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Press release from Business Wire

American Eagle Outfitters Reports Third Quarter 2011 Results

Wednesday, November 30, 2011

American Eagle Outfitters Reports Third Quarter 2011 Results08:00 EST Wednesday, November 30, 2011 PITTSBURGH (Business Wire) -- American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings for the third quarter ended October 29, 2011 of $0.27 per diluted share, compared to adjusted income 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. Jim O'Donnell, chief executive officer, said, “I am encouraged by our progress in the third quarter and the continued momentum into the holiday season. Strong top line growth is evidence of the success of our key item strategy and merchandise improvements. Looking ahead to 2012, we have tremendous opportunity to capitalize on the strength of our brands and drive future profitable growth.” Third Quarter Results – Continuing OperationsTotal sales for the quarter increased 11% to $832 million, compared to $752 million last year. Third quarter comparable store sales increased 5%, compared to a 1% increase last year. For additional comparable store sales information for the period, see the accompanying table. Gross profit was $309 million, or 37.1% as a rate to sales, compared to $312 million, or 41.6% as a rate to sales, last year. While merchandise profit dollars increased slightly due to stronger sales, higher cotton costs and markdowns pressured the merchandise margin, which decreased 480 basis points. Buying, occupancy and warehousing costs improved 30 basis points as a rate to sales, primarily due to top line growth driven by a 5% comparable store sales increase. Selling, general and administrative expense increased 3% to $191 million due to higher sales, new store openings and a planned investment in advertising, partially offset by continued expense savings. SG&A improved 170 basis points to 22.9% as a rate to sales, compared to 24.6% last year. Operating income for the quarter was $83 million, compared to $91 million last year. AEO DirectIn the third quarter, online sales reached a record third quarter high increasing 21% due to increased traffic and conversion. The company's online business includes ae.com, aerie.com and 77kids.com. InventoryTotal merchandise inventories at the end of the third quarter were $572 million, an increase of 35% on a cost per foot basis, compared to last year. Units per foot increased 20%, due to the company's key item strategy and planned expansion of accessory shops to 400 stores for the holiday season. The inventory position also reflects the impact of higher product costs. Fourth quarter average weekly inventory levels are planned similar to third quarter to support peak holiday shopping periods during November and December. As we look forward to next year, we expect the inventory increase to moderate compared to the back half of 2011. Capital ExpendituresFor the third quarter, capital expenditures were $31 million, compared to $26 million last year. Of the third quarter capital expenditures, approximately $22 million related to new and remodeled stores. The balance of the capital expenditures related to distribution center, information technology and other home office projects. For Fiscal 2011, the company expects capital expenditures to be approximately $100 million, which includes the holiday accessory expansion initiative. Real EstateIn the third quarter, the company opened six AE and seven aerie stores. In addition, the company remodeled five stores, bringing the year-to-date total to 59. The company continues to expect fiscal 2011 total square footage to increase in the low single-digits. For additional third quarter 2011 actual and fiscal 2011 real estate information, please refer to the accompanying table. Cash and Investments and Share RepurchasesThe company ended the third quarter with total cash and investments of $482 million. During the quarter, 1.4 million shares were repurchased for a total of $15 million. Fourth Quarter OutlookStrong sales over Thanksgiving weekend were driven by increased traffic and conversion. Powerful unit sales growth reflected a positive customer response to the holiday assortment and planned promotions. Regarding fourth quarter earnings, the company expects EPS to be in the range of $0.40 to $0.44 per diluted share. The guidance assumes that sales momentum continues, particularly during peak holiday shopping periods. Additionally, the company expects margin pressure related to higher cotton costs and its planned promotional strategy. For the year, SG&A dollars are expected to increase in the low single-digits. Conference Call InformationAt 9:00 a.m. Eastern Time on November 30, 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 November 30, 2011 at 12:00 