American Eagle Outfitters Reports Third Quarter 2014 Results

12/04/2014

PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE:AEO) today reported adjusted earnings of $0.22 per diluted share for the third quarter ended November 1, 2014, compared to adjusted earnings of $0.19 per share for the comparable quarter last year. GAAP earnings of $0.05 per share include ($0.17) of restructuring and asset impairment charges. Last year, the company earned adjusted EPS of $0.19 in the third quarter, which excluded asset impairment charges of ($0.06).

Jay Schottenstein, Interim CEO commented, “Consistent with our previous announcement, the third quarter delivered higher margins and 16% adjusted earnings growth over last year, in a highly challenging and competitive marketplace. We managed the business better and were able to reduce markdown rates and control expenses. Our ongoing priority to strengthen our business is reflected in the restructuring activities and efforts to drive a better customer experience through improved merchandising, customer engagement and building omni-channel capabilities.”

Third Quarter 2014 Results
The following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.

  • Total net revenue declined slightly to $854 million from $857 million last year.
  • Consolidated comparable sales decreased 5%, compared to a 5% decrease last year.
  • Gross profit increased 6% to $315 million and rose 200 basis points to 36.9% as a rate to revenue. The margin improvement was driven primarily by reduced markdowns and was partially offset by 120 basis points of buying, occupancy and warehousing deleverage.
  • Selling, general and administrative expense of $205 million decreased 1% from $206 million last year. As a rate to revenue, SG&A held flat to last year at 24.0%. Reductions in overhead and variable expenses were partially offset by continued investments in new stores and international expansion, as well as increased incentive expense accruals.
  • Adjusted operating income increased 22% to $74 million. The operating margin expanded 160 basis points to 8.7% as a rate to revenue.
  • Adjusted EPS of $0.22 compares to $0.19 last year, a 16% increase.

Other Items
Third quarter GAAP results include a $33 million loss on asset and store impairments. As the result of the company’s store fleet review and challenging performance this year, 48 AE and 31 aerie stores were impaired. GAAP results also include $18 million of restructuring charges related to corporate overhead reductions, including severance and related charges, and office space consolidation.

Inventory
Total merchandise inventories at the end of the third quarter declined 10% to $469 million compared to $519 million last year. At cost per foot, inventory decreased 14%. Inventories reflect a change to ownership terms completed late last year, as we began taking ownership of inventory at the receiving port rather than the port of departure. Excluding the change in terms, inventory at cost per foot decreased 3%. Fourth quarter 2014 ending inventory at cost per foot is expected to be up slightly, following a mid-teen decline last year. Fourth quarter ending inventories reflect an acceleration of spring merchandise receipts, due to the West Coast port slowdown. Fall and holiday clearance inventories are expected to be down approximately low double digits.

Capital Expenditures
In the third quarter, capital expenditures totaled $64 million. For fiscal 2014, the company continues to expect capital expenditures of approximately $230 million, primarily related to new and remodeled stores, the Hazleton distribution center and information technology. The company continues to expect capital spending to be approximately $150 million in 2015.

Real Estate
In the quarter, the company opened 23 new stores consisting of the following:

  • 5 new North American mainline stores,
  • 10 Factory stores,
  • 5 stores in Mexico, and
  • 3 stores in Asia.

The company closed 3 locations, including 2 aerie stores, and is on pace to close a total of 50 AE and 20 aerie stores for the year. The company added 10 international licensed stores, and ended the quarter with 94 licensed stores in 14 countries. For additional third quarter 2014 actual and fiscal 2014 projected real estate information, see the accompanying table.

Cash and Investments
The company ended the quarter with total cash and investments of $280 million compared to $367 million last year.

On December 2, 2014, the company closed on a $400 million Asset-Based Credit Facility, replacing the existing $150 million revolver. As of December 2, 2014, the facility was undrawn. The new credit facility carries a 5 year term and provides increased financial flexibility, liquidity and takes advantage of a favorable credit environment.

Fourth Quarter Outlook
Based on a slight decline in revenue and a mid single-digit decline in comparable sales, management expects fourth quarter EPS to be approximately $0.30 to $0.33 compared to adjusted earnings of $0.27 per diluted share last year. The guidance excludes potential asset impairment and restructuring charges.

