The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Business Wire

American Eagle Outfitters Reports Fourth Quarter 2011 Results

Wednesday, March 07, 2012

American Eagle Outfitters Reports Fourth Quarter 2011 Results08:00 EST Wednesday, March 07, 2012 PITTSBURGH (Business Wire) -- American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings for the fourth quarter ended January 28, 2012 of $0.26 per diluted share. Adjusted earnings for the fourth quarter ended January 28, 2012 were $0.35 per diluted share, which excludes store impairment charges and executive transition costs of $0.07 and $0.02 per diluted share, respectively. This compares to earnings of $0.44 per diluted share last year. The company also announced earnings for the fiscal year ended January 28, 2012 of $0.77 per diluted share. Adjusted earnings for the fiscal year ended January 28, 2012 were $0.86 per diluted share, which excludes store impairment charges and executive transition costs of $0.07 and $0.02 per diluted share, respectively. Adjusted income from continuing operations for the fiscal year ended January 29, 2011 was $1.02 per diluted share, which excluded a realized loss from the sale of investment securities of $0.12 per diluted share. Please see the following tables for a complete reconciliation of GAAP to non-GAAP earnings per diluted share from continuing operations for all periods. Fourth Quarter ResultsTotal sales for the quarter increased 14% to $1.04 billion, compared to $916 million last year. Fourth quarter comparable store sales increased 10%, compared to a 7% decrease last year. Including AEO Direct sales, comparable store sales increased 11%. For additional comparable store sales information for the period, see the accompanying table. Gross profit was $356 million, or 34.1% as a rate to sales, compared to $361 million, or 39.4% as a rate to sales, last year. The gross margin decline was due to a lower merchandise margin. Average unit cost increases, driven by higher product costs, resulted in approximately half of the 610 basis point decline in merchandise margin. Increased markdowns, required to drive sales during peak Holiday shopping periods, contributed the balance of the decline. Buying, occupancy and warehousing costs improved 80 basis points as a rate to sales, primarily due to top line growth driven by the 10% comparable store sales increase. Selling, general and administrative expense was $220 million, compared to $194 million last year, and includes $6 million of executive transition costs. As a rate to sales, SG&A improved 10 basis points to 21.1%, compared to 21.2% last year. The increase in SG&A expense is due to variable expense related to the sales increase and a planned investment in advertising. During the quarter, the company recorded asset impairment charges of $21 million primarily related to aerie stores. Operating income for the quarter was $80 million, compared to $134 million last year. Fiscal 2011 Results – Continuing OperationsTotal sales for the year increased 6% to $3.16 billion, compared to $2.97 billion last year. Fiscal 2011 comparable store sales increased 3%, compared to a 1% decrease last year, and were driven by our key item promotional strategy that began in the second half of the year. Including AEO Direct sales, comparable store sales increased 4%. For additional comparable store sales information for the period, see the accompanying table. Gross profit was $1.13 billion, or 35.7% as a rate to sales, compared to $1.17 billion, or 39.5% as a rate to sales, last year. The merchandise margin rate declined 360 basis points. For the year, higher product costs were the primary driver in the merchandise margin decrease with increased markdowns from promotions contributing to the balance of the decline. Buying, occupancy and warehousing costs increased 20 basis points, primarily due to an increase in rent. Selling, general and administrative expense increased 3% to $736 million, compared to $713 million last year. As a rate to sales, SG&A improved 70 basis points to 23.3%, compared to 24.0% last year. Expense reduction efforts, offset by new store growth, variable expense related to the sales increase and a planned advertising investment contributed to the improvement in SG&A rate. Operating income for the quarter was $231 million, compared to $317 million last year. AEO DirectIn the fourth quarter, online sales increased 18%, compared to a 4% increase last year. For the year, sales increased 15% to $385 million, compared to $334 million last year. The company's online business includes ae.com, aerie.com and 77kids.com. InventoryTotal merchandise inventories at the end of the fourth quarter were $378 million, an increase of 24% on a cost per foot basis, due in part to a high single-digit increase in the average unit cost. First quarter ending inventory cost is expected to moderate as compared to the back half of 2011 and cost per foot is planned to increase in the mid teens. Capital ExpendituresFor the fourth quarter, capital expenditures were $3 million, compared to $19 million last year. Fiscal 2011 capital expenditures totaled $100 million, compared to $84 million last year. For Fiscal 2012, the company expects capital expenditures to be