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American Eagle Outfitters Reports Second Quarter 2011 Results

August 24, 2011

PITTSBURGH, Aug 24, 2011 (BUSINESS WIRE) --American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings for the second quarter ended July 30, 2011 of $0.10 per diluted share, compared to income from continuing operations of $0.13 per diluted share last year.

Jim O'Donnell, chief executive officer, said, "During the quarter, we achieved improved performance on the top line and EPS within our range of expectations. We managed our business prudently and made significant strides on our longer-term initiatives which are laying the foundation for future growth. Importantly, a renewed focus on our key item businesses and improved merchandising are delivering positive results, with the back-to-school season off to an encouraging start."

Second Quarter Results - Continuing Operations

Total sales for the quarter increased 4% to $676 million, compared to $652 million last year. Second quarter comparable store sales were flat, compared to a 1% decrease last year. For additional comparable store sales information for the period, see the accompanying table.

Gross profit was $232 million, or 34.3% as a rate to sales, compared to $240 million, or 36.8% as a rate to sales, last year. Merchandise profit dollars increased slightly over last year due to lower markdowns. However, higher product costs caused a 150 basis point decline in merchandise margin. Buying, occupancy and warehousing costs increased 100 basis points as a rate to sales. This was primarily due to rent, reflecting the impact of new store openings, lease renewals and flat comparable store sales.

Selling, general and administrative expense increased 1% to $167 million, due to investments in new stores and higher sales levels, offset by continued expense saving initiatives. SG&A improved 70 basis points to 24.7% as a rate to sales, compared to 25.4% last year.

Operating income for the quarter was $29 million, compared to $38 million last year. The operating margin decreased to 4.3% from 5.9% last year.

Income from continuing operations for the quarter was $20 million, or $0.10 per diluted share, compared to $26 million, or $0.13 per diluted share, last year. As a rate to sales, income from continuing operations decreased to 2.9% from 4.0% last year.

AEO Direct

The company's direct-to-consumer business includes ae.com, aerie.com and 77kids.com. In the second quarter, sales increased 16% due to higher transactions driven by improved traffic and conversion.

Inventory

Total merchandise inventories at the end of the second quarter were $470 million, an increase of $121 million, or 30% on a cost per foot basis, compared to last year. Second quarter ending inventories reflected increased cotton costs related to fall product receipts. As the company previously indicated, inventory investments support a year-round key item strategy and the expansion of the accessory business, which will grow to 400 unique shop-in-shop locations during the second half of this year. Units per foot increased 15%, including our unit-intensive accessory expansion.

Looking ahead to the third quarter, inventories are planned similarly to second quarter end, reflecting the impact of higher product costs, the company's investments in year-round key items and the accessory expansion initiative.

Capital Expenditures

For the second quarter, capital expenditures were $28 million, compared to $20 million last year. Of the second quarter capital expenditures, approximately $20 million related to new and remodeled stores. The balance of the capital expenditures related to distribution center, information technology and other home office projects. The company continues to expect capital expenditures in the range of $90 million to $100 million, with slightly more than half related to new and remodeled stores.

Real Estate

In the second quarter, the company opened two AE, one aerie and six 77kids stores. In addition, the company remodeled 22 stores, bringing the year-to-date total to 54. Store closings in the second quarter consisted of two AE stores. The company continues to expect fiscal 2011 total square footage to increase in the low single-digits. For additional second quarter 2011 actual and fiscal 2011 real estate information, please refer to the accompanying table.

Cash and Investments

The company ended the second quarter with total cash and investments of $515 million.

Future Outlook

Although the company has tempered sales expectations for the second half, particularly during non-peak shopping periods, sales are planned to strengthen from the first half of the year, driven by investments in key items. The back-to-school trend is positive and promotional activity is on plan. As previously noted, higher cotton costs are expected to pressure the second half merchandise margin, and SG&A dollars are planned to increase in the low single-digits for the third quarter and the year.

The company currently expects third quarter 2011 EPS to be in a range of $0.22 to $0.27 per diluted share. This compares to adjusted EPS from continuing operations of $0.29 per diluted share last year, which excludes a realized loss from the sale of investment securities of $0.12 per diluted share. For the year, the company expects EPS to be in the range of $0.85 to $0.95 per diluted share. This compares to adjusted EPS from continuing operations of $1.02 per diluted share last year.

Conference Call Information

At 9:00 a.m. Eastern Time on August 24, 2011, the company's management team will host a conference call to review the financial results. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 five to seven minutes prior to the scheduled start time. The conference call will also be simultaneously broadcast over the Internet at www.ae.com. Anyone unable to listen to the call can access a replay beginning August 24, 2011 at 12:00 p.m. Eastern Time through September 14, 2011. To listen to the replay, dial 1-877-870-5176, or internationally dial 1-858-384-5517, and reference account 3055 and confirmation code 372060. An audio replay of the conference call will also be available at www.ae.com.

Non-GAAP Measures

This press release includes information on non-GAAP earnings per diluted share ("non-GAAP" or "adjusted"). This measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles ("GAAP") and is 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. This amount is not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company's business and operations.

