Market Overview

American Eagle Outfitters Reports Record Fourth Quarter and Fiscal Year Sales

Share:

Comp Sales Rise 8% in Fourth Quarter and 4% in Fiscal Year

Strong Start to Spring Season

Raises Quarterly Dividend 10%

American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS for the 14
weeks ended February 3, 2018 of $0.52, compared to $0.30 for the 13
weeks ended January 28, 2017. For the same periods, adjusted EPS was
$0.44, which excludes $0.08 of tax benefit discussed below. This
compares to adjusted EPS of $0.39 last year, which excluded $0.09 of
charges. Adjusted EPS for the quarter increased 13% compared to last
year.

For the 53 weeks ended February 3, 2018, the company reported EPS of
$1.13, compared to $1.16 for the 52 weeks ended January 28, 2017. For
the same periods, adjusted EPS of $1.16 excludes $0.08 of tax benefit
discussed below, and $0.11 of restructuring and related charges. This
compares to adjusted EPS of $1.25 last year, which excluded $0.09 of
charges. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, AEO's Chief Executive Officer, commented, "I'm
pleased that we ended 2017 with a strong quarter, achieving record sales
and an EPS increase over last year. In the fourth quarter we saw an
acceleration in sales, continued sequential margin improvement and EPS
growth that was on the high end of our guidance. The digital business
continued its exceptional growth, rising over 20% in the quarter, and we
were encouraged with improved brick and mortar trends, delivering
positive sales comps in both American Eagle and Aerie stores."

"Looking ahead to 2018, our brands are well‐positioned for growth.
American Eagle is a true leader in specialty apparel, with one of the
strongest jeans brands in the market, and Aerie is one of the fastest
growing lifestyle brands. We started the spring season with positive
momentum, positioning us well for strong results in 2018. The dividend
increase we announced today reflects confidence in our business, strong
free cash flow and our continued commitment to delivering returns to
shareholders," Schottenstein continued.

Adjusted amounts are based on Non-GAAP results, as presented in the
accompanying GAAP to Non-GAAP reconciliation.

Fourth Quarter 2017 Results

  • Total net revenue for the 14 weeks increased 12% to $1.23 billion
    compared to $1.10 billion for the 13 week period last year. The
    53rd week provided an additional $43 million of sales.
  • Consolidated comparable sales for the 14 weeks increased 8% over the
    comparable 14 week period last year.
  • Gross profit increased to $425 million from $389 million. The gross
    margin rate decreased 80 basis points to 34.6% of revenue compared to
    35.4% last year. The reduction in margin rate reflects higher
    promotional activity. Additionally, increased shipping costs and
    higher compensation were offset by rent leverage.
  • Selling, general and administrative expense of $264 million leveraged
    60 basis points to 21.5% as a rate to revenue. Increased store
    salaries, due to a strong holiday season and the extra week, and
    higher incentive compensation drove the dollar increase from $242
    million last year.
  • Operating income of $116 million includes $2 million of restructuring
    charges. Adjusted operating income increased 10% to $118 million from
    $107 million last year, deleveraging 20 basis points to 9.6% as a rate
    to revenue.
  • Adjusted EPS of $0.44 increased 13% compared to adjusted EPS of $0.39
    last year.

Fiscal Year 2017 Results

  • Total net revenue for the 53 weeks increased 5% to $3.80 billion
    compared to $3.61 billion for the 52 week period last year.
  • Consolidated comparable sales for the 53 weeks increased 4% over the
    comparable 53 week period last year.
  • Gross profit was up slightly to $1.37 billion, or 36.1% as a rate to
    revenue. Excluding $2 million of restructuring charges, adjusted gross
    profit as a rate to revenue was 36.2% and deleveraged 170 basis points
    to last year. The reduction in margin rate was primarily due to higher
    promotional activity. Additionally, increased delivery to support a
    strong digital business was offset by rent leverage.
  • Selling, general and administrative expense of $880 million leveraged
    60 basis points to 23.2% as a rate to revenue. Increased salaries and
    advertising expense drove the dollar increase from $858 million last
    year.
  • Depreciation expense increased 7% to $167 million compared $157
    million last year.
  • Operating income of $303 million includes $22 million of restructuring
    and related charges. Adjusted operating income decreased 8% to $325
    million from $353 million last year, deleveraging 120 basis points to
    8.6%.
  • Adjusted EPS of $1.16 decreased 7% compared to adjusted EPS of $1.25
    last year.

