American Eagle Outfitters Reports Fourth Quarter and Fiscal 2013 Results

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American Eagle Outfitters Reports Fourth Quarter and Fiscal 2013 Results

March 11, 2014

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PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE:AEO) today reported adjusted earnings of $0.27 per share for the 13 week period ended February 1, 2014, compared to adjusted earnings of $0.55 per share for the 14 week period ended February 2, 2013. GAAP earnings of $0.05 per share include non-GAAP charges of ($0.22) per share, which are outlined in the accompanying GAAP to Non-GAAP reconciliations. This compares to GAAP earnings of $0.47 per share last year.

The company also announced adjusted earnings of $0.74 per share for the 52 week period ended February 1, 2014, compared to adjusted earnings from continuing operations of $1.39 per share for the 53 week period ended February 2, 2013. GAAP earnings of $0.43 per share include non-GAAP charges of ($0.31) per share, which are outlined in the accompanying GAAP to Non-GAAP reconciliations. This compares to GAAP earnings from continuing operations of $1.32 per share last year. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, Interim CEO stated, “The Company’s results in 2013 were highly disappointing. While tough macro conditions have persisted in our retail sector, our merchandise and overall customer experience fell short of expectations. We’re taking steps to bring greater focus and excitement to our product offering and better engage our core customers. Our brands remain incredibly strong and I’m confident in our ability to execute the strategic plan and resume long-term profitable growth.”

The following discussion is based on Non-GAAP results, which exclude the adjustments presented in the accompanying GAAP to Non-GAAP reconciliations.

Fourth Quarter 2013 Non-GAAP Results

Total net revenue for the 13 weeks decreased 7% to $1.04 billion from $1.12 billion for the 14 week period last year. Consolidated comparable sales for the 13 weeks decreased 7% over the same 13 week period last year. This follows a 4% comparable sales increase last year.
Gross profit decreased 28% to $332 million and decreased 930 basis points to 31.9% as a rate to revenue. The decrease was primarily the result of increased promotional activity and the deleverage of rent on negative comparable sales.
Selling, general and administrative expense of $216 million decreased 15% and leveraged 190 basis points to 20.7% as a rate to revenue. Lower incentive costs and a planned reduction in advertising drove the majority of the decline.
Operating income decreased 52% to $86 million. The operating margin decreased 770 basis points to 8.2%.
Adjusted EPS of $0.27 compares to $0.55 last year, a 51% decrease.

Fiscal 2013 Non-GAAP Results

Total net revenue for the 52 weeks decreased 5% to $3.31 billion from $3.48 billion for the 53 week period last year. Consolidated comparable sales for the 52 weeks decreased 6% over the same 52 week period last year. This follows a 9% increase last year.
Gross profit decreased 18% to $1.14 billion and decreased 540 basis points to 34.6% as a rate to revenue, primarily as a result of higher promotional activity and the deleverage of rent on negative comparable sales.
Selling, general and administrative expense of $789 million decreased 5%, and deleveraged 10 basis points to 23.9% as a rate to revenue. The decrease resulted primarily from lower incentive costs, offset by higher store payroll and corporate salaries.
Operating income decreased 47% to $234 million. The operating margin decreased 550 basis points to 7.1%.
Adjusted EPS of $0.74 compares to $1.39 last year, a 47% decrease.

Inventory

Total merchandise inventories at the end of the fourth quarter declined 12% to $292 million compared to $332 million last year. At cost per foot, inventory decreased 16%, driven by a change in ownership terms. Excluding the change in ownership terms, ending inventory at cost per foot increased in the high single-digits, compared to an 8% decline last year. First quarter 2014 ending inventory at cost per foot is expected to decline in the mid single-digits.

Capital Expenditures

In 2013, capital expenditures totaled $278 million, which was above earlier expectations due in part to the timing of investments in our new distribution center and related systems to support omni-channel. For fiscal 2014, the company expects capital expenditures of approximately $230 million. Nearly half of the capital spending plan is for new and upgraded systems, the completion of the distribution center and omni-channel projects, while the rest relates to store upgrades, as well as factory and international store expansion plans.