American Eagle Outfitters, Inc., through its subsidiaries, ("AEO, Inc.")offers high-quality, on-trend clothing, accessories and personal care products at affordable prices. The American Eagle Outfitters(R) brand targets 15 to 25 year old girls and guys, with 932 stores in the U.S. and Canada and online at www.ae.com. aerie(R) by american eagle offers Dormwear(R) and intimates collections for the AE(R) girl, with 153 standalone stores in the U.S. and Canada and online at www.aerie.com. The latest brand, 77kids(R) by american eagle(R), is available online at www.77kids.com, as well as at 21 stores across the nation. The 77kids brand offers "kid cool," durable clothing and accessories for kids ages zero to 14. AE.COM(R), the online home of the brands of AEO, Inc. ships to 76 countries worldwide.

"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 and fiscal 2011 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)

July 30,

 January 29, July 31,
2011 2011 2010
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $ 389,299 $ 667,593 $ 425,523
Short-term investments 124,697 67,102 5,800
Merchandise inventory 470,242 301,208 349,091
Accounts receivable 31,530 36,721 41,793
Prepaid expenses and other 90,788 53,727 99,475
Deferred income taxes 48,585 48,059 41,129
Total current assets 1,155,141 1,174,410 962,811
Property and equipment, net 635,540 643,120 657,131
Intangible assets, net 40,295 7,485 6,520
Goodwill 11,668 11,472 11,364
Long-term investments 648 5,915 166,717
Non-current deferred income taxes 2,460 19,616 28,724
Other assets 20,750 17,980 16,436
Total Assets $ 1,866,502 $ 1,879,998 $ 1,849,703
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 187,572 $ 167,723 $ 144,929
Accrued compensation and payroll taxes 24,928 34,954 31,356
Accrued rent 72,477 70,390 83,617
Accrued income and other taxes 13,998 32,468 13,801
Unredeemed gift cards and gift certificates 26,542 41,001 21,201
Current portion of deferred lease credits 15,938 16,203 16,909
Other current liabilities and accrued expenses 21,037 25,098 19,413
Total current liabilities 362,492 387,837 331,226
Deferred lease credits 77,925 78,606 83,709
Non-current accrued income taxes 38,256 38,671 35,748
Other non-current liabilities 20,842 23,813 21,030
Total non-current liabilities 137,023 141,090 140,487
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 546,677 546,597 540,326
Accumulated other comprehensive income 32,692 28,072 19,250
Retained earnings 1,713,778 1,711,929 1,735,503
Treasury stock (928,656) (938,023) (919,585)
Total stockholders' equity 1,366,987 1,351,071 1,377,990
Total Liabilities and Stockholders' Equity $ 1,866,502 $ 1,879,998 $ 1,849,703
Current Ratio 3.19 3.03 2.91
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
13 Weeks Ended
July 30, % of July 31, % of
2011 Sales 2010 Sales
Net sales $ 675,703 100.0 % $ 651,502 100.0 %

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

443,642 65.7 % 411,794 63.2 %
Gross profit 232,061 34.3 % 239,708 36.8 %
Selling, general and administrative expenses 167,099 24.7 % 165,493 25.4 %
Depreciation and amortization 35,675 5.3 % 36,049 5.5 %
Operating income 29,287 4.3 % 38,166 5.9 %
Other income (expense), net 1,431 0.2 % (1,110 ) -0.2 %
Income before income taxes 30,718 4.5 % 37,056 5.7 %
Provision for income taxes 11,049 1.6 % 11,213 1.7 %
Income from continuing operations 19,669 2.9 % 25,843 4.0 %
Loss from discontinued operations, net of tax - 0.0 % (16,180 ) -2.5 %
Net income $ 19,669 2.9 % $ 9,663 1.5 %
Basic income per common share:
Income from continuing operations $ 0.10 $ 0.13
Loss from discontinued operations - (0.08 )
Net income per basic share $ 0.10 $ 0.05
Diluted income per common share:
Income from continuing operations $ 0.10 $ 0.13
Loss from discontinued operations - (0.08 )
Net income per diluted share $ 0.10 $ 0.05

Weighted average common shares outstanding - basic

194,909 201,764

Weighted average common shares outstanding - diluted

196,578 203,153
26 Weeks Ended
July 30, % of July 31, % of
2011 Sales 2010 Sales
Net sales $ 1,285,265 100.0 % $ 1,299,964 100.0 %

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

821,443 63.9 % 802,560 61.7 %
Gross profit 463,822 36.1 % 497,404 38.3 %
Selling, general and administrative expenses 325,590 25.3 % 334,138