Income Taxes

As a result of U.S. tax legislation enacted on December 22, 2017
referred to as the Tax Cuts and Jobs Act, the company realized $0.08 per
share of tax benefit, which is excluded from adjusted earnings.
Specifically, these items relate to:

  • Benefit from a lower blended U.S. corporate tax rate in fiscal 2017.
  • Net benefit from the re-measurement of deferred tax balances and the
    one-time transition tax on un-repatriated earnings of foreign
    subsidiaries.
  • Benefit from the acceleration of certain deductions into fiscal 2017.

Restructuring and Related Charges

In the fiscal year, the company incurred restructuring and related
charges totaling $30 million, or approximately $0.11 per share. This
consisted primarily of charges related to the closure or conversion of
international owned and operated stores to licensed partnerships, home
office restructuring activities and charges related to the planned exit
of a joint business venture.

Inventory

Total ending inventories at cost increased 11% to $398 million,
reflecting investments in bottoms, women's tops and Aerie apparel to
support strong sales trends.

Capital Expenditures

In 2017, capital expenditures totaled $169 million. For fiscal 2018, the
company expects capital expenditures to be in the range of $180 million
to $190 million, with more than half related to store remodeling
projects and new openings, and the balance to support the digital
business, omni-channel tools and general corporate maintenance.

Quarterly Dividend Increase, Shareholder Returns, and Cash

As a result of our strong cash position, positive free cash flow, and
the benefits associated with U.S. tax legislation, we are raising the
quarterly dividend 10%, to $0.1375 per share. This marks the company's 55th
consecutive quarterly dividend. The $0.1375 dividend was declared on
March 7, 2018 and is payable on April 27, 2018 to stockholders of record
at the close of business on April 13, 2018.

During 2017, the company returned $176 million to shareholders through
cash dividends and share repurchases. We paid dividends of $89 million
and repurchased six million shares for $88 million. The company ended
the year with total cash of $414 million, an increase of $35 million
compared to the end of 2016.

Store Information

We ended the year with a total of 1,047 stores. During the year, the
company opened 15 AE stores and closed 25, ending the year with 933 AE
stores, which included 116 Aerie side-by-side locations. Additionally,
the company opened 15 Aerie stand alone stores and closed 8, ending the
year with 109 Aerie stand alone stores. Internationally, the company
ended the year with 214 licensed stores. For additional store
information, see the accompanying table.

First Quarter Outlook

Based on an anticipated comparable sales increase in the mid-single
digits, management expects first quarter 2018 EPS to be approximately
$0.20 to $0.22. This guidance excludes potential asset impairment and
restructuring charges. Last year's first quarter reported EPS of $0.14
included approximately $0.02 per share of restructuring and related
charges. Excluding these items, last year's first quarter adjusted EPS
was $0.16. See the accompanying table for the GAAP to Non-GAAP
reconciliation.

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. Management believes that this non-GAAP information is useful
for an alternate presentation of the company's 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 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 more than 200
international locations operated by licensees in 25 countries. For more
information, please visit www.ae.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995