p.m. Eastern Time through December 21, 2011. To listen to the replay, dial 1-877-870-5176, or internationally dial 1-858-384-5517, and reference confirmation code 372061. An audio replay of the conference call will also be available at www.ae.com. Non-GAAP MeasuresThis 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® brand targets 15 to 25 year old girls and guys, with 937 stores in the U.S. and Canada and online at www.ae.com. aerie® by american eagle offers Dormwear® and intimates collections for the AE® girl, with 158 standalone stores in the U.S. and Canada and online at www.aerie.com. The latest brand, 77kids® by american eagle®, 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®, the online home of the brands of AEO, Inc. ships to 77 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 fourth quarter 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)     October 29,January 29,October 30,201120112010(unaudited)(unaudited)   ASSETS Cash and cash equivalents $ 380,284 $ 667,593 $ 630,775 Short-term investments 101,036 67,102 3,700 Merchandise inventory 571,751 301,208 409,509 Accounts receivable 41,138 36,721 40,346 Prepaid expenses and other 64,378 53,727 52,757 Deferred income taxes 47,254   48,059   50,910   Total current assets 1,205,841   1,174,410   1,187,997   Property and equipment, net 629,486 643,120 652,361 Intangible assets, net 40,088 7,485 6,694 Goodwill 11,511 11,472 11,395 Long-term investments 648 5,915 5,915 Non-current deferred income taxes 8,833 19,616 27,475 Other assets 14,045   17,980   17,287   Total Assets $ 1,910,452   $ 1,879,998   $ 1,909,124     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 222,894 $ 167,723 $ 196,504 Accrued compensation and payroll taxes 18,677 34,954 30,289 Accrued rent 74,888 70,390 71,133 Accrued income and other taxes 19,552 32,468 11,620 Unredeemed gift cards and gift certificates 22,456 41,001 20,266 Current portion of deferred lease credits 15,512 16,203 16,465 Other current liabilities and accrued expenses 22,570   25,098   21,285   Total current liabilities 396,549   387,837   367,562   Deferred lease credits 74,981 78,606 81,730 Non-current accrued income taxes 38,527 38,671 36,302 Other non-current liabilities 17,853   23,813   22,246   Total non-current liabilities 131,361   141,090   140,278   Commitments and contingencies - - - Preferred stock - - - Common stock 2,496 2,496 2,496 Contributed capital 550,110 546,597 543,265 Accumulated other comprehensive income 29,174 28,072 26,751 Retained earnings 1,744,280 1,711,929 1,745,912 Treasury stock (943,518 ) (938,023 ) (917,140 ) Total stockholders' equity 1,382,542   1,351,071   1,401,284   Total Liabilities and Stockholders' Equity $ 1,910,452   $ 1,879,998   $ 1,909,124     Current Ratio 3.04 3.03 3.23                   AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)     13 Weeks EndedOctober 29,% ofOctober 30,% of2011   Sales2010   Sales   Net sales $ 831,826 100.0 % $ 751,507 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 522,859       62.9 % 439,198     58.4 % Gross profit 308,967 37.1 % 312,309 41.6 % Selling, general and administrative expenses 190,583 22.9 % 185,050 24.6 % Depreciation and amortization 35,199       4.2 % 35,804     4.8 % Operating income 83,185 10.0 % 91,455 12.2 % Realized loss on sale of investment securities - 0.0 % (24,201 ) -3.2 % Other (expense) income, net (407 )     0.0 % 1,986     0.2 % Income before income taxes 82,778 10.0 % 69,240 9.2 % Provision for income taxes 30,351       3.7 % 36,049     4.8 % Income from continuing operations 52,427 6.3 % 33,191 4.4 % Loss from discontinued operations, net of tax -       0.0 % (167 )   0.0 % Net income $ 52,427       6.3 % $ 33,024     4.4 %   Basic income per common share: Income from continuing operations $ 0.27 $ 0.17 Loss from discontinued operations -     -     Net income per basic share $ 0.27     $ 0.17       Diluted income per common share: Income from continuing operations $ 0.27 $ 0.17 Loss from discontinued operations -     -     Net income per diluted share $ 0.27     $ 0.17       Weighted average common shares outstanding - basic 194,378 195,590 Weighted average common shares outstanding - diluted 195,985 197,323     39 Weeks EndedOctober 29,% ofOctober 30,% of2011   Sales2010   Sales   Net sales $ 2,117,091 100.0 % $ 2,051,471 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 1,344,302       63.5 % 1,241,758     60.5 % Gross profit 772,789 36.5 % 809,713 39.5 % Selling, general and administrative expenses 516,173 24.4 % 519,188 25.3 % Depreciation and amortization 105,754       5.0 % 107,378     5.3 % Operating income 150,862 7.1 % 183,147 8.9 % Realized loss on sale of investment securities - 0.0 % (24,426 ) -1.2 % Other income, net 5,536       0.3 % 1,222     0.1 % Income before income taxes 156,398 7.4 % 159,943 