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Press release from Business Wire

American Eagle Outfitters Reports 62% Increase in Second Quarter EPS

<p class='bwalignc'> <b>Sales Increase 11% to Record $740 Million on Comp Growth of 9%</b> </p>

Wednesday, August 22, 2012

American Eagle Outfitters Reports 62% Increase in Second Quarter EPS08:03 EDT Wednesday, August 22, 2012 PITTSBURGH (Business Wire) -- American Eagle Outfitters, Inc. (NYSE:AEO) today announced income from continuing operations increased 62% to $0.21 per diluted share for the second quarter ended July 28, 2012, compared to $0.13 per diluted share for the comparable quarter last year. Due to the closure of the 77kids business, results are presented as discontinued operations for all periods and are further discussed below. Net income for the second quarter, which includes a loss from discontinued operations, was $0.09 per diluted share, compared to $0.10 per diluted share last year. Robert Hanson, chief executive officer stated, “While pleased with our results, and therefore raising our annual outlook, we continue to drive for long-term performance improvement through fortifying our brands, further strengthening our products, marketing and customer experience, enhancing operational disciplines and pursuing growth across North America." Non-GAAP Second Quarter Results – Continuing Operations (Excluding 77kids) The following discussion of second quarter results excludes Non-GAAP adjustments comprised of tax benefits and restructuring costs as presented in the accompanying GAAP to Non-GAAP reconciliation. Net sales increased 11% to a record $740 million, compared to $669 million last year. Comparable store sales, including AE Direct, increased 9%, compared to a 1% increase last year. Gross profit increased 17% to $277 million, or 37.4% as a rate to sales, compared to $236 million, or 35.3% as a rate to sales, last year. Decreased product costs and markdowns led to a 120 basis point improvement in the merchandise margin. Buying, occupancy and warehousing costs improved 90 basis points due to strong sales. Selling general and administrative expense of $178 million, which excludes $4 million of restructuring costs, improved 40 basis points to 24.0%, compared to 24.4% last year. Excluding restructuring costs, operating income increased 76% to $67 million. The operating margin expanded to 9.1% compared to 5.7% last year. Adjusted EPS from continuing operations of $0.21 compared to $0.13 last year, a 62% increase. Results exclude restructuring costs of $0.02 per diluted share, offset by $0.02 per diluted share of tax benefits. 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. On August 3, 2012, the company completed a sale of 77kids, which included substantially all of the assets comprising the 77kids business, including store assets, the on-line business, inventory and a temporary license to use the 77kids name through January 15, 2013. Inventory for 77kids has been recorded as an asset held for sale on the company's consolidated balance sheets. The company expects to incur an after-tax loss of approximately $35 million, which includes $25 million of exit related charges and $10 million of operational costs during the exit period. The after tax loss for the second quarter was $24 million, or a $0.12 loss per diluted share, compared to an operating loss of $5 million, or a $0.03 loss per diluted share, last year. The remainder of the exit period costs are expected to be incurred in the third quarter of fiscal 2012. AEO Direct In the second quarter, online sales increased 28%, compared to a 17% increase last year. The company's online business includes ae.com and aerie.com. Inventory (Excluding 77kids) Total merchandise inventories at the end of the second quarter were $462 million vs. $457 million last year. At cost per foot, inventory is up 3% compared to last year. Third quarter ending inventory cost per foot is expected to be down mid single-digits. Capital Expenditures For the second