This release and related statements by management contain
forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which represent our
expectations or beliefs concerning future events, including Fiscal 2018
results. All forward-looking statements made by the company involve
material risks and uncertainties and are subject to change based on many
important factors, some of which may be beyond the company's control.
Words such as "estimate," "project," "plan," "believe," "expect,"
"anticipate," "intend," "potential," and similar expressions may
identify forward-looking statements. Except as may be required by
applicable law, we undertake no obligation to publicly update or revise
any forward-looking statements whether as a result of new information,
future events or otherwise and even if experience or future changes make
it clear that any projected results expressed or implied therein will
not be realized. The following factors, in addition to the risks
disclosed in Item 1A., Risk Factors, of the company's Annual Report on
Form 10-K for the fiscal year ended January 28, 2017 and in any
subsequently-filed Quarterly Reports on Form 10-Q filed with
the Securities and Exchange Commission in some cases have affected, and
in the future could affect, the company's financial performance and
could cause actual results for Fiscal 2018 and beyond to differ
materially from those expressed or implied in any of the forward-looking
statements included in this release or otherwise made by management: the
risk that the company's operating, financial and capital plans may not
be achieved; our inability to anticipate customer demand and changing
fashion trends and to manage our inventory commensurately; seasonality
of our business; our inability to achieve planned store financial
performance; our inability to react to raw material cost, labor and
energy cost increases; our inability to gain market share in the face of
declining shopping center traffic; our inability to respond to changes
in e-commerce and leverage omni-channel demands; our inability to expand
internationally; difficulty with our international merchandise sourcing
strategies; challenges with information technology systems, including
safeguarding against security breaches; and changes in global economic
and financial conditions, and the resulting impact on consumer
confidence and consumer spending, as well as other changes in consumer
discretionary spending habits, which could have a material adverse
effect on our business, results of operations and liquidity.

 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
   

February 3,

January 28,
2018 2017
 
 

ASSETS

Cash and cash equivalents $ 413,613 $ 378,613
Merchandise inventory 398,213 358,446
Accounts receivable, net 78,304 86,634
Prepaid expenses and other 78,400   77,536  
Total current assets 968,530   901,229  
Property and equipment, net 724,239 707,797
Intangible assets, net 46,666 49,373
Goodwill 15,070 14,887
Non-current deferred income taxes 9,344 49,250
Other assets 52,464   60,124  
Total Assets $

1,816,313

  $ 1,782,660  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 236,703 $ 246,204
Accrued compensation and payroll taxes 54,324 54,184
Accrued rent 83,312 78,619
Accrued income and other taxes 12,781 12,220
Unredeemed gift cards and gift certificates 52,347 52,966
Current portion of deferred lease credits 11,203 12,780

Other current liabilities and accrued expenses

34,551   36,810  
Total current liabilities 485,221   493,783  
Deferred lease credits 47,977 45,114
Non-current accrued income taxes 7,269 4,537
Other non-current liabilities 29,055   34,657  
Total non-current liabilities 84,301   84,308  
Commitments and contingencies - -
Preferred stock - -
Common stock 2,496 2,496
Contributed capital 593,770 603,890
Accumulated other comprehensive loss (30,795 ) (36,462 )
Retained earnings 1,883,592 1,775,775
Treasury stock (1,202,272 ) (1,141,130 )
Total stockholders' equity 1,246,791   1,204,569  

Total Liabilities and Stockholders' Equity

$ 1,816,313   $ 1,782,660  
 
Current Ratio 2.00 1.83
 
       
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
GAAP Basis
14 Weeks Ended 13 Weeks Ended

February 3,

% of January 28, % of
2018   Revenue 2017   Revenue
 
Total net revenue $ 1,228,723 100.0 % $ 1,097,246 100.0 %

Cost of sales, including certain buying, occupancy and warehousing
expenses

803,603     65.4 % 708,744   64.6 %
Gross profit 425,120 34.6 % 388,502 35.4 %
Selling, general and administrative expenses 263,843 21.5 % 242,059 22.1 %
Impairment and restructuring charges 1,723 0.1 % 21,166 1.9 %
Depreciation and amortization 43,543     3.6 % 39,403   3.6 %
Operating income 116,011 9.4 % 85,874 7.8 %
Other income, net 3,959     0.3 % 1,382   0.1 %
Income before income taxes 119,970 9.7 % 87,256 7.9 %
Provision for income taxes 26,013     2.1 % 32,634   2.9 %
Net income $ 93,957     7.6 % $ 54,622   5.0 %
 
Net income per basic share $ 0.53 $ 0.30
Net income per diluted share $ 0.52 $ 0.30
 

Weighted average common shares outstanding - basic

177,492

 

182,055

Weighted average common shares outstanding - diluted

180,189

 

