Introduces Fourth Quarter Guidance
Holiday Sales Start Strong
American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of
$0.36 for the third quarter ended October 28, 2017. Excluding
restructuring and related charges of $0.01 per diluted share, the
company’s Adjusted EPS* was $0.37 for the third quarter. Included
in our GAAP and Adjusted EPS is a discrete charge to reserve
against a receivable of $14 million, or $0.05 per diluted share,
which is recorded in Other Expense.
Jay Schottenstein, Chief Executive Officer commented, “The third
quarter produced record sales, sequential margin improvement and
marked eleven straight quarters of comp sales growth. Digital sales
continued to grow at a rapid pace, while we also saw store sales
strengthen. These results validate our investments in product
leadership, innovation, quality and brand equity. I’m very pleased
to see strong momentum continue into the fourth quarter,
positioning us well for the next few critical weeks of the holiday
season.”
Third Quarter 2017 Results
- Total net revenue increased 2% to $960
million from $941 million last year.
- Consolidated comparable sales were up
3%, following a 2% increase last year.
- Gross profit of $375 million compared
to $378 million last year with a gross margin rate of 39.0% to
revenue compared to 40.2% last year, a 120 basis point decline. The
reduction in margin rate was due to higher promotions and increased
shipping costs associated with a strong digital business.
- Selling, general and administrative
expense declined $3 million, or 1% to $217 million compared to $220
million last year. Positive sales combined with lower expenses
drove 80 basis points of leverage to a rate of 22.6% to revenue.
Lower incentives and expense discipline were partially offset by
higher wages.
- Operating income of $111 million
includes $4 million of restructuring charges related to severance
and a lease buy-out. Adjusted operating income* of $115 million
compared to $118 million last year with a rate of 11.9% to revenue
compared to 12.6% last year.
- Other expense of $13 million includes a
discrete charge of $14 million to reserve against a
receivable.
- EPS of $0.36 and Adjusted EPS* of $0.37
both include a discrete charge of $0.05 per diluted share compared
to EPS of $0.41 last year.
*Adjusted amounts are based on Non-GAAP results, as presented in
the accompanying GAAP to Non-GAAP reconciliation.
Shareholder Returns, Cash
The company ended the quarter with total cash of $258 million
compared to $292 million last year. Over the past 12 months, we
returned $88 million in share buybacks, $89 million in dividends
and invested $189 million in capital expenditures, resulting in a
lower cash balance.
Inventory
Total ending inventories at cost increased 8% to $534 million,
reflecting investments in bottoms, women’s tops and Aerie apparel
to support strong sales trends.
Capital Expenditures
In the third quarter, capital expenditures totaled $48 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 projects.
Store Information
This quarter we opened 4 new AE stores, with 1 in Mexico, 1 in
Canada and 2 in the U.S. Additionally, we opened 1 new Aerie
location in Canada. We also opened 11 international licensed stores
and closed 1. The company is on track to close a total of 25 to 30
stores this year. For additional store information, see the
accompanying table.
Fourth Quarter Outlook
Based on an anticipated comparable store sales increase in the
mid-single digits, management expects fourth quarter 2017 EPS to be
approximately $0.42 to $0.44. This guidance excludes potential
asset impairment and restructuring charges. Last year’s fourth
quarter reported EPS of $0.30 included approximately $0.09 per
share of asset impairment, restructuring and related charges.
Excluding these items, last year’s fourth quarter adjusted EPS was
$0.39. 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. 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 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 24 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, including fourth 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)
October 28, January 28, October
29, 2017 2017 2016 (unaudited)
(unaudited) ASSETS Cash and cash equivalents $
257,527 $ 378,613 $ 291,667 Merchandise inventory 534,019 358,446
492,602 Accounts receivable, net 77,113 86,634 74,812 Prepaid
expenses and other 61,553 77,536 77,768 Total current assets
930,212 901,229 936,849 Property and equipment, net 726,168 707,797
708,488 Intangible assets, net 46,979 49,373 49,993 Goodwill 14,972
14,887 17,315 Non-current deferred income taxes 29,025 49,250
49,627 Other assets 54,424 60,124 60,268 Total Assets $
1,801,780 $
1,782,660 $
1,822,540
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $
330,716 $ 246,204 $ 314,111 Accrued compensation and payroll taxes
43,561 54,184 56,939 Accrued rent 80,580 78,619 79,255 Accrued
income and other taxes 17,262 12,220 29,373 Unredeemed gift cards
and gift certificates 29,475 52,966 30,130 Current portion of
deferred lease credits 12,887 12,780 12,783 Other current
liabilities and accrued expenses 38,359 36,810 40,288 Total current
liabilities 552,840 493,783 562,879 Deferred lease credits 50,439
45,114 47,677 Non-current accrued income taxes 4,590 4,537 4,573
