News Details

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://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, 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.