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Press release from Business Wire

American Eagle Outfitters Reports 38% Increase in First Quarter Adjusted EPS and 18% Sales Growth

Wednesday, May 23, 2012

American Eagle Outfitters Reports 38% Increase in First Quarter Adjusted EPS and 18% Sales Growth08:00 EDT Wednesday, May 23, 2012 PITTSBURGH (Business Wire) -- American Eagle Outfitters, Inc. (NYSE:AEO) today announced earnings of $0.20 per diluted share for the first quarter ended April 28, 2012, compared to $0.14 per diluted share for the comparable quarter last year. Adjusted earnings for the quarter were $0.22 per diluted share, which excludes the operating results for 77kids, compared to adjusted earnings of $0.16 per diluted share last year. Please see the following tables for a complete reconciliation of GAAP to non-GAAP results for all periods presented. Robert Hanson, chief executive officer stated, “I'm extremely pleased by our performance this quarter and appreciate the team's accomplishments. We remain focused on delivering continued improvements in the near term, while fortifying our core brands and capabilities to pursue incremental profitable growth and consistent returns to shareholders.” GAAP First Quarter Results Net sales increased 18% to $719 million, compared to $610 million last year. Comparable store sales, including AE Direct, increased 17%, compared to a 7% decrease last year. Gross profit increased 18% to $273 million, or 37.9% as a rate to sales, compared to $232 million, or 38.0% as a rate to sales, last year. Higher product costs, driven by the spike in cotton and incremental incentive costs, adversely affected the merchandise margin. This was offset by a 220 basis point improvement in buying, occupancy and warehousing due to strong sales. Selling, general and administrative expense of $183 million improved 60 basis points to 25.4%, as a rate to sales, compared to 26.0% last year. Operating income of $57 million increased 49%, compared to $38 million last year. The operating margin rate of 8.0% compared to 6.3% last year. Other income of $4 million primarily relates to a settlement recovery from auction rate securities. EPS of $0.20 compared to $0.14 last year, a 43% increase. Non-GAAP First Quarter Results The following discussion of first quarter results excludes the operating results for the 77kids brand. Net sales increased 18% to $709 million, compared to $603 million last year. Comparable store sales, including AE Direct, increased 17%, compared to a 7% decrease last year. Gross profit increased 18% to $275 million. The gross margin rate of 38.8% was flat to last year. Higher product costs, driven by the spike in cotton and incremental incentive costs, adversely affected the merchandise margin. This was offset by a 220 basis point improvement in buying, occupancy and warehousing due to strong sales. Selling general and administrative expense of $179 million improved 60 basis points to 25.2%, compared to 25.8% last year. Operating income increased 46% to $64 million. The operating margin expanded to 9.1% compared to 7.3% last year. EPS of $0.22 compared to $0.16 last year, a 38% increase. 77kids Update On May 18, 2012, the company announced plans to exit its children's business, 77kids, which includes 22 stores and the online business. The company is currently exploring options for the business, which include a full or partial disposition of assets to a third party. In fiscal 2011, the brand generated an after-tax loss of approximately $24 million on sales of $40 million. The company anticipates charges associated with the disposition of 77kids to be taken primarily in the second and third quarters of 2012, which will be disclosed as plans are finalized. AEO Direct In the first quarter, online sales increased 22%, compared to a 3% increase last year. The company's online business includes ae.com, aerie.com and 77kids.com. Inventory Total merchandise inventories at the end of the first quarter were $377 million vs. $332 million last year. At cost per foot, inventory is up 14% compared to last year. Second quarter ending inventory cost per foot is