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://investors.ae.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 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.

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 99 licensed international franchise stores in 17 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 2014 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 1, February 1, November 2,
2014 2014 2013
(unaudited) (unaudited)
 

ASSETS

Cash and cash equivalents $ 280,445 $ 418,933 $ 354,284
Short-term investments - 10,002 2,930
Merchandise inventory 468,628 291,541 518,904
Accounts receivable 55,875 73,882 59,277
Prepaid expenses and other 73,095 88,155 112,078
Deferred income taxes 53,445   45,478   46,510  
Total current assets 931,488   927,991   1,093,983  
Property and equipment, net 714,166 632,986 630,086
Intangible assets, net 47,864 49,271 44,427
Goodwill 13,512 13,530 13,792
Non-current deferred income taxes 26,598 24,835 19,086
Other assets 38,444   45,551   38,712  
Total Assets $ 1,772,072   $ 1,694,164   $ 1,840,086  
 

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable $ 309,348 $ 203,872 $ 353,228
Accrued compensation and payroll taxes 49,562 23,560 32,522
Accrued rent 77,102 76,397 75,680
Accrued income and other taxes 27,472 5,778 9,002
Unredeemed gift cards and gift certificates 27,712 47,194 24,689
Current portion of deferred lease credits 13,392 13,293 13,954
Other current liabilities and accrued expenses 41,893   45,384   29,382  
Total current liabilities 546,481   415,478   538,457  
Deferred lease credits 58,988 59,510 65,004
Non-current accrued income taxes 11,312 16,543 20,777
Other non-current liabilities 35,044   36,455   23,139  
Total non-current liabilities 105,344   112,508   108,920  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 566,449 573,008 577,108
Accumulated other comprehensive income 10,876 12,157 23,483
Retained earnings 1,506,519 1,569,851 1,587,320
Treasury stock (966,093 ) (991,334 ) (997,698 )
Total stockholders' equity 1,120,247   1,166,178   1,192,709  
Total Liabilities and Stockholders' Equity $ 1,772,072   $ 1,694,164   $ 1,840,086  
 
Current Ratio 1.70 2.23 2.03
 
               
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
GAAP Basis
13 Weeks Ended
November 1, % of November 2, % of
2014     Revenue       2013     Revenue
 
Total net revenue $ 854,290 100.0 % $ 857,305 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 538,818     63.1 % 558,430     65.1 %
Gross profit 315,472 36.9 % 298,875 34.9 %
Selling, general and administrative expenses 204,641 24.0 % 205,725 24.0 %
Restructuring charges 17,752 2.1 % - 0.0 %
Loss on impairment of assets 33,468 3.9 % 19,316 2.3 %
Depreciation and amortization 36,528     4.2 % 31,998     3.8 %
Operating income 23,083 2.7 % 41,836 4.9 %
Other income, net 649     0.1 % 520     0.1 %
Income before income taxes 23,732 2.8 % 42,356 4.9 %
Provision for income taxes 14,697     1.7 % 17,453     2.0 %
Net income $ 9,035     1.1 % $ 24,903     2.9 %
 
Net income per basic share $ 0.05 $ 0.13
 
Net income per diluted share $ 0.05 $ 0.13
 
Weighted average common shares
outstanding - basic 194,573 192,818
Weighted average common shares
outstanding - diluted 195,221 194,612
 
GAAP Basis
39 Weeks Ended
November 1, % of November 2, % of
2014     Revenue       2013     Revenue
 
Total net revenue $ 2,211,014 100.0 % $ 2,264,095 100.0 %
Cost of sales, including certain buying,
occupancy and warehousing expenses 1,432,150     64.8 % 1,456,116     64.3 %
Gross profit 778,864 35.2 % 807,979 35.7 %
Selling, general and administrative expenses 579,777 26.2 % 574,314 25.4 %
Restructuring charges 17,752 0.8 % - 0.0 %
Loss on impairment of assets 33,468 1.5 % 19,316 0.9 %
Depreciation and amortization 104,312     4.7 % 97,271     4.3 %
Operating income 43,555 2.0 % 117,078 5.2 %
Other income, net 2,185     0.1 % 987     0.0 %
Income before income taxes 45,740 2.1 % 118,065 5.2 %
Provision for income taxes 27,027     1.2 % 45,592     2.0 %
Net income $ 18,713     0.8 % $ 72,473     3.2 %
 
