AEO
$13.45
American Eagle Outfitters
$.12
.90%
Earnings Details
2nd Quarter July 2017
Wednesday, August 23, 2017 5:00:02 AM
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Summary

American Eagle Outfitters Beats but Guides Lower

American Eagle Outfitters (AEO) reported 2nd Quarter July 2017 earnings of $0.19 per share on revenue of $844.6 million. The consensus earnings estimate was $0.16 per share on revenue of $829.4 million. The Earnings Whisper number was $0.17 per share. Revenue grew 2.7% on a year-over-year basis.

The company said it expects third quarter earnings of $0.36 to $0.38 per share. The current consensus earnings estimate is $0.39 per share for the quarter ending October 31, 2017.

American Eagle Outfitters is an apparel and accessories retailer. The Company offers clothing, accessories and personal care products. The Company has company operated stores in the USA, Canada, Mexico, Hong Kong, China and the UK.

Results
Reported Earnings
$0.19
Earnings Whisper
$0.17
Consensus Estimate
$0.16
Reported Revenue
$844.6 Mil
Revenue Estimate
$829.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

American Eagle Outfitters Report Second Quarter Results, Comp Sales Increased 2%, Sales and EPS Above Expectations

American Eagle Outfitters, Inc. (AEO) today reported EPS of $0.12 for the second quarter ended July 29, 2017. Excluding restructuring and related charges of $0.07 per diluted share, the company’s adjusted EPS was $0.19 for the second quarter.

Jay Schottenstein, Chief Executive Officer commented, "In the second quarter, we achieved sales and earnings above our expectations in a challenging retail environment. Sales trends improved and I’m proud of the continued growth in jeans, bottoms, women’s apparel and Aerie, with encouraging signs in men’s tops beginning to emerge. Our brands are strong and we have significant opportunity for further growth. I’m optimistic as we enter the second half of the year, and we remain focused on delivering product innovation, strengthening customer engagement and improving profit flow-through."

Second Quarter 2017 Results

Total net revenue increased 3% to $845 million from $823 million last year.

Consolidated comparable sales were up 2%, following a 3% increase last year.

Gross profit* of $294 million compared to $307 million last year with a gross margin rate of 34.9% to revenue compared to 37.3% last year, a 240 basis point decline. The margin declined primarily due to increased promotional activity. Additionally, shipping costs and rent deleveraged.

Selling, general and administrative expense rose 2% to $204 million compared to $200 million last year, and leveraged 20 basis points to a rate of 24.1% to revenue. Higher advertising expense was offset by lower compensation expense.

Operating income of $39 million, which includes $11 million of restructuring charges, compared to $69 million last year. Adjusted operating income* of $50 million compared to $69 million last year with a rate of 6.0% to revenue compared to 8.3% last year.

Other expense of $6.7 million includes $9.3 million of pre-tax charges related to the planned exit of a joint business venture. This was partially offset by $2.6 million of other income, compared to other expense of $3.1 million last year.

-- The effective tax rate decreased to 34.7% compared to 36.5% last year.

EPS of $0.12 compared to EPS of $0.23 last year. Adjusted EPS* of $0.19 compared to EPS of $0.23 last year.

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

Restructuring and Related Charges

In the second quarter, the company had charges totaling $21 million, approximately $0.07 per share. This consisted of restructuring charges corresponding to the previously announced initiative to explore the closure or conversion of company owned and operated stores in the United Kingdom, Hong Kong and China to licensed partnerships. Additionally, the company incurred charges related to the planned exit of a joint business venture.

Shareholder Returns, Cash

The company ended the quarter with total cash of $193 million compared to $248 million last year. Over the past 12 months, we returned $88 million in share buybacks, $90 million in dividends and invested $187 million in capital expenditures, resulting in a lower cash balance.

Inventory

Total ending inventories at cost increased 3% to $433 million. Ending units were flat compared to last year, while the average unit cost was up 2% to last year.

Capital Expenditures

In the second quarter, capital expenditures totaled $46 million. We continue to expect fiscal year 2017 capital expenditures in the range of $160 million to $170 million, with roughly half of the spend related to store remodeling projects and new openings, and the balance to support the e-commerce business, omni-channel tools and general corporate maintenance.

Store Information

Consistent with our strategy, this quarter we opened 9 new Aerie locations, of which 7 were in new markets. Additionally, we opened 6 new AE stores, with 2 in Mexico and 4 in the U.S. to better position our brand in select markets. The company also opened 9 international licensed stores and closed 3. For the remainder of the year, the company plans to open another 5 AE stores and 5 Aerie stores in the U.S., Canada and Mexico, as well as 32 international licensed stores to support the company’s global growth strategy. The company is on track to close a total of 25 to 40 stores this year. For additional store information, see the accompanying table.

Third Quarter Outlook

Based on anticipated comparable store sales in the range of flat to up low single digit, management expects third quarter 2017 EPS to be approximately $0.36 to $0.38. This guidance excludes potential asset impairment and restructuring charges, and compares to EPS of $0.41 last year.