expected to be up in the mid single digits. Capital Expenditures For the first quarter, capital expenditures were $25 million, compared to $38 million last year. For fiscal 2012, the company continues to expect capital expenditures to be approximately $100 million. Real Estate In the first quarter, total square footage increased slightly, reflecting seven store openings, offset by seven store closures, and 21 remodels and refurbishments. For additional first quarter 2012 actual and fiscal 2012 projected real estate information, see the accompanying table. Cash and Investments The company ended the quarter with total cash and short-term investments of $722 million compared to $605 million last year. Future Outlook Assuming low to mid-single digit comparable store sales growth for the year, the company expects annual adjusted EPS of $1.16 to $1.22 compared to adjusted EPS of $0.97 last year. For the second quarter the company expects adjusted EPS of $0.13 to $0.15, assuming mid single digit comparable store sale growth. This compares to adjusted EPS of $0.13 last year. Guidance excludes operating results and exit charges related to 77kids in addition to other potential 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 www.ae.com to access the webcast and audio replay. Also, a financial results presentation is posted on the company's website. 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®, Aerie® and 77kids® brands. The company operates more than 1,000 stores in North America, and ships to 77 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at approximately 35 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 second quarter and 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)     April 28,January 28,April 30,201220122011(unaudited)(unaudited)   ASSETS Cash and cash equivalents $ 713,443 $ 719,545 $ 474,668 Short-term investments 8,587 25,499 130,513 Merchandise inventory 376,688 378,426 331,588 Accounts receivable 37,472 40,310 31,464 Prepaid expenses and other 75,433 74,947 84,687 Deferred income taxes 48,358   48,761   49,023   Total current assets 1,259,981   1,287,488   1,101,943   Property and equipment, net 572,104 582,162 641,907 Intangible assets, net 39,556 39,832 40,454 Goodwill 11,544 11,469 11,710 Non-current deferred income taxes 16,579 13,467 10,030 Other assets 16,688   16,384   26,294   Total Assets $ 1,916,452   $ 1,950,802   $ 1,832,338     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 133,861 $ 183,783 $ 155,183 Accrued compensation and payroll taxes 21,970 42,625 14,915 Accrued rent 76,550 76,921 70,873 Accrued income and other taxes 14,333 20,135 12,242 Unredeemed gift cards and gift certificates 30,783 44,970 29,187 Current portion of deferred lease credits 14,945 15,066 15,981 Other current liabilities and accrued expenses 25,779   21,901   24,566   Total current liabilities 318,221   405,401   322,947   Deferred lease credits 73,350 71,880 79,131 Non-current accrued income taxes 31,806 35,471 40,310 Other non-current liabilities 22,544   21,199   23,486   Total non-current liabilities 127,700   128,550   142,927   Commitments and contingencies - - - Preferred stock - - - Common stock 2,496 2,496 2,496 Contributed capital 567,700 552,797 543,393 Accumulated other comprehensive income 30,532 28,659 33,573 Retained earnings 1,774,205 1,771,464 1,716,173 Treasury stock (904,402 ) (938,565 ) (929,171 ) Total stockholders' equity 1,470,531   1,416,851   1,366,464   Total Liabilities and Stockholders' Equity $ 1,916,452   $ 1,950,802   $ 1,832,338     Current Ratio 3.96 3.18 3.41       AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)   13 Weeks EndedApril 28,% ofApril 30,% of2012   Sales   2011   Sales   Net sales $ 719,093 100.0 % $ 609,562 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 446,430   62.1 % 377,801   62.0 % Gross profit 272,663 37.9 % 231,761 38.0 % Selling, general and administrative expenses 182,605 25.4 % 158,491 26.0 % Depreciation and amortization 32,798   4.5 % 34,880   5.7 % Operating income 57,260 8.0 % 38,390 6.3 % Other income, net 3,507   0.5 % 4,512   0.7 % Income before income taxes 60,767 8.5 % 42,902 7.0 % Provision for income taxes 21,070   3.0 % 14,577   2.4 % Net income $ 39,697   5.5 % $ 28,325   4.6 %   Net income per basic common share $ 0.20 $ 0.15 Net income per diluted common share $ 0.20 $ 0.14   Weighted average common shares outstanding - basic 194,890 194,683 Weighted average common shares outstanding - diluted 197,252 196,633     AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)   13 Weeks EndedApril 28,April 30,20122011 Operating activities: Net income $ 39,697 $ 28,325 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 33,323 35,534 Share-based compensation 21,299 2,506 Provision for deferred income taxes (2,772 ) 8,708 Tax benefit from share-based payments 4,422 256 Excess tax benefit from share-based payments (2,643 ) (139 ) Foreign currency transaction gain (145 ) (219 ) Changes in assets and liabilities: Merchandise inventory 2,345 (28,674 ) Accounts receivable 2,865 5,445 Prepaid expenses and other (347 ) (30,327 ) Other assets (426 ) (2,400 ) Accounts payable (46,852 ) (7,301 ) Unredeemed gift cards and gift certificates (14,260 ) (11,960 ) Deferred lease credits 1,203 (174 ) Accrued compensation and payroll taxes (20,687 ) (20,110 ) Accrued income and other taxes (9,498 ) (18,749 ) Accrued liabilities 5,154   90   Total adjustments (27,019 ) (67,514 ) Net cash provided by (used for) operating activities$12,678$(39,189) Investing activities: Capital expenditures for property and equipment (24,831 ) (37,744 ) Acquisition of intangible assets (220 ) (33,151 ) Purchase of available-for-sale securities (3,051 ) (111,199 ) Sale of available-for-sale securities 20,119   48,887   Net cash used for investing activities$(7,983)$(133,207) Financing activities: Payments on capital leases (941 ) (756 ) Repurchase of common stock from employees (4,100 ) (2,181 ) Net proceeds from stock options exercised 12,165 2,539 Excess tax benefit from share-based payments 2,643 139 Cash dividends paid (21,524 ) (21,430 ) Net cash used for financing activities$(11,757)$(21,689) Effect of exchange rates on cash 960   1,160     Net decrease in cash and cash equivalents$(6,102)$(192,925) Cash and cash equivalents - beginning of period 719,545   667,593   Cash and cash equivalents - end of period $713,443   $474,668         AMERICAN EAGLE OUTFITTERS, INC.COMPARABLE STORE SALES RESULTS BY BRAND (unaudited) First QuarterComparable Store Sales20122011 American Eagle Outfitters, Inc.(1) 17% -7%   AE Brand 17% -8% aerie 20% -7% AEO Direct (1) 22% 3%   (1)   AEO Direct is comprised of ae.com, aerie.com and 77kids.com. AEO Direct is included in consolidated comparable store sales.   AMERICAN EAGLE OUTFITTERS, INC.REAL ESTATE INFORMATION (unaudited)     First QuarterFiscal 2012Fiscal 2011Guidance Consolidated stores at beginning of period 1,090 1,090 Consolidated stores opened during the period AE Brand 6 15 77kids 1 1 Consolidated stores closed during the period AE Brand and aerie (7) (20) - (30) 77kids   -   (22) Total consolidated stores at end of period1,0901,054 - 1,064   Stores remodeled and refurbished during the period 21 55 - 65 Total gross square footage at end of period 6,414,420 Not Provided   International franchise stores at end of period (1) 34 52 (1)-   International franchise stores are not included in the consolidated store data or the total gross square footage calculation.           AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATIONCONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)   First Quarter Fiscal 2012American EagleAmerican EagleOutfitters, Inc.Outfitters, Inc.(GAAP Basis)77kids (1)(Non-GAAP Basis)% of% of       Sales           Sales   Net sales $ 719,093 100.0 % $ 10,398 $ 708,695 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 446,430   62.1 %   12,648     433,782   61.2 % Gross profit (loss) 272,663 37.9 % (2,250 ) 274,913 38.8 % Selling, general and administrative expenses 182,605 25.4 % 4,066 178,539 25.2 % Depreciation and amortization   32,798   4.5 %   732     32,066   4.5 % Operating income (loss) 57,260 8.0 % (7,048 ) 64,308 9.1 % Other income, net   3,507   0.5 %   -     3,507   0.5 % Income (loss) before income taxes 60,767 8.5 % (7,048 ) 67,815 9.6 % Provision (benefit) for income taxes   21,070   3.0 %   (2,710 )   23,780   3.4 % Net income (loss) $ 39,697   5.5 % $ (4,338 ) $ 44,035   6.2 %   Net income (loss) per basic common share $ 0.20 $ (0.02 ) $ 0.22   Net income (loss) per diluted common share $ 0.20 $ (0.02 ) $ 0.22 Weighted average common shares outstanding - basic 194,890 194,890 194,890 Weighted average common shares outstanding - diluted 197,252 197,252 197,252   First Quarter Fiscal 2011American EagleAmerican EagleOutfitters, Inc.Outfitters, Inc.