American Eagle Outfitters Reports Fourth Quarter and Fiscal 2013 Results

PITTSBURGH--(BUSINESS WIRE)--

American Eagle Outfitters, Inc. AEO today reported adjusted earnings of $0.27 per share for the 13 week period ended February 1, 2014, compared to adjusted earnings of $0.55 per share for the 14 week period ended February 2, 2013. GAAP earnings of $0.05 per share include non-GAAP charges of ($0.22) per share, which are outlined in the accompanying GAAP to Non-GAAP reconciliations. This compares to GAAP earnings of $0.47 per share last year.

The company also announced adjusted earnings of $0.74 per share for the 52 week period ended February 1, 2014, compared to adjusted earnings from continuing operations of $1.39 per share for the 53 week period ended February 2, 2013. GAAP earnings of $0.43 per share include non-GAAP charges of ($0.31) per share, which are outlined in the accompanying GAAP to Non-GAAP reconciliations. This compares to GAAP earnings from continuing operations of $1.32 per share last year. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, Interim CEO stated, “The Company's results in 2013 were highly disappointing. While tough macro conditions have persisted in our retail sector, our merchandise and overall customer experience fell short of expectations. We're taking steps to bring greater focus and excitement to our product offering and better engage our core customers. Our brands remain incredibly strong and I'm confident in our ability to execute the strategic plan and resume long-term profitable growth.”

The following discussion is based on Non-GAAP results, which exclude the adjustments presented in the accompanying GAAP to Non-GAAP reconciliations.

Fourth Quarter 2013 Non-GAAP Results

• Total net revenue for the 13 weeks decreased 7% to $1.04 billion from $1.12 billion for the 14 week period last year. Consolidated comparable sales for the 13 weeks decreased 7% over the same 13 week period last year. This follows a 4% comparable sales increase last year.
• Gross profit decreased 28% to $332 million and decreased 930 basis points to 31.9% as a rate to revenue. The decrease was primarily the result of increased promotional activity and the deleverage of rent on negative comparable sales.
• Selling, general and administrative expense of $216 million decreased 15% and leveraged 190 basis points to 20.7% as a rate to revenue. Lower incentive costs and a planned reduction in advertising drove the majority of the decline.
• Operating income decreased 52% to $86 million. The operating margin decreased 770 basis points to 8.2%.
• Adjusted EPS of $0.27 compares to $0.55 last year, a 51% decrease.

Fiscal 2013 Non-GAAP Results

• Total net revenue for the 52 weeks decreased 5% to $3.31 billion from $3.48 billion for the 53 week period last year. Consolidated comparable sales for the 52 weeks decreased 6% over the same 52 week period last year. This follows a 9% increase last year.
• Gross profit decreased 18% to $1.14 billion and decreased 540 basis points to 34.6% as a rate to revenue, primarily as a result of higher promotional activity and the deleverage of rent on negative comparable sales.
• Selling, general and administrative expense of $789 million decreased 5%, and deleveraged 10 basis points to 23.9% as a rate to revenue. The decrease resulted primarily from lower incentive costs, offset by higher store payroll and corporate salaries.
• Operating income decreased 47% to $234 million. The operating margin decreased 550 basis points to 7.1%.
• Adjusted EPS of $0.74 compares to $1.39 last year, a 47% decrease.

Inventory

Total merchandise inventories at the end of the fourth quarter declined 12% to $292 million compared to $332 million last year. At cost per foot, inventory decreased 16%, driven by a change in ownership terms. Excluding the change in ownership terms, ending inventory at cost per foot increased in the high single-digits, compared to an 8% decline last year. First quarter 2014 ending inventory at cost per foot is expected to decline in the mid single-digits.

Capital Expenditures

In 2013, capital expenditures totaled $278 million, which was above earlier expectations due in part to the timing of investments in our new distribution center and related systems to support omni-channel. For fiscal 2014, the company expects capital expenditures of approximately $230 million. Nearly half of the capital spending plan is for new and upgraded systems, the completion of the distribution center and omni-channel projects, while the rest relates to store upgrades, as well as factory and international store expansion plans.