Net income per basic share $ 0.10 $ 0.38
 
Net income per diluted share $ 0.10 $ 0.37
 
Weighted average common shares
outstanding - basic 194,381 192,753
Weighted average common shares
outstanding - diluted 194,934 195,021
 
               
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
13 Weeks Ended 13 Weeks Ended
November 1, 2014 November 2, 2013

Diluted income

Diluted income

Operating income

per common

Operating income

per common

(loss)

share

(loss)

share

GAAP Basis $ 23,083 $ 0.05 $ 41,836 $ 0.13
 
Add back: Asset Impairment and Corporate Overhead Reduction Charges(1):   51,220     0.17   19,316     0.06
 
Non-GAAP Basis $ 74,303 $ 0.22 $ 61,152 $ 0.19
 
% of Total Net Revenue 8.7 % 7.1 %
 

(1) - Non-GAAP adjustments this year consist of $33.5 million of corporate and store asset impairments and $17.7 million of severance and related employee costs and corporate charges. Non-GAAP adjustments last year consist of $19.3 million of asset impairments related to the Warrendale Distribution Center.

 
       
13 Weeks Ended 14 Weeks Ended
February 1, 2014 February 2, 2013

Selling, general &

    Diluted income

Selling, general &

   

Diluted income

administrative

per common

administrative

per common

expenses

share

expenses

share

GAAP Basis $ 222,191 $ 0.05 $ 255,251 $ 0.47
 

Asset Impairment(1):

- 0.08 - 0.11
Asset Write-offs & Corporate Charges(2) (3): 6,328 0.12 2,121 0.01
Tax Related(4):   -   0.02   -   (0.04 )
 
Non-GAAP Basis $ 215,863 $ 0.27 $ 253,130 $ 0.55
 
(1) - Pre-tax asset impairment for AEO & aerie brand stores.

(2) - Selling, general and administrative expenses: Pre-tax charges for Q4 2013 include $6.3M of asset write-offs and employee severance & related costs. Pre-tax charges for Q4 2012 include $2.1M of employee severance & related costs.

(3) - Diluted income per common share: Pre-tax charges for Q4 2013 include $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $9.1M of corporate & store asset write-offs, $3.3M of employee severance & related costs and $1.3M for the write-down of the Company's corporate jet. Pre-tax charges for Q4 2012 include $2.1M of employee severance & related costs and $0.9M of asset write-offs.

(4) - Q4 2013 relates to an international valuation allowance, partially offset by tax benefits from changes in tax reserves. Q4 2012 relates to tax benefits from audit settlements.

 
   
13 Weeks Ended
November 1, 2014
GAAP Gross Margin Basis Point Improvement 200
Add: Buying, Occupancy and Warehousing Cost Basis Point Deleverage 120
 
Non-GAAP Merchandise Margin Basis Point Improvement 320
 
       
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
Third Quarter
Comparable Sales
2014 2013
American Eagle Outfitters, Inc. (1) -5 % -5 %
 
AE Total Brand (1) -6 % -5 %
aerie Total Brand (1) 3 % -3 %
 
YTD Third Quarter
Comparable Sales
2014 2013

American Eagle Outfitters, Inc. (1)

-7 % -6 %
 
AE Total Brand (1) -8 % -6 %
aerie Total Brand (1) 3 % -1 %
 
(1) AEO Direct is included in consolidated and total brand comparable sales.
 
           
AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
   

 

YTD

 

Third Quarter

Third Quarter

Fiscal 2014

Fiscal 2014 Fiscal 2014 Guidance
Consolidated stores at beginning of period 1,072 1,066 1,066
Consolidated stores opened during the period
AE Brand 23 54 60
Consolidated stores closed during the period
AE Brand (1 ) (10 ) (50 )
aerie (2 )   (18 )   (22 )
Total consolidated stores at end of period 1,092 1,092 1,054
 
Stores remodeled and refurbished during the period 5 40 44
Total gross square footage at end of period 6,796,073 6,632,056 Not Provided
 

International franchise stores at end of period (1)

94 94 102
 

(1) - International franchise 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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