(GAAP Basis)77kids (1)(Non-GAAP Basis)% of% of       Sales           Sales   Net sales $ 609,562 100.0 % $ 6,478 $ 603,084 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 377,801   62.0 %   8,536     369,265   61.2 % Gross profit (loss) 231,761 38.0 % (2,058 ) 233,819 38.8 % Selling, general and administrative expenses 158,491 26.0 % 3,239 155,252 25.8 % Depreciation and amortization   34,880   5.7 %   444     34,436   5.7 % Operating income (loss) 38,390 6.3 % (5,741 ) 44,131 7.3 % Other income, net   4,512   0.7 %   -     4,512   0.7 % Income (loss) before income taxes 42,902 7.0 % (5,741 ) 48,643 8.0 % Provision (benefit) for income taxes   14,577   2.4 %   (2,195 )   16,772   2.7 % Net income (loss) $ 28,325   4.6 % $ (3,546 ) $ 31,871   5.3 %   Net income (loss) per basic common share $ 0.15 $ (0.02 ) $ 0.17   Net income (loss) per diluted common share $ 0.14 $ (0.02 ) $ 0.16   Weighted average common shares outstanding - basic 194,683 194,683 194,683 Weighted average common shares outstanding - diluted 196,633 196,633 196,633   (1)   Represents 77kids store and online business operating results, as well as home office and other costs directly attributable to 77kids operations.               AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATIONCONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)   Fiscal 2011American EagleOutfitters, Inc.American Eagle(Non-GAAP excludingOutfitters, Inc.Non-GAAP77kids and Other Non-(GAAP Basis)77kids (1)Items (2)GAAP Items)% of% of       Sales               Sales   Net sales $ 3,159,818 100.0 % $ 39,753 $ - $ 3,120,065 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 2,031,477     64.3 %   56,006     -     1,975,471     63.3 % Gross profit (loss) 1,128,341 35.7 % (16,253 ) - 1,144,594 36.7 % Selling, general and administrative expenses 735,828 23.3 % 17,705 5,536 712,587 22.9 % Loss on impairment of assets 20,730 0.7 % 1,552 19,178 - 0.0 % Depreciation and amortization   140,647     4.4 %   2,689     -     137,958     4.4 % Operating income (loss) 231,136 7.3 % (38,199 ) (24,714 ) 294,049 9.4 % Other income (expense), net   5,874     0.2 %   -     (677 )   6,551     0.2 % Income (loss) before income taxes 237,010 7.5 % (38,199 ) (25,391 ) 300,600 9.6 % Provision (benefit) for income taxes   85,305     2.7 %   (14,625 )   (9,725 )   109,655     3.5 % Net income (loss) $ 151,705     4.8 % $ (23,574 ) $ (15,666 ) $ 190,945     6.1 %   Net income (loss) per basic common share $ 0.78 $ (0.12 ) $ (0.08 ) $ 0.98   Net income (loss) per diluted common share $ 0.77 $ (0.12 ) $ (0.08 ) $ 0.97   Weighted average common shares outstanding - basic 194,445 194,445 194,445 194,445 Weighted average common shares outstanding - diluted 196,314 196,314 196,314 196,314   Fiscal 2010American EagleOutfitters, Inc.American Eagle(Non-GAAP excludingOutfitters, Inc.Non-GAAP77kids and Other Non-(GAAP Basis)77kids (1)Items (3)   GAAP Items)% of% of       Sales               Sales   Net sales $ 2,967,559 100.0 % $ 22,265 $ - $ 2,945,294 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 1,796,600     60.5 %   33,457     -     1,763,143     59.9 % Gross profit (loss) 1,170,959 39.5 % (11,192 ) - 1,182,151 40.1 % Selling, general and administrative expenses 713,197 24.0 % 10,273 - 702,924 23.9 % Depreciation and amortization   140,501     4.8 %   826     -     139,675     4.8 % Operating income (loss) 317,261 10.7 % (22,291 ) - 339,552 11.4 % Realized loss on sale of investment securities (24,426 ) -0.8 % - (24,201 ) (225 ) 0.0 % Other income, net   2,249     0.0 %   -     -     2,249     0.1 % Income (loss) before income taxes 295,084 