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(R) and Aerie(R) brands. The company operates more than 1,000 stores in the United States, Canada, Mexico, China and Hong Kong, and ships to 82 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at more than 190 international locations operated by licensees. 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, including third quarter 2017 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 29,
January 28,
July 30,
2017
2017
2016
(unaudited)
(unaudited)
ASSETS
Cash and cash equivalents
$
192,558
$
378,613
$
247,934
Merchandise inventory
433,458
358,446
422,151
Accounts receivable
80,673
86,634
65,282
Prepaid expenses and other
110,496
77,536
90,852
Total current assets
817,185
901,229
826,219
Property and equipment, net
719,127
707,797
700,270
Intangible assets, net
47,520
49,373
50,761
Goodwill
15,069
14,887
17,399
Non-current deferred income taxes
28,761
49,250
44,370
Other assets
58,661
60,124
54,169
Total Assets
$
1,686,323
$
1,782,660
$
1,693,188
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
275,479
$
246,204
$
286,691
Accrued compensation and payroll taxes
22,708
54,184
35,908
Accrued rent
78,697
78,619
78,621
Accrued income and other taxes
13,289
12,220
10,250
Unredeemed gift cards and gift certificates
32,573
52,966
31,532
Current portion of deferred lease credits
12,838
12,780
12,810
Other current liabilities and accrued expenses
36,398
36,810
42,719
Total current liabilities
471,982
493,783
498,531
Deferred lease credits
53,620
45,114
51,100
Non-current accrued income taxes
4,786
4,537
4,795
Other non-current liabilities
31,636
34,657
38,365
Total non-current liabilities
90,042
84,308
94,260
Commitments and contingencies
-
-
-
Preferred stock
-
-
-
Common stock
2,496
2,496
2,496
Contributed capital
586,844
603,890
591,532
Accumulated other comprehensive income
(30,121 )
(36,462 )
(29,356 )
Retained earnings
1,772,233
1,775,775
1,693,371
Treasury stock
(1,207,153 )
(1,141,130 )
(1,157,646 )
Total stockholders’ equity
1,124,299
1,204,569
1,100,397
Total Liabilities and Stockholders’ Equity
$
1,686,323
$
1,782,660
$
1,693,188
Current Ratio
1.73
1.83
1.66
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
GAAP Basis
13 Weeks Ended
July 29,
% of
July 30,
% of
2017
Revenue
2016
Revenue
Total net revenue
$
844,557
100.0 %
$
822,594
100.0 %
Cost of sales, including certain buying, occupancy and warehousing
551,908
65.3 %
515,499
62.7 %
expenses
Gross profit
292,649
34.7 %
307,095
37.3 %
Selling, general and administrative expenses
203,717
24.1 %
199,536
24.3 %
Restructuring charges
9,746
1.2 %
-
0.0 %
Depreciation and amortization
40,283
4.8 %
38,900
4.7 %
Operating income
38,903
4.6 %
68,659
8.3 %
Other expense, net
(6,734 )
-0.8 %
(3,134 )
-0.3 %
Income before income taxes
32,169
3.8 %
65,525
8.0 %
Provision for income taxes
10,933
1.3 %
23,933
2.9 %
Net income
$
21,236
2.5 %
$
41,592
5.1 %
Net income per basic share
$
0.12
$
0.23
Net income per diluted share
$
0.12
$
0.23
Weighted average common shares outstanding - basic
177,228
181,048
Weighted average common shares outstanding - diluted
178,788
183,413
26 Weeks Ended
July 29,
% of
July 30,
% of
2017
Revenue
2016
Revenue
Total net revenue
$ 1,606,393
100.0 %
$ 1,572,010
100.0 %
Cost of sales, including certain buying, occupancy and warehousing
1,035,922
64.5 %
971,463
61.8 %
expenses
Gross profit
570,471
35.5 %
600,547
38.2 %
Selling, general and administrative expenses
398,696
24.8 %
395,529
25.2 %
Restructuring charges
15,193
1.0 %
Depreciation and amortization
80,730
5.0 %
77,683
4.9 %
Operating income
75,852
4.7 %
127,335
8.1 %
Other (expense) income, net
(6,330 )
-0.4 %
1,801
0.1 %
Income before income taxes
69,522
4.3 %
129,136
8.2 %
Provision for income taxes
23,050
1.4 %
47,068
3.0 %
Net income
$
46,472
2.9 %
$
82,068
5.2 %
Net income per basic share
$
0.26
$
0.45
Net income per diluted share
$
0.26
$
0.45
Weighted average common shares outstanding - basic
178,475
180,872
Weighted average common shares outstanding - diluted
180,473
182,922
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
13 Weeks Ended
July 29, 2017
Gross profit
Operating
Other
Net income
Diluted income
income
(expense)
per common
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
July 29, 2017
Gross profit
Operating
Other
Net income
Diluted income
income
(expense)
per common
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.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
Second Quarter
Comparable Sales
2017
2016
American Eagle Outfitters, Inc. (1)
2%
3%
AE Total Brand (1)
0%
1%
aerie Total Brand (1)
26%
24%
YTD Second Quarter
Comparable Sales
2017
2016
American Eagle Outfitters, Inc. (1)
2%
5%
AE Total Brand (1)
-1%
3%
aerie Total Brand (1)
26%
28%
(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 2017
2017
2017
Guidance
Consolidated stores at beginning of period
1,053
1,050
1,050
Consolidated stores opened during the period
AE Brand
6
9
15-20
aerie
9
11
15
Tailgate Clothing Co.
0
0
1
Todd Snyder
0
1
1
Consolidated stores closed during the period
AE Brand
(8)
(10)
(20) - (30)
aerie
(3)
(4)
(5) - (10)
Total consolidated stores at end of period
1,057
1,057
1,042 - 1,062
Stores remodeled and refurbished during the period
15
29
50
Total gross square footage at end of period
6,642,276
6,642,276
Not Provided
International license locations at end of period (1)
195
195
227
(1) International license locations are not included in the
consolidated store data or the total gross square footage
calculation.

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SOURCE: American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc.
Olivia Messina, 412-432-3300