quarter, capital expenditures were $24 million, compared to $28 million last year. For fiscal 2012, the company continues to expect capital expenditures to be approximately $100 million. Real Estate In the second quarter, total square footage decreased slightly, reflecting three store openings, offset by eight store closures, and 17 remodels and refurbishments. For additional second 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 $702 million compared to $514 million last year. Future Outlook For the third quarter, management expects EPS from continuing operations to be in the range of $0.37 to $0.38 per diluted share, compared to $0.30 last year. For the year, management is raising its EPS guidance from continuing operations to a range of $1.33 to $1.36, compared to an adjusted $0.97 last year. EPS guidance is based on comparable store sales growth of mid single-digits for the third quarter and low single-digits for the fourth quarter. 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. 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 North America, and ships to 77 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 39 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 third 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)     July 28,January 28,July 30,201220122011(unaudited)(unaudited)   ASSETS Cash and cash equivalents $ 696,077 $ 719,545 $ 389,299 Short-term investments 5,995 25,499 124,697 Merchandise inventory 462,013 367,514 457,282 Assets held for sale 9,985 10,912 12,960 Accounts receivable 40,202 40,310 31,530 Prepaid expenses and other 76,584 74,947 90,788 Deferred income taxes 55,607 48,761 48,585 Total current assets 1,346,463 1,287,488 1,155,141 Property and equipment, net 544,751 582,162 635,540 Intangible assets, net 38,682 39,832 40,295 Goodwill 11,445 11,469 11,668 Non-current deferred income taxes 22,477 13,467 2,460 Other assets 15,064 16,384 21,398 Total Assets $ 1,978,882 $ 1,950,802 $ 1,866,502   LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 171,655 $ 183,783 $ 187,572 Accrued compensation and payroll taxes 54,168 42,625 24,928 Accrued rent 78,514 76,921 72,477 Accrued income and other taxes 15,822 20,135 13,998 Unredeemed gift cards and gift certificates 24,342 44,970 26,542 Current portion of deferred lease credits 14,679 15,066 15,938 Other current liabilities and accrued expenses 26,694 21,901 21,037 Total current liabilities 385,874 405,401 362,492 Deferred lease credits 69,598 71,880 77,925 Non-current accrued income taxes 26,285 35,471 38,256 Other non-current liabilities 18,711 21,199 20,842 Total non-current liabilities 114,594 128,550 137,023 Commitments and contingencies - - - Preferred stock - - - Common stock 2,496 2,496 2,496 Contributed capital 574,671 552,797 546,677 Accumulated other comprehensive income 28,073 28,659 32,692 Retained earnings 1,770,546 1,771,464 1,713,778 Treasury stock (897,372) (938,565) (928,656) Total stockholders' equity 1,478,414 1,416,851 1,366,987 Total Liabilities and Stockholders' Equity $ 1,978,882 $ 1,950,802 $ 1,866,502   Current Ratio 3.49 3.18 3.19             AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)   13 Weeks Ended (GAAP Basis)July 28,% ofJuly 30,% of2012   Sales   2011     Sales   Net sales $ 739,680 100.0 % $ 669,120 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 463,116     62.6 %       432,942       64.7 % Gross profit 276,564 37.4 % 236,178 35.3 % Selling, general and administrative expenses 182,125 24.6 % 163,113 24.4 % Depreciation and amortization 32,643     4.4 %       34,997       5.2 % Operating income 61,796 8.4 % 38,068 5.7 % Other (expense) income, net (343 )   -0.1 %       1,431       0.2 % Income before income taxes 61,453 8.3 % 39,499 5.9 % Provision for income taxes 18,607     2.5 %       14,407       2.2 % Income from continuing operations 42,846 5.8 % 25,092 3.7 % Loss from discontinued operations, net of tax (23,819 )   -3.2 %       (5,423 )     -0.8 % Net income $ 19,027     2.6 %     $ 19,669       2.9 %   Basic income