Real Estate

In 2013, total square footage increased 5%. The company opened 64 stores, including 39 factory stores, six stores in Mexico and seven stores in China and Hong Kong. The company closed 42 stores, including 29 aerie stand alone locations. For additional fiscal 2013 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 $429 million compared to $631 million last year.

First Quarter Outlook

Business conditions remain challenging, with severe winter weather contributing to weak demand. Based on a high single-digit decline in comparable sales, management expects first quarter EPS to be approximately breakeven compared to adjusted EPS of $0.18 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 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://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 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, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 69 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 first 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)


			February 1,			February 2,
			2014			2013
			(unaudited)

ASSETS
	Cash and cash equivalents	$	418,933		$	509,119
	Short-term investments		10,002			121,873
	Merchandise inventory		291,541			332,452
	Accounts receivable		73,882			46,321
	Prepaid expenses and other		83,724			73,805
	Deferred income taxes		45,478			58,230
	Total current assets		923,560			1,141,800
	Property and equipment, net		637,417			509,633
	Intangible assets, net		49,271			38,136
	Goodwill		13,530			11,484
	Non-current deferred income taxes		24,835			31,282
	Other assets		45,551			23,718
	Total Assets	$	1,694,164		$	1,756,053

LIABILITIES AND STOCKHOLDERS' EQUITY
	Accounts payable	$	203,872		$	176,874
	Accrued compensation and payroll taxes		23,560			65,533
	Accrued rent		76,397			77,873
	Accrued income and other taxes		5,778			29,155
	Unredeemed gift cards and gift certificates		47,194			46,458
	Current portion of deferred lease credits		13,293			13,381
	Other current liabilities and accrued expenses		45,384			26,628
	Total current liabilities		415,478			435,902
	Deferred lease credits		59,510			59,571
	Non-current accrued income taxes		16,543			19,011
	Other non-current liabilities		36,455			20,382
	Total non-current liabilities		112,508			98,964
	Commitments and contingencies		-			-
	Preferred stock		-			-
	Common stock		2,496			2,496
	Contributed capital		573,008			627,065
	Accumulated other comprehensive income		12,157			29,297
	Retained earnings		1,569,851			1,553,058
	Treasury stock		(991,334	)		(990,729	)
	Total stockholders' equity		1,166,178			1,221,187
	Total Liabilities and Stockholders' Equity	$	1,694,164		$	1,756,053

	Current Ratio		2.22			2.62

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)

			GAAP Basis
			13 Weeks Ended				14 Weeks Ended
			February 1,	% of			February 2,		% of
			2014	Revenue			2013		Revenue

	Total net revenue	$	1,041,707	100.0	%	$	1,117,053		100.0	%
	Cost of sales, including certain buying, occupancy and warehousing expenses		735,687	70.6	%		657,298		58.8	%
	Gross profit		306,020	29.4	%		459,755		41.2	%
	Selling, general and administrative expenses		222,191	21.3	%		255,251		22.9	%
	Loss on impairment of assets		25,149	2.4	%		34,427		3.1	%
	Depreciation and amortization		34,703	3.4	%		30,116		2.7	%
	Operating income		23,977	2.3	%		139,961		12.5	%
	Other income, net		35	0.0	%		1,446		0.1	%
	Income before income taxes		24,012	2.3	%		141,407		12.6	%
	Provision for income taxes		13,502	1.3	%		46,631		4.1	%
	Income from continuing operations		10,510	1.0	%		94,776		8.5	%
	Loss from discontinued operations, net of tax		-	0.0	%		-		0.0	%
	Net income	$	10,510	1.0	%	$	94,776		8.5	%

	Basic income per common share:
	Income from continuing operations	$	0.05			$	0.48
	Loss from discontinued operations		-				-
	Net income per basic share	$	0.05			$	0.48

	Diluted income per common share:
	Income from continuing operations	$	0.05			$	0.47
	Loss from discontinued operations		-				-
	Net income per diluted share	$	0.05			$	0.47

	Weighted average common shares
	outstanding - basic		192,953				196,137
	Weighted average common shares
	outstanding - diluted		194,287				201,376

