Market Overview

American Eagle Outfitters Reports Record Second Quarter Sales, Strong EPS Growth

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Total Revenue Increased 14%, Comparable Sales Rise 9%

Stores Drive Highest Comp since 2015, Digital Continues to Grow at
Double-Digit Pace

EPS of 34 cents compared to 12 cents last year

American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.34
for the quarter ended August 4, 2018, compared to $0.12 for the quarter
ended July 29, 2017, up 183%. EPS of $0.34 increased 79% compared to
adjusted EPS of $0.19 last year.

Jay Schottenstein, AEO's Chief Executive Officer commented, "The second
quarter results exceeded our expectations, delivering record sales and
79% growth in adjusted earnings. This marked our 14th
consecutive quarter of comparable sales growth, with the American Eagle
and Aerie brands posting positive results across both stores and
e-commerce. Driven by exceptional product, teamwork and execution, it's
gratifying to see strength throughout our business, as we capitalize on
the broad appeal of our brands and leading merchandise assortments."

He continued, "We are pleased with the performance of the business
through the back-to-school season with strength across brands and
channels continuing. As we look forward, we remain focused on fueling
our brands, delivering the best customer experiences and achieving
strong financial returns."

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

Second Quarter 2018 Results

  • Total net revenue increased $120 million, or 14% to $965 million
    compared to $845 million last year. Approximately $40 million of the
    revenue increase was due to the shifted retail calendar.
  • Consolidated comparable sales increased 9% over the comparable period
    ending August 5, 2017, following a 2% increase last year.
  • By brand, American Eagle's comparable sales increased 7% and Aerie's
    comparable sales increased 27%, compared to flat and 26% comparable
    sales last year, respectively.
  • Gross profit increased to $353 million from $293 million. Gross profit
    increased 20% to $353 million from adjusted gross profit of $294
    million last year. The gross margin rate increased 170 basis points to
    36.6% of revenue compared to adjusted 34.9% last year, primarily
    reflecting rent leverage.
  • Selling, general and administrative expense of $234 million
    deleveraged 20 basis points to 24.3% as a rate to revenue. Investments
    in customer-facing store payroll, higher wages, increased incentive
    expense and advertising contributed to the rise from $204 million last
    year.
  • Depreciation and amortization expense increased 6% to $43 million from
    $40 million last year, due to continued investments in our business.
    As a rate to revenue, depreciation leveraged 40 basis points to 4.4%.
  • Operating income of $76 million compared to $39 million last year, an
    increase of $37 million, or 95%. Operating income increased 52% to $76
    million from adjusted operating income of $50 million last year,
    leveraging 190 basis points to 7.9% as a rate to revenue.
  • The effective tax rate decreased to 21.9% compared to 34.7% last year,
    primarily due to the impact of the U.S. Tax Cuts and Jobs Act.
  • EPS of $0.34 compared to EPS of $0.12 last year. EPS increased 79%
    compared to adjusted EPS of $0.19 last year.

Inventory

Total ending inventories at cost increased 8% to $466 million, in line
with the company's expectations. Looking forward, we expect third
quarter ending inventory to be up in the high-single digits.

Capital Expenditures

In the second quarter, capital expenditures totaled $54 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. We continue to expect capital
expenditures to be in the range of $180 million to $190 million this
year.

Shareholder Returns, Cash and Investments

During the second quarter, the company returned $24 million to
shareholders through cash dividends. As a result of strong free cash
flow, we ended the quarter with total cash and investments of $363
million compared to $193 million last year.

Store Information

During the quarter, the company opened 4 American Eagle stores and had
no closures, ending with 939 American Eagle stores, including 131 Aerie
side-by-side locations. The company opened 1 Aerie stand-alone store and
closed 1, ending with 109 Aerie stand-alone stores. Additionally, the
company opened 1 Tailgate store. Internationally, the company ended the
quarter with 223 licensed stores. For additional store information, see
the accompanying table.

Third Quarter Outlook

Based on an anticipated comparable sales increase in the high-single
digits and total revenue growth in the mid-single digits, reflecting the
approximate $40 million revenue shift into the second quarter due to the
shifted retail calendar, management expects third quarter 2018 EPS to be
approximately $0.45 to $0.47. This guidance excludes potential asset
impairment and restructuring charges. Last year's third quarter reported
EPS of $0.36 included approximately $0.01 per share of restructuring and
related charges. Excluding these items, last year's third quarter
adjusted EPS was $0.37. 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. Additionally, 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 third
quarter 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 February 3, 2018 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 third quarter 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)
 