approximately $100 million. Real EstateFor the year, total square footage increased 1% and is expected to decrease slightly in 2012, reflecting 15 store openings, offset by 20 to 30 store closures. For additional fourth quarter 2011 actual and 2012 real estate information, see the accompanying table. Cash and InvestmentsThe company ended the fourth quarter with total cash and investments of $746 million. During the year, the company repurchased 1.4 million shares for $15 million. Additionally, the company paid cash dividends of $86 million. Future OutlookFor the year, the company is planning a modest sales increase, and margin improvement. Increased product costs will continue to pressure margins in the first half of the year and lower product costs should benefit margins in the second half. The company is also targeting lower markdowns driven by improved inventory productivity. The company expects to provide annual EPS guidance along with the first quarter earnings announcement in May. February provided a solid start to the first quarter of 2012, with positive comps driven by well-balanced selling of spring product and clearance. However, the company's outlook remains cautious with spring breaks and Easter still ahead. First quarter EPS guidance of $0.08 to $0.10 per diluted share assumes continued margin pressure from product costs, higher markdowns and the potential for increased promotions. Conference Call InformationAt 9:00 a.m. Eastern Time on March 7, 2012, 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 March 7, 2012 at 12:00 p.m. Eastern Time through March 28, 2012. To listen to the replay, dial 1-877-870-5176, or internationally dial 1-858-384-5517, and reference confirmation code 372065. 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 911 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 fiscal 2012 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)           January 28,January 29,20122011(unaudited)   ASSETS Cash and cash equivalents $ 719,545 $ 667,593 Short-term investments 25,499 67,102 Merchandise inventory 378,426 301,208 Accounts receivable 40,310 36,721 Prepaid expenses and other 74,947 53,727 Deferred income taxes 48,761   48,059   Total current assets 1,287,488   1,174,410   Property and equipment, net 582,162 643,120 Intangible assets, net 39,832 7,485 Goodwill 11,469 11,472 Non-current deferred income taxes 13,467 19,616 Other assets 16,384   23,895   Total Assets $ 1,950,802   $ 1,879,998     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 183,783 $ 167,723 Accrued compensation and payroll taxes 42,625 34,954 Accrued rent 76,921 70,390 Accrued income and other taxes 20,135 32,468 Unredeemed gift cards and gift certificates 44,970 41,001 Current portion of deferred lease credits 15,066 16,203 Other current liabilities and accrued expenses 21,901   25,098   Total current liabilities 405,401   387,837   Deferred lease credits 71,880 78,606 Non-current accrued income taxes 35,471 38,671 Other non-current liabilities 21,199   23,813   Total non-current liabilities 128,550   141,090   Commitments and contingencies - - Preferred stock - - Common stock 2,496 2,496 Contributed capital 552,797 546,597 Accumulated other comprehensive income 28,659 28,072 Retained earnings 1,771,464 1,711,929 Treasury stock (938,565 ) (938,023 ) Total stockholders' equity 1,416,851   1,351,071   Total Liabilities and Stockholders' Equity $ 1,950,802   $ 1,879,998     Current Ratio 3.18 3.03     AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)           13 Weeks EndedJanuary 28,% ofJanuary 29,% of2012   Sales2011   Sales   Net sales $ 1,042,727 100.0 % $ 916,088 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 687,175   65.9 % 554,842     60.6 % Gross profit 355,552 34.1 % 361,246 39.4 % Selling, general and administrative expenses 219,655 21.1 % 194,009 21.2 % Loss on impairment of assets 20,730 2.0 % - 0.0 % Depreciation and amortization 34,893   3.3 % 33,123     3.6 % Operating income 80,274 7.7 % 134,114 14.6 % Other income, net 338   0.0 % 1,027     0.1 % Income before income taxes 80,612 7.7 % 135,141 14.7 % Provision for income taxes 29,328   2.8 % 48,103     5.2 % Net income $ 51,284   4.9 % $ 87,038     9.5 %   Net income per basic share $ 0.26 $ 0.45 Net income per diluted share $ 0.26 $ 0.44   Weighted average common shares outstanding - basic 193,798 194,878 Weighted average common shares outstanding - diluted 195,913 196,789   52 Weeks EndedJanuary 28,% ofJanuary 29,% of2012   Sales2011   Sales   Net sales $ 3,159,818 100.0 % $ 2,967,559 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 2,031,477   64.3 % 1,796,600     60.5 % Gross profit 1,128,341 35.7 % 1,170,959 39.5 % Selling, general and administrative expenses 735,828 23.3 % 713,197 24.0 % Loss on impairment of assets 20,730 0.7 % - 0.0 % Depreciation and amortization 140,647   4.4 % 140,501     4.8 % Operating income 231,136 7.3 % 317,261 10.7 % Realized loss on sale of investment securities - 0.0 % (24,426 ) -0.8 % Other income, net 5,874   0.2 % 2,249     0.0 % Income before income taxes 237,010 7.5 % 295,084 9.9 % Provision for income taxes 85,305   2.7 % 113,150     3.8 % Income from continuing operations 151,705 4.8 % 181,934 6.1 % Loss from discontinued operations, net