Real Estate

In 2013, total square footage increased 5%. The company opened 64 stores, including 39 factory stores, six stores in Mexico and seven stores in China and Hong Kong. The company closed 42 stores, including 29 aerie stand alone locations. For additional fiscal 2013 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 $429 million compared to $631 million last year.

First Quarter Outlook

Business conditions remain challenging, with severe winter weather contributing to weak demand. Based on a high single-digit decline in comparable sales, management expects first quarter EPS to be approximately breakeven compared to adjusted EPS of $0.18 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 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 http://investors.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. 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, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 69 licensed 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 first 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.

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
				February 1,				February 2,
				2014				2013
				(unaudited)
ASSETS
	Cash and cash equivalents		$	418,933			$	509,119
	Short-term investments			10,002				121,873
	Merchandise inventory			291,541				332,452
	Accounts receivable			73,882				46,321
	Prepaid expenses and other			83,724				73,805
	Deferred income taxes			45,478				58,230
	Total current assets			923,560				1,141,800
	Property and equipment, net			637,417				509,633
	Intangible assets, net			49,271				38,136
	Goodwill			13,530				11,484
	Non-current deferred income taxes			24,835				31,282
	Other assets			45,551				23,718
	Total Assets		$	1,694,164			$	1,756,053
LIABILITIES AND STOCKHOLDERS' EQUITY
	Accounts payable		$	203,872			$	176,874
	Accrued compensation and payroll taxes			23,560				65,533
	Accrued rent			76,397				77,873
	Accrued income and other taxes			5,778				29,155
	Unredeemed gift cards and gift certificates			47,194				46,458
	Current portion of deferred lease credits			13,293				13,381
	Other current liabilities and accrued expenses			45,384				26,628
	Total current liabilities			415,478				435,902
	Deferred lease credits			59,510				59,571
	Non-current accrued income taxes			16,543				19,011
	Other non-current liabilities			36,455				20,382
	Total non-current liabilities			112,508				98,964
	Commitments and contingencies			-				-
	Preferred stock			-				-
	Common stock			2,496				2,496
	Contributed capital			573,008				627,065
	Accumulated other comprehensive income			12,157				29,297
	Retained earnings			1,569,851				1,553,058
	Treasury stock			(991,334	)			(990,729	)
	Total stockholders' equity			1,166,178				1,221,187
	Total Liabilities and Stockholders' Equity		$	1,694,164			$	1,756,053
	Current Ratio			2.22				2.62