per common share: Income from continuing operations $ 0.22 $ 0.13 Loss from discontinued operations (0.12 )   (0.03 ) Net income per basic share $ 0.10   $ 0.10     Diluted income per common share: Income from continuing operations $ 0.21 $ 0.13 Loss from discontinued operations (0.12 )   (0.03 ) Net income per diluted share $ 0.09   $ 0.10     Weighted average common shares outstanding - basic 196,160 194,909 Weighted average common shares outstanding - diluted 199,807 196,578   26 Weeks Ended (GAAP Basis)July 28,% ofJuly 30,% of2012   Sales     2011     Sales   Net sales $ 1,448,375 100.0 % $ 1,272,204 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 896,898     61.9 %       802,207       63.1 % Gross profit 551,477 38.1 % 469,997 36.9 % Selling, general and administrative expenses 360,664 24.9 % 318,365 25.0 % Depreciation and amortization 64,709     4.5 %       69,433       5.5 % Operating income 126,104 8.7 % 82,199 6.4 % Other income, net 3,164     0.2 %       5,943       0.5 % Income before income taxes 129,268 8.9 % 88,142 6.9 % Provision for income taxes 42,387     2.9 %       31,179       2.4 % Income from continuing operations 86,881 6.0 % 56,963 4.5 % Loss from discontinued operations, net of tax (28,157 )   -1.9 %       (8,969 )     -0.7 % Net income $ 58,724     4.1 %     $ 47,994       3.8 %   Basic income per common share: Income from continuing operations $ 0.44 $ 0.29 Loss from discontinued operations (0.14 )   (0.05 ) Net income per basic share $ 0.30   $ 0.24     Diluted income per common share: Income from continuing operations $ 0.44 $ 0.29 Loss from discontinued operations (0.14 )   (0.05 ) Net income per diluted share $ 0.30   $ 0.24     Weighted average common shares outstanding - basic 195,525 194,800 Weighted average common shares outstanding - diluted 198,329 196,626         AMERICAN EAGLE OUTFITTERS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)   26 Weeks EndedJuly 28,July 30,20122011 Operating activities: Net income $ 58,724 $ 47,994 Loss from discontinued operations 28,157   8,969   Income from continuing operations 86,881 56,963 Adjustments to reconcile income from continuing operations to net cash fromoperating activities of continuing operations: Depreciation and amortization 65,761 70,742 Share-based compensation 28,029 5,523 Provision for deferred income taxes (16,556 ) 16,389 Tax benefit from share-based payments 4,396 290 Excess tax benefit from share-based payments (2,894 ) (152 ) Foreign currency transaction loss 472 219 Loss on impairment of assets 514 - Changes in assets and liabilities: Merchandise inventory (94,762 ) (162,081 ) Accounts receivable (532 ) 6,650 Prepaid expenses and other (739 ) (36,450 ) Other assets 808 (2,767 ) Accounts payable (5,519 ) 21,694 Unredeemed gift cards and gift certificates (20,620 ) (14,630 ) Deferred lease credits (2,592 ) (2,719 ) Accrued compensation and payroll taxes 10,871 (10,166 ) Accrued income and other taxes (15,028 ) (17,567 ) Accrued liabilities 9,256   689   Total adjustments (39,135 ) (124,336 ) Net cash provided by (used for) operating activities from continuing operations$47,746$(67,373) Investing activities: Capital expenditures for property and equipment (48,240 ) (56,212 ) Acquisition of intangible assets (674 ) (33,545 ) Purchase of available-for-sale securities (570 ) (166,443 ) Sale of available-for-sale securities 20,592   115,229   Net cash used for investing activities from continuing operations$(28,892)$(140,971) Financing activities: Payments on capital leases (1,666 ) (1,556 ) Repurchase of common stock from employees (4,108 ) (2,189 ) Net proceeds from stock options exercised 18,495 2,659 Excess tax benefit from share-based payments 2,894 152 Cash dividends paid (43,108 ) (42,869 ) Net cash used for financing activities from continuing operations$(27,493)$(43,803) Effect of exchange rates on cash (517 ) 848     Cash flows of discontinued operations Net cash used for operating activities (13,544 ) (17,606 ) Net cash used for investing activities (768 ) (9,389 ) Net cash used for financing activities - - Effect of exchange rate on cash -   -   Net cash used for discontinued operations$(14,312)$(26,995)   Net decrease in cash and cash equivalents$(23,468)$(278,294) Cash and cash equivalents - beginning of period 719,545   667,593   Cash and cash equivalents - end of period $696,077   $389,299                   AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATIONCONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts) (unaudited)   13 Weeks EndedJuly 28, 2012American Eagle Outfitters,Inc. (GAAP Basis)Tax Benefits (1)Restructuring Costs (1)   American Eagle Outfitters,Inc. (Non-GAAP Basis)% of% of       Sales             Sales   Net sales $ 739,680 100.0 % $ - $ - $ 739,680 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses   463,116     62.6 %   -     -     463,116     62.6 % Gross profit 276,564 37.4 % - - 276,564 37.4 % Selling, general and administrative expenses 182,125 24.6 % - 4,367 177,758 24.0 % Depreciation and amortization   32,643     4.4 %   -     710     31,933     4.3 % Operating income (loss) 61,796 8.4 % - (5,077 ) 66,873 9.1 % Other (expense) income, net   (343 )   -0.1 %   -     -     (343 )   -0.1 % Income (loss) before income taxes 61,453 8.3 % - (5,077 ) 66,530 9.0 % Provision (benefit) for income taxes   18,607     2.5 %   (4,411 )   (1,882 )   24,900     3.4 % Income (loss) from continuing operations   42,846     5.8 %   4,411     (3,195 )   41,630     5.6 % Loss from discontinued operations, net of tax   (23,819 )   -3.2 %   -     -     (23,819 )   -3.2 % Net income (loss) $ 19,027     2.6 % $ 4,411   $ (3,195 ) $ 17,811     2.4 %   Basic income per common share Income from continuing operations $ 0.22 $ 0.03 $ (0.02 ) $ 0.21 Loss from discontinued operations $ (0.12 )   $ 0.00   $ 0.00   $ (0.12 ) Basic income per common share $ 0.10 $ 0.03 $ (0.02 ) $ 0.09   Diluted income per common share Income from continuing operations $ 0.21 $ 0.02 $ (0.02 ) $ 0.21 Loss from discontinued operations $ (0.12 )   $ 0.00   $ 0.00   $ (0.12 ) Diluted income per common share $ 0.09 $ 0.02 $ (0.02 ) $ 0.09   Weighted average common shares outstanding - basic 196,160 196,160 196,160 196,160 Weighted average common shares outstanding - diluted 199,807 199,807 199,807 199,807     (1)- Non-GAAP Items consist of $4.4 million of tax benefits from audit settlements, offset by $3.9 million of pre-tax severance and related costs and $1.2 million of pre-tax asset impairments and asset write offs.     AMERICAN EAGLE OUTFITTERS, INC.COMPARABLE STORE SALES RESULTS BY BRAND (unaudited)   Second Quarter Comparable Store Sales (1)20122011 American Eagle Outfitters, Inc. (2) 9% 1%   AE Brand 7% 0% aerie 13% -1% AEO Direct (2) 28% 17%   YTD Second QuarterComparable Store Sales (1)20122011 American Eagle Outfitters, Inc. (2) 13% -3%   AE Brand 11% -4% aerie 16% -4% AEO Direct (2) 25% 9%       (1) Comparable store sales are from continuing operations and exclude 77kids. (2) AEO Direct is comprised of ae.com and aerie.com. AEO Direct is included in consolidated comparable store sales.       AMERICAN EAGLE OUTFITTERS, INC.REAL ESTATE INFORMATION (unaudited)     Second QuarterYTD Second QuarterFiscal 2012Fiscal 2011Fiscal 2012Guidance Consolidated stores at beginning of period (1) 1,068 1,069 1,069 Consolidated stores opened during the period AE Brand 3 9 15 Consolidated stores closed during the period AE Brand (6) (12) (20) - (30) aerie   (2)   (3)   (5) - (10) Total consolidated stores at end of period1,0631,0631,044 - 1,059   Stores remodeled and refurbished during the period 17 38 55 - 65 Total gross square footage at end of period 6,283,028 6,283,028 Not Provided   International franchise stores at end of period (2) 39 39 49   (1)- Consolidated store data and total gross square footage exclude all 77kids store locations. (2)- International franchise stores are not included in the consolidated store data or the total gross square footage calculation. American Eagle Outfitters Inc.Judy Meehan, 412-432-3300