of tax -   0.0 % (41,287 )   -1.4 % Net income $ 151,705   4.8 % $ 140,647     4.7 %   Basic income per common share: Income from continuing operations $ 0.78 $ 0.91 Loss from discontinued operations -     (0.21 )   Net income per basic share $ 0.78   $ 0.70       Diluted income per common share: Income from continuing operations $ 0.77 $ 0.90 Loss from discontinued operations -     (0.20 )   Net income per diluted share $ 0.77   $ 0.70       Weighted average common shares outstanding - basic 194,445 199,979 Weighted average common shares outstanding - diluted 196,314 201,818       AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP EPS RECONCILIATION (unaudited)           13 Weeks Ended52 Weeks EndedJanuary 28, 2012January 28, 2012     GAAP diluted EPS $ 0.26 $ 0.77 Add back: Executive transition costs 0.02 0.02 Add back: Store impairment charges   0.07   0.07 Non-GAAP diluted EPS $ 0.35 $ 0.86   13 Weeks Ended52 Weeks EndedJanuary 29, 2011January 29, 2011     GAAP diluted EPS from continuing operations $ 0.44 $ 0.90 Add back: Realized loss on sale of investment securities   -   0.12 Non-GAAP diluted EPS from continuing operations $ 0.44 $ 1.02     AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)       52 Weeks EndedJanuary 28,January 29,January 30,201220112010 Operating activities: Net income $ 151,705 $ 140,647 $ 169,022 Loss from discontinued operations -   41,287   44,376   Income from continuing operations 151,705 181,934 213,398 Adjustments to reconcile income from continuing operations to net cash from operating activities: Depreciation and amortization 143,156 145,548 139,832 Share-based compensation 12,341 25,457 34,615 Provision for deferred income taxes 4,207 11,885 (36,027 ) Tax benefit from share-based payments 356 15,648 7,995 Excess tax benefit from share-based payments (373 ) (12,499 ) (2,812 ) Foreign currency transaction (gain) loss (325 ) 117 6,477 Loss on impairment of assets 20,730 - - Realized investment losses - 25,674 3,689 Changes in assets and liabilities: Merchandise inventory (77,311 ) 18,713 (33,699 ) Accounts receivable (3,589 ) (3,790 ) 6,656 Prepaid expenses and other (21,261 ) (9,045 ) 12,916 Other assets 2,444 (1,380 ) 1,146 Accounts payable 17,934 5,232 8,358 Unredeemed gift cards and gift certificates 3,979 1,713 (3,591 ) Deferred lease credits (7,837 ) (7,451 ) 4,667 Accrued compensation and payroll taxes 7,677 (19,618 ) 25,841 Accrued income and other taxes (15,515 ) 11,999 12,858 Accrued liabilities 938   12,457   (1,993 ) Total adjustments 87,551   220,660   186,928   Net cash provided by operating activities from continuing operations$239,256$402,594$400,326 Investing activities: Capital expenditures for property and equipment (100,135 ) (84,259 ) (127,080 ) Acquisition of intangible assets (34,187 ) (2,801 ) (2,003 ) Purchase of available-for-sale securities (193,851 ) (62,797 ) 0 Sale of available-for-sale securities 240,797   177,472   80,353   Net cash (used for) provided by investing activities from continuing operations$(87,376)$27,615$(48,730) Financing activities: Payments on capital leases (3,256 ) (2,590 ) (2,015 ) Repayment of note payable - (30,000 ) (45,000 ) Repurchase of common stock as part of publicly announced programs (15,160 ) (216,070 ) - Repurchase of common stock from employees (2,189 ) (18,041 ) (247 ) Net proceeds from stock options exercised 5,098 7,272 9,044 Excess tax benefit from share-based payments 373 12,499 2,812 Cash used to net settle equity awards - (6,434 ) (1,414 ) Cash dividends paid (85,592 ) (183,166 ) (82,985 ) Net cash used for financing activities from continuing operations$(100,726)$(436,530)$(119,805) Effect of exchange rates on cash 798   1,394   3,030     Cash flows of discontinued operations Net cash used for operating activities - (21,434 ) (13,864 ) Net cash used for investing activities - (6 ) (339 ) Net cash used for financing activities - - - Effect of exchange rate on cash -   -   -   Net cash used for discontinued operations$-   $(21,440)(14,203)   Net increase (decrease) in cash and cash equivalents$51,952$(26,367)$220,618 Cash and cash equivalents - beginning of period 667,593   693,960   473,342   Cash and cash equivalents - end of period $719,545   $667,593   $693,960       AMERICAN EAGLE OUTFITTERS, INC.COMPARABLE STORE SALES RESULTS BY BRAND (unaudited)   Fourth Quarter Comparable Store Sales2011   2010 American Eagle Outfitters, Inc. 10 % -7 %   AE Brand 10 % -7 % aerie 6 % -6 % AEO Direct (1) 18 % 4 %   Fiscal Year Comparable Store Sales20112010 American Eagle Outfitters, Inc. 3 % -1 %   AE Brand 3 % -1 % aerie 2 % 4 % AEO Direct (1) 15 % 0 %   (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)           Fourth QuarterYear-to-dateFiscal 2012Fiscal 2011Fiscal 2011Guidance Consolidated stores at beginning of period 1,116 1,086 1,090 Consolidated stores opened during the period AE Brand - 11 14 aerie - 10 - 77kids - 12 1 Consolidated stores closed during the period AE Brand (26)   (29)   (20) - (30) Total consolidated stores at end of period1,0901,0901,075 - 1,085   Stores remodeled and refurbished during the period 1 106 100 Total gross square footage at end of period 6,398,034 6,398,034 Not Provided American Eagle Outfitters, Inc.Judy Meehan, 412-432-3300