted

income per
Operating

 

common
income

Net income

share
GAAP Basis $ 50,706 $ 39,929 $ 0.22
% of Revenue 6.2 % 4.8 %
 

Add: Restructuring Charges(1):

1,568 1,188 0.01
 
Non-GAAP Basis $ 52,274 $ 41,117 $ 0.23
% of Revenue 6.4 % 5.0 %
 
(1) - $1.6 million for pre-tax corporate restructuring charges, primarily consisting of corporate severance charges
 
     

AMERICAN EAGLE OUTFITTERS, INC.

GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
13 Weeks Ended
April 29, 2017
Diluted
income per
Operating

 

common
income  

Net income

share
GAAP Basis $ 36,949 $ 25,236 $ 0.14
% of Revenue 4.9 % 3.3 %
 
Add:Restructuring Charges(1): 5,448 3,439 0.02
 
Non-GAAP Basis $ 42,397 $ 28,675 $ 0.16
% of Revenue 5.6 % 3.7 %
 
(1) - $5.4 million pre-tax restructuring charges for severance and related charges, which includes corporate overhead reductions and charges for the United Kingdom, Hong Kong, and China.
 
         
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
13 Weeks Ended
July 29, 2017

Diluted income per

common share

GAAP Basis $ 0.12
 
Add: Restructuring Related Charges(1): 0.04
Add: Joint Business Venture Charges(2):   0.03
 
Non-GAAP Basis $ 0.19
 
(1)- $11.4 million pre-tax restructuring related charges, consisting of:
 

 

Inventory charges related to the restructuring of the United Kingdom, Hong Kong, and China ($1.7M), recorded as a reduction of Gross Profit

Lease buyouts, store closure charges and severance and related charges ($9.7M), which includes charges for the United Kingdom, Hong Kong, and China and corporate overhead reductions, recorded within Restructuring Charges.

 

(2)- $9.3 million pre-tax charges for the charges related to the planned exit of a joint business venture, recorded within Other (expense) income, net.

 
   
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
First Quarter
Comparable Sales
2018 2017
American Eagle Outfitters, Inc. (1) 9 % 2 %
 
AE Total Brand (1) 4 % -1 %
aerie Total Brand (1) 38 %

25

%
 
 
(1) AEO Direct is included in consolidated and total brand comparable sales.
 
   
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
   
First Quarter Fiscal 2018
2018 Guidance
Consolidated stores at beginning of period 1,047 1,047
Consolidated stores opened during the period
AE Brand 4 15 - 20
Aerie stand-alone 1 10 - 15
Tailgate Clothing Co. 0 1
Todd Snyder 0 1
Consolidated stores closed during the period
AE Brand

(2)

 

(10) - (15)

 

Aerie stand-alone

(1)

 

 

(5) - (10)

 

Total consolidated stores at end of period 1,049 1,049 - 1,069
 
Stores remodeled and refurbished during the period 23 60 - 70
Total gross square footage at end of period   6,598     Not Provided
 
International license locations at end of period (1) 217 261
 
Aerie side-by-side stores (2)
New AE store 0 5 - 10
Remodeled AE store 2 20
 

(1)

 

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

 

(2)

Aerie side-by-side stores are included in the AE Brand store count as they are considered part of the AE Brand store to which they are attached.

 

American Eagle Outfitters, Inc.
Olivia Messina, 412-432-3300
LineMedia@ae.com

Source: American Eagle Outfitters, Inc.

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