7.8 % Provision for income taxes 55,977       2.7 % 65,047     3.2 % Income from continuing operations 100,421 4.7 % 94,896 4.6 % Loss from discontinued operations, net of tax -       0.0 % (41,287 )   -2.0 % Net income $ 100,421       4.7 % $ 53,609     2.6 %   Basic income per common share: Income from continuing operations $ 0.52 $ 0.47 Loss from discontinued operations -       (0.20 )   Net income per basic share $ 0.52     $ 0.27       Diluted income per common share: Income from continuing operations $ 0.51 $ 0.46 Loss from discontinued operations -       (0.20 )   Net income per diluted share $ 0.51     $ 0.26       Weighted average common shares outstanding - basic 194,659 201,678 Weighted average common shares outstanding - diluted 196,430 203,539       AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP EPS RECONCILIATION (unaudited)     13 Weeks EndedOctober 30, 2010   GAAP diluted EPS from continuing operations $ 0.17 Add back: Realized loss on sale of investment securities   0.12   Non-GAAP diluted EPS from continuing operations $ 0.29                 AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)   39 Weeks EndedOctober 29,October 30,20112010 Operating activities: Net income $ 100,421 $ 53,609 Loss from discontinued operations -   41,287   Income from continuing operations 100,421 94,896   Adjustments to reconcile income from continuing operations to net cash from operating activities: Depreciation and amortization 107,694 110,247 Share-based compensation 9,065 21,929 Provision for deferred income taxes 11,253 5,222 Tax benefit from share-based payments 293 12,848 Excess tax benefit from share-based payments (152 ) (4,265 ) Foreign currency transaction (gain) loss (277 ) 44 Net impairment loss recognized in earnings - 1,248 Realized loss on sale of investment securities - 24,426 Changes in assets and liabilities: Merchandise inventory (270,538 ) (89,988 ) Accounts receivable (4,426 ) (7,454 ) Prepaid expenses and other (10,627 ) (4,879 ) Other assets 3,935 (677 ) Accounts payable 60,033 40,326 Unredeemed gift cards and gift certificates (18,609 ) (18,916 ) Deferred lease credits (4,354 ) (2,868 ) Accrued compensation and payroll taxes (16,297 ) (24,379 ) Accrued income and other taxes (13,036 ) (13,647 ) Accrued liabilities (2,461 ) 2,336   Total adjustments (148,504 ) 51,553   Net cash (used for) provided by operating activities from continuing operations$(48,083)$146,449 Investing activities: Capital expenditures for property and equipment (96,745 ) (65,363 ) Acquisition of intangible assets (33,886 ) (1,849 ) Purchase of available-for-sale securities (186,328 ) - Sale of available-for-sale securities 157,994   177,472   Net cash (used for) provided by investing activities from continuing operations$(158,965)$110,260 Financing activities: Payments on capital leases (2,343 ) (1,774 ) Repayment of note payable - (30,000 ) Repurchase of common stock as part of publicly announced programs (15,160 ) (192,268 ) Repurchase of common stock from employees (2,189 ) (18,024 ) Net proceeds from stock options exercised 2,680 5,762 Excess tax benefit from share-based payments 152 4,265 Cash used to net settle equity awards - (6,434 ) Cash dividends paid (64,273 ) (64,659 ) Net cash used for financing activities from continuing operations$(81,133)$(303,132) Effect of exchange rates on cash 872   1,553     Cash flows of discontinued operations Net cash used for operating activities - (18,309 ) Net cash used for investing activities - (6 ) Net cash used for financing activities - - Effect of exchange rate on cash -   -   Net cash used for discontinued operations$-   $(18,315)   Net decrease in cash and cash equivalents$(287,309)$(63,185) Cash and cash equivalents - beginning of period 667,593   693,960   Cash and cash equivalents - end of period $380,284   $630,775                 AMERICAN EAGLE OUTFITTERS, INC.COMPARABLE STORE SALES RESULTS BY BRAND (unaudited)     Third QuarterComparable Store Sales20112010 American Eagle Outfitters, Inc. 5% 1%   AE Brand 5% Flat aerie 8% 11% AEO Direct (1) 21% -2%     YTD Third QuarterComparable Store Sales20112010 American Eagle Outfitters, Inc. -1% 1%   AE Brand -1% 1% aerie Flat 10% AEO Direct (1) 13% -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)       Third QuarterYTDThird QuarterFiscal 2011Fiscal 2011Fiscal 2011Guidance Consolidated stores at beginning of period 1,103 1,086 1,086 Consolidated stores opened during the period AE Brand 6 11 11 aerie 7 10 10 77kids - 12 12 Consolidated stores closed during the period AE Brand -   (3)   (15) - (25) Total consolidated stores at end of period1,1161,1161,094 - 1,104   Stores remodeled during the period 5 59 60 - 65 Total gross square footage at end of period 6,536,564 6,536,564 Not Provided   American Eagle Outfitters Inc.Judy Meehan, 412-432-3300