Other non-current liabilities 30,712 34,657 35,451 Total
non-current liabilities 85,741 84,308 87,701 Commitments and
contingencies - - - Preferred stock - - - Common stock 2,496 2,496
2,496 Contributed capital 588,978 603,890 597,919 Accumulated other
comprehensive income (34,798) (36,462) (31,160) Retained earnings
1,812,821 1,775,775 1,744,227 Treasury stock (1,206,298)
(1,141,130) (1,141,522) Total stockholders' equity 1,163,199
1,204,569 1,171,960 Total Liabilities and Stockholders' Equity $
1,801,780 $
1,782,660 $
1,822,540
Current Ratio 1.68 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 October 28, % of October 29, %
of 2017 Revenue 2016
Revenue Total net revenue $ 960,433 100.0% $
940,609 100.0%
Cost of sales, including certain
buying, occupancy and warehousing expenses
585,520 61.0% 562,793 59.8% Gross profit 374,913
39.0% 377,816 40.2% Selling, general and administrative expenses
217,146 22.6% 219,912 23.4% Restructuring charges 3,695 0.4% - 0.0%
Depreciation and amortization 43,149 4.5% 39,636 4.2%
Operating income 110,923 11.5% 118,268 12.6% Other (expense)
income, net (13,243) -1.4% 603 0.0% Income before
income taxes 97,680 10.1% 118,871 12.6% Provision for income taxes
33,947 3.5% 43,111 4.6% Net income $ 63,733
6.6% $ 75,760 8.0% Net income per basic share $ 0.36
$ 0.42 Net income per diluted share $ 0.36 $ 0.41 Weighted
average common shares outstanding - basic 177,288 181,819 Weighted
average common shares outstanding - diluted 179,132 184,615
GAAP Basis 39 Weeks Ended October 28, %
of October 29, % of 2017
Revenue 2016 Revenue
Total net revenue $ 2,566,826 100.0% $ 2,512,619 100.0%
Cost of sales, including certain
buying, occupancy and warehousing expenses
1,621,441 63.2% 1,534,194 61.1% Gross profit 945,385
36.8% 978,425 38.9% Selling, general and administrative expenses
615,842 24.0% 615,503 24.5% Restructuring charges 18,888 0.8% -
0.0% Depreciation and amortization 123,878 4.8% 117,319
4.6% Operating income 186,777 7.2% 245,603 9.8% Other
(expense) income, net (19,574) -0.8% 2,403 0.1%
Income before income taxes 167,203 6.4% 248,006 9.9% Provision for
income taxes 56,997 2.2% 90,179 3.6% Net income $
110,206 4.2% $ 157,827 6.3% Net income per
basic share $ 0.62 $ 0.87 Net income per diluted share $ 0.61 $
0.86 Weighted average common shares
outstanding - basic
178,272 181,196 Weighted average common shares outstanding -
diluted 180,260 183,651
AMERICAN EAGLE OUTFITTERS,
INC. GAAP TO NON-GAAP RECONCILIATION (Dollars in
thousands, except per share amounts) (unaudited)
13 Weeks Ended
October 28, 2017
Operating income Net income
Diluted income
per common
share
GAAP Basis $ 110,923 $ 63,733
$ 0.36 % of Revenue 11.5 % 6.6 % Add:
Restructuring Related Charges(1): 3,695
2,065 0.01 3,695 2,065
Non-GAAP
Basis $ 114,618 $ 65,798 $
0.37 % of Revenue 11.9 % 6.8 %
(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. GAAP TO NON-GAAP
RECONCILIATION (Dollars in thousands, except per share amounts)
(unaudited)
39 Weeks
Ended October 28, 2017 Gross profit
Operating
income
Other
(expense)
income
Net income
Diluted income
per common
share
GAAP Basis $ 945,385 $ 186,777
$ (19,574 ) $ 110,206 $
0.61 % of Revenue 36.8 % 7.2 % -0.8 % 4.2 % Add:
Restructuring Related Charges(1): 1,669 20,557 - 12,961 0.08 Add:
Joint Business Venture Charges(2): - -
9,311 5,870 0.03 1,669 20,557
9,311 18,831 0.11
Non-GAAP Basis $
947,054 $ 207,334 $ (10,263
) $ 129,037 $ 0.72 % of Revenue
36.9 % 8.1 % -0.4 % 5.0 % (1) - $20.6 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 ($18.9M), 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 (unaudited)
13 Weeks Ended January 28,
2017
Diluted income
per common share
GAAP Basis $ 0.30 % of Revenue Add:
Asset Impairment and Restructuring Charges(1): 0.07 Add: Tax (2):
0.02
Non-GAAP Basis $ 0.39 % of
Revenue
(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. COMPARABLE SALES RESULTS
BY BRAND (unaudited)
Third Quarter
Comparable Sales
2017 2016 American Eagle Outfitters, Inc. (1) 3% 2%
AE Total Brand (1) 1% 0.4% aerie Total Brand (1) 19% 21%
YTD Third Quarter
Comparable Sales
2017 2016 American Eagle Outfitters, Inc. (1) 2% 4%
AE Total Brand (1) 0% 2% aerie Total Brand (1) 23% 25%
(1) AEO Direct is included in consolidated and total
brand comparable sales.
AMERICAN EAGLE OUTFITTERS,
INC. STORE INFORMATION (unaudited)
Third Quarter YTD Third Quarter Fiscal
2017 2017 2017 Guidance Consolidated
stores at beginning of period 1,057 1,050 1,050 Consolidated stores
opened during the period AE Brand 4 13 15-20 aerie 1 12 15 Tailgate
Clothing Co. 0 0 0 Todd Snyder 0 1 1 Consolidated stores closed
during the period AE Brand (3) (13) (20) - (23) aerie 0 (4) (4) -
(7) Todd Snyder (1) (1) (1)
Total consolidated stores at end of
period 1,058 1,058 1,050 - 1,061
Stores remodeled and refurbished during the period 14 43 50 Total
gross square footage at end of period (in '000) 6,641 6,641 Not
Provided International license locations at end of period
(1) 205 205 227 (1) International license locations are not
included in the consolidated store data or the total gross square
footage calculation.
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American Eagle Outfitters, Inc.Olivia Messina, 412-432-3300
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