			GAAP Basis
			52 Weeks Ended				53 Weeks Ended
			February 1,	% of			February 2,		% of
			2014	Revenue			2013		Revenue

	Total net revenue	$	3,305,802	100.0	%	$	3,475,802		100.0	%
	Cost of sales, including certain buying, occupancy and warehousing expenses		2,191,803	66.3	%		2,085,480		60.0	%
	Gross profit		1,113,999	33.7	%		1,390,322		40.0	%
	Selling, general and administrative expenses		796,505	24.1	%		834,601		24.0	%
	Loss on impairment of assets		44,465	1.3	%		34,869		1.0	%
	Depreciation and amortization		131,974	4.0	%		126,246		3.6	%
	Operating income		141,055	4.3	%		394,606		11.4	%
	Other income, net		1,022	0.0	%		7,432		0.2	%
	Income before income taxes		142,077	4.3	%		402,038		11.6	%
	Provision for income taxes		59,094	1.8	%		137,940		4.0	%
	Income from continuing operations		82,983	2.5	%		264,098		7.6	%
	Loss from discontinued operations, net of tax		-	0.0	%		(31,990	)	-0.9	%
	Net income	$	82,983	2.5	%	$	232,108		6.7	%

	Basic income per common share:
	Income from continuing operations	$	0.43			$	1.35
	Loss from discontinued operations		-				(0.16	)
	Net income per basic share	$	0.43			$	1.19

	Diluted income per common share:
	Income from continuing operations	$	0.43			$	1.32
	Loss from discontinued operations		-				(0.16	)
	Net income per diluted share	$	0.43			$	1.16

	Weighted average common shares
	outstanding - basic		192,802				196,211
	Weighted average common shares
	outstanding - diluted		194,475				200,665

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)

	13 Weeks Ended
	February 1, 2014
	Gross Profit			Selling, general & administrative expenses			Depreciation and amortization			Operating income (loss)			Income before income taxes			Diluted income per common share
GAAP Basis	$	306,020		$	222,191		$	34,703		$	23,977		$	24,012		$	0.05

Asset Impairment⁽¹⁾:		-			-			-			(25,149	)		(25,149	)		(0.08	)

Asset Write-offs & Corporate Charges⁽²⁾:		(26,199	)		6,328			4,118			(36,645	)		(37,853	)		(0.12	)

Tax Related⁽³⁾:		-			-			-			-			-			(0.02	)

Non-GAAP Basis	$	332,219		$	215,863		$	30,585		$	85,771		$	87,014		$	0.27

% of Total Net Revenue		31.9	%		20.7	%		3.0	%		8.2	%		8.3	%

(1) - Pre-tax asset impairment for AEO & aerie brand stores.

(2) - Pre-tax charges including $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.

(3) - International valuation allowance, partially offset by tax benefits from changes in tax reserves.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)

	52 Weeks Ended
	February 1, 2014
	Gross Profit			Selling, general & administrative expenses			Depreciation and amortization			Operating income (loss)			Income before income taxes			Diluted income per common share
GAAP Basis	$	1,113,999		$	796,505		$	131,974		$	141,055		$	142,077		$	0.43

Asset Impairment⁽¹⁾:		-			-			-			(44,465	)		(44,465	)		(0.14	)

Asset Write-offs & Corporate Charges⁽²⁾:		(28,624	)		7,840			11,724			(48,188	)		(49,396	)		(0.16	)

Tax Related⁽³⁾:		-			-			-			-			-			(0.01	)

Non-GAAP Basis	$	1,142,623		$	788,665		$	120,250		$	233,708		$	235,938		$	0.74

% of Total Net Revenue		34.6	%		23.9	%		3.6	%		7.1	%		7.2	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores and Warrendale Distribution Center.
(2) - Pre-tax charges including $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $14.3M of corporate & store asset write-offs, $6.3M for the write-down of the Company's corporate jet and $4.7M of employee severance & related costs.
(3) - International valuation allowance, partially offset by tax benefits from changes in tax reserves.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)