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
				GAAP Basis
				13 Weeks Ended						14 Weeks Ended
				February 1,		% of				February 2,			% of
				2014		Revenue				2013			Revenue
	Total net revenue		$	1,041,707		100.0	%		$	1,117,053			100.0	%
	Cost of sales, including certain buying, occupancy and warehousing expenses			735,687		70.6	%			657,298			58.8	%
	Gross profit			306,020		29.4	%			459,755			41.2	%
	Selling, general and administrative expenses			222,191		21.3	%			255,251			22.9	%
	Loss on impairment of assets			25,149		2.4	%			34,427			3.1	%
	Depreciation and amortization			34,703		3.4	%			30,116			2.7	%
	Operating income			23,977		2.3	%			139,961			12.5	%
	Other income, net			35		0.0	%			1,446			0.1	%
	Income before income taxes			24,012		2.3	%			141,407			12.6	%
	Provision for income taxes			13,502		1.3	%			46,631			4.1	%
	Income from continuing operations			10,510		1.0	%			94,776			8.5	%
	Loss from discontinued operations, net of tax			-		0.0	%			-			0.0	%
	Net income		$	10,510		1.0	%		$	94,776			8.5	%
	Basic income per common share:
	Income from continuing operations		$	0.05					$	0.48
	Loss from discontinued operations			-						-
	Net income per basic share		$	0.05					$	0.48
	Diluted income per common share:
	Income from continuing operations		$	0.05					$	0.47
	Loss from discontinued operations			-						-
	Net income per diluted share		$	0.05					$	0.47
	Weighted average common shares
	outstanding - basic			192,953						196,137
	Weighted average common shares
	outstanding - diluted			194,287						201,376
				GAAP Basis
				52 Weeks Ended						53 Weeks Ended
				February 1,		% of				February 2,			% of
				2014		Revenue				2013			Revenue
	Total net revenue		$	3,305,802		100.0	%		$	3,475,802			100.0	%
	Cost of sales, including certain buying, occupancy and warehousing expenses			2,191,803		66.3	%			2,085,480			60.0	%
	Gross profit			1,113,999		33.7	%			1,390,322			40.0	%
	Selling, general and administrative expenses			796,505		24.1	%			834,601			24.0	%
	Loss on impairment of assets			44,465		1.3	%			34,869			1.0	%
	Depreciation and amortization			131,974		4.0	%			126,246			3.6	%
	Operating income			141,055		4.3	%			394,606			11.4	%
	Other income, net			1,022		0.0	%			7,432			0.2	%
	Income before income taxes			142,077		4.3	%			402,038			11.6	%
	Provision for income taxes			59,094		1.8	%			137,940			4.0	%
	Income from continuing operations			82,983		2.5	%			264,098			7.6	%
	Loss from discontinued operations, net of tax			-		0.0	%			(31,990	)		-0.9	%
	Net income		$	82,983		2.5	%		$	232,108			6.7	%
	Basic income per common share:
	Income from continuing operations		$	0.43					$	1.35
	Loss from discontinued operations			-						(0.16	)
	Net income per basic share		$	0.43					$	1.19
	Diluted income per common share:
	Income from continuing operations		$	0.43					$	1.32
	Loss from discontinued operations			-						(0.16	)
	Net income per diluted share		$	0.43					$	1.16
	Weighted average common shares
	outstanding - basic			192,802						196,211
	Weighted average common shares
	outstanding - diluted			194,475						200,665

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
		13 Weeks Ended
		February 1, 2014
		Gross Profit				Selling, general & administrative expenses				Depreciation and amortization				Operating income (loss)				Income before income taxes				Diluted income per common share
GAAP Basis		$	306,020			$	222,191			$	34,703			$	23,977			$	24,012			$	0.05
Asset Impairment(1):			-				-				-				(25,149	)			(25,149	)			(0.08	)
Asset Write-offs & Corporate Charges(2):			(26,199	)			6,328				4,118				(36,645	)			(37,853	)			(0.12	)
Tax Related(3):			-				-				-				-				-				(0.02	)
Non-GAAP Basis		$	332,219			$	215,863			$	30,585			$	85,771			$	87,014			$	0.27
% of Total Net Revenue			31.9	%			20.7	%			3.0	%			8.2	%			8.3	%

(1) - Pre-tax asset impairment for AEO & aerie brand stores.

(2) - Pre-tax charges including $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $9.1M of corporate & store asset write-offs, $3.3M of employee severance & related costs and $1.3M for the write-down of the Company's corporate jet.

(3) - International valuation allowance, partially offset by tax benefits from changes in tax reserves.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
		52 Weeks Ended
		February 1, 2014
		Gross Profit				Selling, general & administrative expenses				Depreciation and amortization				Operating income (loss)				Income before income taxes				Diluted income per common share
GAAP Basis		$	1,113,999			$	796,505			$	131,974			$	141,055			$	142,077			$	0.43
Asset Impairment(1):			-				-				-				(44,465	)			(44,465	)			(0.14	)
Asset Write-offs & Corporate Charges(2):			(28,624	)			7,840				11,724				(48,188	)			(49,396	)			(0.16	)
Tax Related(3):			-				-				-				-				-				(0.01	)
Non-GAAP Basis		$	1,142,623			$	788,665			$	120,250			$	233,708			$	235,938			$	0.74
% of Total Net Revenue			34.6	%			23.9	%			3.6	%			7.1	%			7.2	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores and Warrendale Distribution Center.
(2) - Pre-tax charges including $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $14.3M of corporate & store asset write-offs, $6.3M for the write-down of the Company's corporate jet and $4.7M of employee severance & related costs.
(3) - International valuation allowance, partially offset by tax benefits from changes in tax reserves.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
		14 Weeks Ended
		February 2, 2013
		Gross Profit				Selling, general & administrative expenses				Depreciation and amortization				Operating income (loss)				Income before income taxes				Diluted income per common share
GAAP Basis		$	459,755			$	255,251			$	30,116			$	139,961			$	141,407			$	0.47
Asset Impairment(1):			-				-				-				(34,427	)			(34,427	)			(0.11	)
Asset Write-offs & Corporate Charges(2):			(893	)			2,121				-				(3,014	)			(3,014	)			(0.01	)
Tax Related(3):			-				-				-				-				-				0.04
Non-GAAP Basis		$	460,648			$	253,130			$	30,116			$	177,402			$	178,848			$	0.55
% of Total Net Revenue			41.2	%			22.6	%			2.7	%			15.9	%			16.0	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores.