185,054
 
GAAP Basis
53 Weeks Ended 52 Weeks Ended

February 3,

% of January 28, % of
2018   Revenue 2017   Revenue
 
Total net revenue $ 3,795,549 100.0 % $ 3,609,865 100.0 %

Cost of sales, including certain buying, occupancy and warehousing
expenses

2,425,044     63.9 % 2,242,938   62.1 %
Gross profit 1,370,505 36.1 % 1,366,927 37.9 %
Selling, general and administrative expenses 879,685 23.2 % 857,562 23.8 %
Impairment and restructuring charges 20,611 0.5 % 21,166 0.6 %
Depreciation and amortization 167,421     4.4 % 156,723   4.3 %
Operating income 302,788 8.0 % 331,476 9.2 %
Other (expense) income, net (15,615 )   -0.4 % 3,786   0.1 %
Income before income taxes 287,173 7.6 % 335,262 9.3 %
Provision for income taxes 83,010     2.2 % 122,813   3.4 %
Net income $ 204,163     5.4 % $ 212,449   5.9 %
 
Net income per basic share $ 1.15 $ 1.17
Net income per diluted share $ 1.13 $ 1.16
 

Weighted average common shares outstanding - basic

177,938 181,429

Weighted average common shares outstanding - diluted

180,156 183,835
 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
 

14 Weeks Ended

February 3, 2018

      Diluted income

Operating

per common

income

Other income Net income share
GAAP Basis $ 116,011 $ 3,959 $ 93,957 $ 0.52
% of Revenue 9.4 % 0.3 % 7.6 %
 
Add: Restructuring Charges(1): 1,723 - 1,073 0.00
Less: Joint Business Venture Charges(2): - (1,347 ) (839 ) (0.00 )
Less: U.S. Tax Reform Impact (3):   -     -     (14,948 )   (0.08 )
1,723 (1,347 ) (14,714 ) (0.08 )
 
Non-GAAP Basis $ 117,734 $ 2,612 $ 79,243 $ 0.44
% of Revenue 9.6 % 0.2 % 6.4 %

(1)

 

-

 

$1.7 million pre-tax charges, for corporate and international
restructuring.

(2)

-

$1.3 million pre-tax benefit related to the exit of a joint
business venture, recorded within Other income, net.

(3)

-

$14.9 million of after-tax benefit resulting from the estimated
impact of U.S. tax legislation enacted on December 22, 2017,
referred to as the Tax Cuts and Jobs Act and related actions,
specifically:

        • The benefit of a lower blended U.S. corporate tax rate
in fiscal 2017

        • The net benefit from the re-measurement of deferred tax
balances and the one-time transition tax on un-repatriated earnings

        of foreign subsidiaries

        • The acceleration of certain deductions into fiscal 2017

 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
         

53 Weeks Ended

  February 3, 2018
Other Diluted income
Operating (expense) per common
Gross profit income income Net income share
GAAP Basis $ 1,370,505 $ 302,788 $ (15,615 ) $ 204,163 $ 1.13
% of Revenue 36.1 % 8.0 % -0.4 % 5.4 %
 
Add: Restructuring Charges(1): 1,669 22,280 - 14,034 0.08
Add: Joint Business Venture Charges(2): - - 7,964 5,031 0.03
Less: U.S. Tax Reform Impact (3):   -     -     -     (14,948 )   (0.08 )
1,669 22,280 7,964 4,117 0.03
 
Non-GAAP Basis $ 1,372,174 $ 325,068 $ (7,651 ) $ 208,280 $ 1.16
% of Revenue 36.2 % 8.6 % -0.2 % 5.5 %

(1)

 

-

 

$22.3 million pre-tax restructuring charges, consisting of:

• Inventory charges related to the restructuring of the United
Kingdom, Hong Kong, and China ($1.7M), recorded as a reduction of
Gross Profit

• Lease buyouts, store closure charges and severance and related
charges ($20.6M), which includes charges for the United Kingdom,
Hong Kong, and China and corporate overhead reductions, recorded
within Restructuring Charges.