25.7

%

Depreciation and amortization 70,555 5.5 % 71,574 5.5 %
Operating income 67,677 5.3 % 91,692 7.1 %
Other income (expense), net 5,943 0.4 % (989 ) -0.1 %
Income before income taxes 73,620 5.7 % 90,703 7.0 %
Provision for income taxes 25,626 2.0 % 28,998 2.2 %
Income from continuing operations 47,994 3.7 % 61,705 4.8 %
Loss from discontinued operations, net of tax - 0.0 % (41,120 ) -3.2 %
Net income $ 47,994 3.7 % $ 20,585 1.6 %
Basic income per common share:
Income from continuing operations $ 0.25 $ 0.30
Loss from discontinued operations - (0.20 )
Net income per basic share $ 0.25 $ 0.10
Diluted income per common share:
Income from continuing operations $ 0.24 $ 0.30
Loss from discontinued operations - (0.20 )
Net income per diluted share $ 0.24 $ 0.10

Weighted average common shares outstanding - basic

194,800 204,238

Weighted average common shares outstanding - diluted

196,626 206,430
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP EPS RECONCILIATION
(unaudited)
13 Weeks Ended 52 Weeks Ended
October 30, 2010 January 29, 2011
GAAP diluted EPS from continuing operations $0.17 $0.90
Add back: Realized loss on sale of investment securities 0.12 0.12
Non-GAAP diluted EPS from continuing operations $0.29 $1.02
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
26 Weeks Ended
July 30, July 31,
2011 2010
Operating activities:
Net income $ 47,994 $ 20,585
Loss from discontinued operations - 41,120
Income from continuing operations 47,994 61,705
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Depreciation and amortization 71,864 73,660
Share-based compensation 5,838 18,380
Provision for deferred income taxes 16,389 17,933
Tax benefit from share-based payments 290 13,039
Excess tax benefit from share-based payments (152 ) (4,100 )
Foreign currency transaction loss 219 1,159
Net impairment loss recognized in earnings - 1,248
Realized loss on sale of investment securities - 225
Changes in assets and liabilities:
Merchandise inventory (167,590 ) (29,870 )
Accounts receivable 5,271 (8,690 )
Prepaid expenses and other (36,797 ) (53,574 )
Other assets (2,767 ) 180
Accounts payable 23,526 (11,134 )
Unredeemed gift cards and gift certificates (14,632 ) (17,964 )
Deferred lease credits (1,272 ) (2,805 )
Accrued compensation and payroll taxes (10,112 ) (26,183 )
Accrued income and other taxes (18,490 ) (10,117 )
Accrued liabilities (4,558 ) (1,187 )
Total adjustments (132,973 ) (39,800 )
Net cash (used for) provided by operating activities from continuing operations $ (84,979 ) $ 21,905
Investing activities:
Capital expenditures for property and equipment (65,601 ) (39,344 )
Acquisition of intangible assets (33,545 ) (1,530 )
Purchase of available-for-sale securities (166,443 ) -
Sale of available-for-sale securities 115,229 27,875
Net cash used for investing activities from continuing operations $ (150,360 ) $ (12,999 )
Financing activities:
Payments on capital leases (1,556 ) (1,145 )
Repayment of note payable - (30,000 )
Repurchase of common stock as part of publicly announced programs - (192,268 )
Repurchase of common stock from employees (2,189 ) (17,986 )
Net proceeds from stock options exercised 2,659 4,475
Excess tax benefit from share-based payments 152 4,100
Cash used to net settle equity awards - (6,434 )
Cash dividends paid (42,869 ) (43,148 )
Net cash used for financing activities from continuing operations $ (43,803 ) $ (282,406 )
Effect of exchange rates on cash 848 88
Cash flows of discontinued operations
Net cash provided by operating activities - 4,981
Net cash used for investing activities - (6 )
Net cash used for financing activities - -
Effect of exchange rate on cash - -
Net cash provided by discontinued operations $ - $ 4,975
Net decrease in cash and cash equivalents $ (278,294 ) $ (268,437 )
Cash and cash equivalents - beginning of period 667,593 693,960
Cash and cash equivalents - end of period $ 389,299 $ 425,523
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE STORE SALES RESULTS BY BRAND
(unaudited)

Second Quarter
Comparable Store Sales
2011 2010
American Eagle Outfitters, Inc. 0% -1%
AE Brand 0% -2%
aerie -1% -1%
AEO Direct (1) 16% -9%

YTD Second Quarter
Comparable Store Sales
2011 2010
American Eagle Outfitters, Inc. -4% 2%
AE Brand -4% 1%
aerie -4% 9%
AEO Direct (1) 9% -3%

(1) AEO Direct is comprised of ae.com, aerie.com and 77kids.com. AEO Direct is not included in consolidated comparable store sales.

AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
Second Quarter

YTD

Second Quarter

 Fiscal 2011
Fiscal 2011 Fiscal 2011 Guidance
Consolidated stores at beginning of period 1,096 1,086 1,086
Consolidated stores opened during the period
AE Brand 2 5 11
aerie 1 3 10
77kids 6 12 12
Consolidated stores closed during the period
AE Brand (2) (3) (15) - (25)
Total consolidated stores at end of period 1,103 1,103 1,094 - 1,104
Stores remodeled during the period 22 54 60 - 65
Total gross square footage at end of period 6,458,784 6,458,784 Not Provided

SOURCE: American Eagle Outfitters, Inc. 

American Eagle Outfitters Inc.
Judy Meehan, 412-432-3300
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