(2) - Pre-tax charges including $2.1M of employee severance & related costs and $0.9M of asset write-offs.

(3) - Tax benefits from audit settlements.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
		53 Weeks Ended
		February 2, 2013
		Gross Profit				Selling, general & administrative expenses				Depreciation and amortization				Operating income (loss)				Income before income taxes				Diluted income per common share
GAAP Basis		$	1,390,322			$	834,601			$	126,246			$	394,606			$	402,038			$	1.32
Asset Impairment(1):			-				-				-				(34,869	)			(34,869	)			(0.11	)
Asset Write-offs & Corporate Charges(2):			(893	)			6,046				710				(7,649	)			(7,649	)			(0.02	)
Tax Related(3):			-				-				-				-				-				0.06
Non-GAAP Basis		$	1,391,215			$	828,555			$	125,536			$	437,124			$	444,556			$	1.39
% of Total Net Revenue			40.0	%			23.8	%			3.6	%			12.6	%			12.8	%

(1) - Pre-tax asset impairments for AEO & aerie brand stores.

(2) - Pre-tax charges including $6.0M of employee severance & related costs and $1.6M of asset write-offs.

(3) - Tax benefits from audit settlements.

AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
		Fourth Quarter Comparable Sales
		2013 (1)		2012 (1)
American Eagle Outfitters, Inc. (3)		-7%		4%
AE Total Brand (3)		-7%		5%
aerie Total Brand (3)		-4%		3%
AEO Direct		8%		25%
		Fiscal Year Comparable Sales
		2013 (2)		2012 (2)
American Eagle Outfitters, Inc. (3)		-6%		9%
AE Total Brand (3)		-7%		9%
aerie Total Brand (3)		-2%		11%
AEO Direct		13%		25%

(1) - Fourth quarter 2013 comp sales are compared to the sales for the 13 weeks ended February 2, 2013. Fourth quarter 2012 comp sales are for the 13 weeks ended February 2, 2013 compared to the 13 weeks ended February 4, 2012.

(2) - Fiscal year 2013 comp sales are compared to the sales for the 52 weeks ended February 2, 2013. Fiscal year 2012 comp sales are for the 52 weeks ended February 2, 2013 compared to the 52 weeks ended February 4, 2012.

(3) - AEO Direct is included in consolidated and total brand comparable sales.

AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)
					Fourth Quarter			Fiscal Year			Fiscal 2014
					2013			2013			Guidance
Consolidated stores at beginning of period					1,064			1,044			1,066
	Consolidated stores opened during the period
		AE Brand (1)			18			64			40 - 50
	Consolidated stores closed during the period
		AE Brand			(6)			(13)			(15) - (20)
		aerie			(10)			(29)			(25) - (30)
Total consolidated stores at end of period					1,066			1,066			1,056 - 1,076
Stores remodeled and refurbished during the period					4			56			45
Total gross square footage at end of period					6,503,486			6,503,486			Not Provided
International licensed stores at end of period (2)					66			66			106

(1) - Fiscal Year includes 39 outlet store openings and six franchise stores in Hong Kong and China that were acquired by the company in the second quarter of 2013.

(2) - International licensed stores are not included in the consolidated store data or the total gross square footage calculation.