9.9 % (22,291 ) (24,201 ) 341,576 11.5 % Provision (benefit) for income taxes   113,150     3.8 %   (8,494 )   -     121,644     4.0 % Net income (loss) $ 181,934     6.1 % $ (13,797 ) $ (24,201 ) $ 219,932     7.5 %   Net income (loss) per basic common share $ 0.91 $ (0.07 ) $ (0.12 ) $ 1.10   Net income (loss) per diluted common share $ 0.90 $ (0.07 ) $ (0.12 ) $ 1.09   Weighted average common shares outstanding - basic 199,979 199,979 199,979 199,979 Weighted average common shares outstanding - diluted 201,818 201,818 201,818 201,818   (1)   Represents 77kids store and online business operating results, as well as home office and other costs directly attributable to 77kids operations. (2) Non-GAAP items for Fiscal 2011 consist of $19.2 million of pre-tax store asset impairment charges for the AE and aerie brand and $6.2 million of pre-tax executive transition costs. (3) Non-GAAP items for Fiscal 2010 consist of a $24.2 million loss on sale of investment securities for which no tax benefit was realized.         77KIDSHISTORICAL STATEMENTS OF OPERATIONS (1) (Dollars and shares in thousands, except per share amounts) (unaudited)   Fiscal 2011 Quarterly Periods EndedApril 30,% ofJuly 30,% ofOctober 29,% ofJanuary 28,% of   2011Sales   2011Sales   2011Sales   2012Sales   Net sales $ 6,478 100.0 % $ 6,583 100.0 % $ 12,407 100.0 % $ 14,285 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses   8,536   131.8 %   10,700   162.5 %   15,695   126.5 %   21,075   147.5 % Gross profit (2,058 ) -31.8 % (4,117 ) -62.5 % (3,288 ) -26.5 % (6,790 ) -47.5 % Selling, general and administrative expenses 3,239 50.0 % 3,986 60.6 % 4,896 39.5 % 5,584 39.1 % Loss on impairment of assets - 0.0 % - 0.0 % - 0.0 % 1,552 10.9 % Depreciation and amortization   444   6.8 %   678   10.3 %   784   6.3 %   783   5.5 % Operating loss (5,741 ) -88.6 % (8,781 ) -133.4 % (8,968 ) -72.3 % (14,709 ) -103.0 % Other income, net   -   0.0 %   -   0.0 %   -   0.0 %   -   0.0 % Loss before income taxes (5,741 ) -88.6 % (8,781 ) -133.4 % (8,968 ) -72.3 % (14,709 ) -103.0 % Benefit for income taxes   (2,195 ) -33.9 %   (3,358 ) -51.0 %   (3,444 ) -27.8 %   (5,628 ) -39.4 % Net loss $ (3,546 ) -54.7 %   (5,423 ) -82.4 %   (5,524 ) -44.5 %   (9,081 ) -63.6 %   Net loss per basic common share $ (0.02 ) $ (0.03 ) $ (0.03 ) $ (0.05 )   Net loss per diluted common share $ (0.02 ) $ (0.03 ) $ (0.03 ) $ (0.05 )   Weighted average common shares outstanding - basic 194,683 194,909 194,378 193,798 Weighted average common shares outstanding - diluted 196,633 196,578 195,985 195,913   Fiscal 2010 Quarterly Periods EndedMay 1,% ofJuly 31,% ofOctober 30,% ofJanuary 29,% of   2010Sales   2010Sales   2010Sales   2011Sales   Net sales $ 3,342 100.0 % $ 2,761 100.0 % $ 6,658 100.0 % $ 9,504 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses   4,769   142.7 %   4,363   158.0 %   9,769   146.7 %   14,556   153.2 % Gross profit (1,427 ) -42.7 % (1,602 ) -58.0 % (3,111 ) -46.7 % (5,052 ) -53.2 % Selling, general and administrative expenses 1,578 47.2 % 1,752 63.5 % 3,509 52.7 % 3,434 36.1 % Depreciation and amortization   71   2.1 %   98   3.5 %   270   4.1 %   387   4.1 % Operating loss (3,076 ) -92.0 % (3,452 ) -125.0 % (6,890 ) -103.5 % (8,873 ) -93.4 % Other income, net   -   0.0 %   -   0.0 %   -   0.0 %   -   0.0 % Loss before income taxes (3,076 ) -92.0 % (3,452 ) -125.0 % (6,890 ) -103.5 % (8,873 ) -93.4 % Benefit for income taxes   (1,169 ) -35.0 %   (1,304 ) -47.2 %   (2,630 ) -39.5 %   (3,391 ) -35.7 % Net loss $ (1,907 ) -57.2 %   (2,148 ) -77.8 %   (4,260 ) -64.0 %   (5,482 ) -57.7 %   Net loss per basic common share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.03 )   Net loss per diluted common share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.03 )   Weighted average common shares outstanding - basic 207,718 201,764 195,590 194,878 Weighted average common shares outstanding - diluted 210,285 203,153 197,323 196,789   (1)   Represents 77kids store and online business operating results, as well as home office and other costs directly attributable to 77kids operations. American Eagle Outfitters Inc.Judy Meehan, 412-432-3300