	14 Weeks Ended
	February 2, 2013
	Gross Profit			Selling, general & administrative expenses			Depreciation and amortization			Operating income (loss)			Income before income taxes			Diluted income per common share
GAAP Basis	$	459,755		$	255,251		$	30,116		$	139,961		$	141,407		$	0.47

Asset Impairment⁽¹⁾:		-			-			-			(34,427	)		(34,427	)		(0.11	)

Asset Write-offs & Corporate Charges⁽²⁾:		(893	)		2,121			-			(3,014	)		(3,014	)		(0.01	)

Tax Related⁽³⁾:		-			-			-			-			-			0.04

Non-GAAP Basis	$	460,648		$	253,130		$	30,116		$	177,402		$	178,848		$	0.55

% of Total Net Revenue		41.2	%		22.6	%		2.7	%		15.9	%		16.0	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores.

(2) - Pre-tax charges including $2.1M of employee severance & related costs and $0.9M of asset write-offs.

(3) - Tax benefits from audit settlements.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)

	53 Weeks Ended
	February 2, 2013
	Gross Profit			Selling, general & administrative expenses			Depreciation and amortization			Operating income (loss)			Income before income taxes			Diluted income per common share
GAAP Basis	$	1,390,322		$	834,601		$	126,246		$	394,606		$	402,038		$	1.32

Asset Impairment⁽¹⁾:		-			-			-			(34,869	)		(34,869	)		(0.11	)

Asset Write-offs & Corporate Charges⁽²⁾:		(893	)		6,046			710			(7,649	)		(7,649	)		(0.02	)

Tax Related⁽³⁾:		-			-			-			-			-			0.06

Non-GAAP Basis	$	1,391,215		$	828,555		$	125,536		$	437,124		$	444,556		$	1.39

% of Total Net Revenue		40.0	%		23.8	%		3.6	%		12.6	%		12.8	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores.

(2) - Pre-tax charges including $6.0M of employee severance & related costs and $1.6M of asset write-offs.

(3) - Tax benefits from audit settlements.

AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)

	Fourth Quarter Comparable Sales
	2013⁽¹⁾	2012⁽¹⁾
American Eagle Outfitters, Inc. ⁽³⁾	-7%	4%

AE Total Brand ⁽³⁾	-7%	5%
aerie Total Brand ⁽³⁾	-4%	3%
AEO Direct	8%	25%

	Fiscal Year Comparable Sales
	2013⁽²⁾	2012⁽²⁾
American Eagle Outfitters, Inc. ⁽³⁾	-6%	9%

AE Total Brand ⁽³⁾	-7%	9%
aerie Total Brand ⁽³⁾	-2%	11%
AEO Direct	13%	25%

(1) - Fourth quarter 2013 comp sales are compared to the sales for the 13 weeks ended February 2, 2013. Fourth quarter 2012 comp sales are for the 13 weeks ended February 2, 2013 compared to the 13 weeks ended February 4, 2012.

(2) - Fiscal year 2013 comp sales are compared to the sales for the 52 weeks ended February 2, 2013. Fiscal year 2012 comp sales are for the 52 weeks ended February 2, 2013 compared to the 52 weeks ended February 4, 2012.

(3) - AEO Direct is included in consolidated and total brand comparable sales.

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

			Fourth Quarter	Fiscal Year	Fiscal 2014
			2013	2013	Guidance
Consolidated stores at beginning of period			1,064	1,044	1,066
	Consolidated stores opened during the period
		AE Brand⁽¹⁾	18	64	40 - 50
	Consolidated stores closed during the period
		AE Brand	(6)	(13)	(15) - (20)
		aerie	(10)	(29)	(25) - (30)
Total consolidated stores at end of period			1,066	1,066	1,056 - 1,076

Stores remodeled and refurbished during the period			4	56	45
Total gross square footage at end of period			6,503,486	6,503,486	Not Provided

International licensed stores at end of period ⁽²⁾			66	66	106

(1) - Fiscal Year includes 39 outlet store openings and six franchise stores in Hong Kong and China that were acquired by the company in the second quarter of 2013.

(2) - International licensed 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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American Eagle Outfitters Reports Fourth Quarter and Fiscal 2013 Results

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