August 4,

February 3,

July 29,
2018 2018 2017
 
 
ASSETS
Cash and cash equivalents $ 323,322 $ 413,613 $ 192,558
Short-term investments 40,000 - -
Merchandise inventory 466,112 398,213 433,458
Accounts receivable 74,153 78,304 80,673
Prepaid expenses and other 93,493   78,400   110,496  
Total current assets 997,080   968,530   817,185  
Property and equipment, net 732,350 724,239 719,127
Intangible assets, net 45,064 46,666 47,520
Goodwill 14,926 15,070 15,069
Non-current deferred income taxes 8,558 9,344 28,761
Other assets 52,771   52,464   58,661  
Total Assets $ 1,850,749   $ 1,816,313   $ 1,686,323  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 264,247 $ 236,703 $ 275,479
Accrued compensation and payroll taxes 51,903 54,324 22,708
Accrued rent 85,416 83,312 78,697
Accrued income and other taxes 18,332 12,781 13,289
Unredeemed gift cards and gift certificates 33,185 52,347 32,573
Current portion of deferred lease credits 10,822 11,203 12,838
Other current liabilities and accrued expenses 44,115   34,551   36,398  
Total current liabilities 508,020   485,221   471,982  
Deferred lease credits 49,569 47,977 53,620
Non-current accrued income taxes 7,164 7,269 4,786
Other non-current liabilities 25,419   29,055   31,636  
Total non-current liabilities 82,152   84,301   90,042  
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 560,349 593,770 586,844
Accumulated other comprehensive income (Loss) (32,646 ) (30,795 ) (30,121 )
Retained earnings 1,941,536 1,883,592 1,772,233
Treasury stock, at cost (1,211,158 ) (1,202,272 ) (1,207,153 )
Total stockholders' equity 1,260,577   1,246,791   1,124,299  
Total Liabilities and Stockholders' Equity $ 1,850,749   $ 1,816,313   $ 1,686,323  
 
Current Ratio 1.96 2.00 1.73
 
     
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
GAAP Basis
13 Weeks Ended
August 4, % of July 29, % of
2018   Revenue   2017   Revenue
 
Total net revenue $ 964,853 100.0 % $ 844,557 100.0 %

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

611,752   63.4 % 551,908     65.3 %
Gross profit 353,101 36.6 % 292,649 34.7 %
Selling, general and administrative expenses 233,971 24.3 % 203,717 24.1 %
Restructuring charges

-

-

% 9,746 1.2 %
Depreciation and amortization 42,739   4.4 % 40,283     4.8 %
Operating income 76,391 7.9 % 38,903 4.6 %
Other income (expense), net 860   0.1 % (6,734 )   -0.8 %
Income before income taxes 77,251 8.0 % 32,169 3.8 %
Provision for income taxes 16,918   1.8 % 10,933     1.3 %
Net income $ 60,333   6.2 % $ 21,236     2.5 %
 
Net income per basic share $ 0.34 $ 0.12
Net income per diluted share $ 0.34 $ 0.12
 

 

Weighted average common shares outstanding - basic

177,249 177,228

Weighted average common shares outstanding - diluted

178,505 178,788
 
 
 
26 Weeks Ended
August 4, % of July 29, % of
2018   Revenue   2017   Revenue
 
Total net revenue $ 1,787,814 100.0 % $ 1,606,393 100.0 %

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

1,130,271   63.2 % 1,035,922     64.5 %
Gross profit 657,543 36.8 % 570,471 35.5 %
Selling, general and administrative expenses 444,205 24.9 % 398,696 24.8 %
Restructuring charges 1,568 0.1 % 15,193 1.0 %
Depreciation and amortization 84,674   4.7 % 80,730     5.0 %
Operating income 127,096 7.1 % 75,852 4.7 %
Other income (expense), net 1,362   0.1 % (6,330 )   -0.4 %
Income before income taxes 128,458 7.2 % 69,522 4.3 %
Provision for income taxes 28,196   1.6 % 23,050     1.4 %
Net income $ 100,262   5.6 % $ 46,472     2.9 %
 
Net income per basic share $ 0.57 $ 0.26
Net income per diluted share $ 0.56 $ 0.26
 

 

Weighted average common shares outstanding - basic

177,329 178,475

Weighted average common shares outstanding - diluted

178,730 180,473
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
         
13 Weeks Ended
July 29, 2017
Diluted
Other income per
Operating (expense) common
Gross profit income income Net income share
GAAP Basis $ 292,649 $ 38,903 $ (6,734 ) $ 21,236 $ 0.12
% of Revenue 34.7 % 4.6 % -0.8 % 2.5 %
 
Add: Restructuring Related Charges(1): 1,669 11,415 - 7,340 0.04
Add: Joint Business Venture Charges(2):   -     -     9,311     5,988     0.03
1,669 11,415 9,311 13,328
 
Non-GAAP Basis $ 294,318 $ 50,318 $ 2,577 $ 34,564 $ 0.19
% of Revenue 34.9 % 6.0 % 0.3 % 4.1 %
(1) - $11.4 million pre-tax restructuring related 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 ($9.7M), which includes charges for the United Kingdom,
Hong Kong, and China and corporate overhead reductions, recorded
within Restructuring Charges.