(2)

-

$8.0 million of net pre-tax charges related to the exit of a joint
business venture, recorded within Other (expense) income, net.

(3)

-

$14.9 million of after-tax benefit resulting from the estimated
impact of U.S. tax legislation enacted on December 22, 2017,
referred to as the Tax Cuts and Jobs Act and related actions,
specifically:

• The benefit of a lower blended U.S. corporate tax rate in fiscal
2017

• The net benefit from the re-measurement of deferred tax balances
and the one-time transition tax on un-repatriated earnings

of foreign subsidiaries

• The acceleration of certain deductions into fiscal 2017

 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
   
13 Weeks Ended
January 28, 2017
Diluted
income per
Operating common
income Net income share
GAAP Basis $ 85,874 $ 54,622 $ 0.30
% of Revenue 7.8 % 5.0 %
 

Add: Asset Impairment and Restructuring Charges(1):

21,166 13,991 0.07
Tax (2):   -     3,088     0.02
 
Non-GAAP Basis $ 107,040 $ 71,701 $ 0.39
% of Revenue 9.8 % 6.5 %

(1)

 

-

 

$21.2 million pre-tax asset impairments and restructuring charges
relating to our wholly-owned businesses in the United Kingdom and
Asia.

(2)

-

GAAP tax rate included impact of valuation allowances on asset
impairment and restructuring charges. Excluding the impact of
those items resulted in a 33.9% tax rate for the quarter.

 
     
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
52 Weeks Ended
  January 28, 2017
Diluted
income per

Operating

common

income

Net income share
GAAP Basis $ 331,476 $ 212,449 $ 1.16
% of Revenue 9.2 % 5.9 %
 
Add: Asset Impairment and Restructuring Charges(1): 21,166 13,631 0.07
Tax (2):   -     3,447     0.02
 
Non-GAAP Basis $ 352,642 $ 229,527 $ 1.25
% of Revenue 9.8 % 6.4 %

(1)

 

-

 

$21.2 million pre-tax asset impairments and restructuring charges
relating to our wholly-owned businesses in the United Kingdom and
Asia.

(2)

-

GAAP tax rate included impact of valuation allowances on asset
impairment and restructuring charges. Excluding the impact of
those items resulted in a 35.6% tax rate for the year.

 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 

 

13 Weeks Ended

 

April 29, 2017

 
Diluted income
per common
share
GAAP Basis $ 0.14
 
Add:Restructuring Charges(1): 0.02
 
Non-GAAP Basis $ 0.16
(1)   -   $5.4 million pre-tax restructuring charges for severance and related
charges, which includes corporate overhead reductions and charges
for the United Kingdom, Hong Kong, and China.
 
   
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
Fourth Quarter
Comparable Sales
2017 2016
American Eagle Outfitters, Inc. (1) 8 % 0.4 %
 
AE Total Brand (1) 5 % -1 %
aerie Total Brand (1) 34 % 17 %
 
Fiscal Year
Comparable Sales
2017 2016
American Eagle Outfitters, Inc. (1) 4 % 3 %
 
AE Total Brand (1) 2 % 1 %
aerie Total Brand (1) 27 % 23 %
(1)   -   AEO Direct is included in consolidated and total brand comparable
sales.
 
     
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
   
Fourth Quarter Fiscal Year Fiscal 2018
2017 2017 Guidance
Consolidated stores at beginning of period 1,058 1,050 1,047
Consolidated stores opened during the period
AE Brand 2 15 15 - 20
aerie 3 15 10 - 15
Tailgate Clothing Co. - - 1
Todd Snyder - 1 1
Consolidated stores closed during the period
AE Brand (12) (25) (10) - (15)
aerie (4) (8) (5) - (10)
Todd Snyder - (1) -

Total consolidated stores at end of period

1,047 1,047 1,049 - 1,069
 
Stores remodeled and refurbished during the period 5 48 60-70
Total gross square footage at end of period (in '000) 6,580 6,580 Not Provided
 
International license locations at end of period (1) 214 214 261
 
(1)   -   International license locations are not included in the consolidated
store data or the total gross square footage calculation.

View Comments and Join the Discussion!