(2)

- $9.3 million pre-tax charges for the charges related to the
planned exit of a joint business venture, recorded within Other
(expense) income, net.

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

26 Weeks Ended

  August 4, 2018
Diluted
income per
Operating Net common
income income share
GAAP Basis $ 127,096 $ 100,262 $ 0.56
% of Revenue 7.1 % 5.6 %
 

Add: Restructuring Charges(1):

1,568 1,188 0.01
 
Non-GAAP Basis $ 128,664 $ 101,450 $ 0.57
% of Revenue 7.2 % 5.7 %

(1)

- $1.6 million for pre-tax corporate restructuring charges,
primarily consisting of corporate severance charges

 
 

AMERICAN EAGLE OUTFITTERS, INC.

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share amounts)

(unaudited)
     
26 Weeks Ended
July 29, 2017
  Diluted
Other income per
Operating (expense) common
Gross profit income   income   Net income share
GAAP Basis $ 570,471 $ 75,852 $ (6,330 ) $ 46,472 $ 0.26
% of Revenue 35.5 % 4.7 % -0.4 % 2.9 %
 
Add: Restructuring Related Charges(1): 1,669 16,862 - 10,801 0.06
Add: Joint Business Venture Charges(2):   -     -     9,311     5,964     0.03
1,669 16,862 9,311 16,765
 
Non-GAAP Basis $ 572,140 $ 92,714 $ 2,981 $ 63,237 $ 0.35
% of Revenue 35.6 % 5.8 % 0.2 % 3.9 %
 

(1)

- $16.9 million pre-tax restructuring related 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 ($15.2M), which includes charges for the United Kingdom,
Hong Kong, and China and corporate overhead reductions, recorded
within Restructuring Charges.

(2)

- $9.3 million pre-tax charges for the charges related to the
planned exit of a joint business venture, recorded within Other
(expense) income, net.

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

Diluted income per

common share

GAAP Basis $ 0.36
 
Add: Restructuring Related Charges(1):   0.01
 
Non-GAAP Basis $ 0.37
(1) - $3.7 million pre-tax restructuring related charges, consisting of:

 

Corporate severance and related charges of ($2.4M) and corporate
lease buyout charges of ($1.3M)
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
   
Second Quarter
Comparable Sales
2018 2017
American Eagle Outfitters, Inc. (1) 9 % 2 %
 
AE Total Brand (1) 7 % 0 %
aerie Total Brand (1) 27 % 26 %
 
(1) AEO Direct is included in consolidated and total brand
comparable sales.
 
YTD Second Quarter
Comparable Sales
2018 2017
American Eagle Outfitters, Inc. (1) 9 % 2 %
 
AE Total Brand (1) 6 % -1 %
aerie Total Brand (1) 32 % 26 %
 

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

 
 
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
         
Second Quarter

YTD Second Quarter

Fiscal 2018
2018 2018 Guidance
Consolidated stores at beginning of period 1,049 1,047 1,047
Consolidated stores opened during the period
AE Brand 4 8 15 - 20
Aerie stand-alone 1 2 10 - 15
Tailgate Clothing Co. 1 1 1
Todd Snyder 0 0 1
Consolidated stores closed during the period
AE Brand 0 (2) (10) - (15)
Aerie stand-alone   (1)   (2)   (5) - (10)
Total consolidated stores at end of period 1,054 1,054 1,049 - 1,069
AE Brand 939
Aerie stand-alone 109
Aerie side-by-side (2) 131
Tailgate Clothing Co. 5
Todd Snyder 1
 
Stores remodeled and refurbished during the period 24 47 60 - 70
Total gross square footage at end of period   6,641   6,641   Not Provided
 
International license locations at end of period (1) 223 223 261
 
Aerie side-by-side stores (2)
New AE store 3 3 5 - 10
Remodeled AE store 9 11 20

(1)

 

International license locations are not included in the
consolidated store data or the total gross square footage
calculation.

(2)

Aerie side-by-side stores are included in the AE Brand store count
as they are considered part of the AE Brand store to which they
are attached.

 

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