Aerie posted exceptional growth, with revenue up 32% and record
margins
AEO’s digital demand accelerated and increased 48%; Aerie grew
113% and AE rose 21%
Improved demand and operating discipline drove $173 million in
positive operating cash flow and a strengthened financial position,
ending with $899 million in cash
Ending inventory declined 21%; AEO is well positioned for the
second half
American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS
of ($0.08) for the 13 weeks ended August 1, 2020. This compared to
$0.38 for the 13 weeks ended August 3, 2019. Adjusted EPS of
($0.03) this year excluded $0.05 of COVID-19 related expenses and
restructuring charges and compared to adjusted EPS of $0.39 last
year, which excluded $0.01 of restructuring costs.
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer
commented, “In the midst of an unprecedented crisis, we delivered a
significant improvement from the first quarter throughout our
business – a true testament to the agility, talent and commitment
of our team. Aerie was simply outstanding, fueled by strong demand,
with revenue rising 32% and record margins, demonstrating the power
of the brand and signaling the vast opportunity ahead. Across
brands, digital sales accelerated and we successfully reopened
stores during the quarter.”
“Throughout this event, we operated with strong disciplines,
reduced expenses, cut inventories and carefully managed liquidity.
We controlled what we could, and generated positive free cash flow,
strengthening our balance sheet. Inventories are in good shape and
I believe we are very well-positioned for the second half of the
year. We will remain focused on managing through the near term and
preparing for a new future as we accelerate strategies to transform
our business and emerge with strength.”
Adjusted amounts represent Non-GAAP results, as described in the
accompanying GAAP to Non-GAAP reconciliations.
Second Quarter 2020 Results
- Total net revenue for the 13 weeks ended August 1, 2020
decreased $157 million, or 15% to $884 million, compared to $1.04
billion for the 13 weeks ended August 3, 2019. The decline to last
year largely reflected store closures during the second quarter.
Revenue in the year-ago period also included $40 million from
Japanese license royalties.
- By brand, American Eagle revenue decreased 26%, following a 1%
decline last year. Aerie’s revenue increased 32%, following a 22%
increase last year.
- The company’s second quarter digital demand, as measured by
ordered sales, increased 48%. Aerie digital demand rose 113% and AE
increased 21%. AEO’s digital reported revenue increased 74%,
reflecting the strong demand and a timing benefit related to the
reversal of temporary fulfillment delays from the first quarter.
Aerie digital revenue rose 142% and AE increased 47%.
- Gross profit of $265 million compared to $383 million last
year. The year-ago gross profit included an approximately $38
million benefit from Japanese license royalties. The decline to
last year also reflected a reduction in store revenue and higher
delivery and distribution center costs, primarily due to a strong
digital business and higher cost per shipment. This was partly
offset by lower rent expense and an increase in mark-up. As a rate
to revenue, gross margin of 30.0% compared to 36.7% last year.
- Selling, general and administrative expense of $224 million
decreased $29 million from $253 million last year, primarily
reflecting lower operating expenses due to store closures and
disciplined cost controls.
- Depreciation and amortization expense of $39 million decreased
$6 million from $45 million last year, due to asset impairments
taken in recent quarters, as well as lower capital spending.
- Operating loss of $12 million compared to income of $82 million
last year. Adjusted operating income of $2 million this year
excluded $15 million of COVID-19 related expenses and restructuring
charges and compared to adjusted operating income of $85 million
last year, which excluded $3 million of restructuring charges. GAAP
and adjusted operating income in the year-ago period included a $34
million benefit from Japanese license royalties.
- Net interest expense of $9 million compared to net interest
income of $2 million last year, reflecting interest expense
associated with convertible notes and borrowings under the
revolving credit facility this year.
- EPS of ($0.08) compared to EPS of $0.38 last year. Adjusted EPS
of ($0.03) excluded $0.05 of COVID-19 related expenses and
restructuring costs and compared to adjusted EPS of $0.39 last
year, which excluded $0.01 of restructuring costs.
Restructuring and COVID-19 Related Charges
In the second quarter of 2020, the company incurred incremental
COVID-19 expenses and restructuring charges of approximately $15
million pre-tax, or $0.05 per share after-tax. In the second
quarter of 2019, the company incurred restructuring charges of $3
million pre-tax, or $0.01 per share after-tax.
Inventory
Total ending inventory at cost decreased $114 million or 21% to
$421 million. AE brand inventory was significantly lower, as
inventories were cut due to COVID-19-related store closures and
inventory optimization strategies. Aerie inventory increased to
support strong demand. In the fall, the company plans to continue
inventory optimization initiatives to streamline assortments,
provide greater alignment of inventory to sales plans and better
utilize supply chain strengths to chase product demand.
Capital Expenditures
In the second quarter of 2020, capital expenditures totaled $27
million. On a year-to-date basis, capital expenditures were $61
million. For fiscal 2020, the company continues to expect capital
expenditures to be in the range of $100 to $125 million,
prioritizing strategic customer-facing and supply chain
investments. This compares to $210 million for the full-year fiscal
2019.
Cash Flow and Balance Sheet
The company generated $173 million in operating cash flow during
the second quarter and ended the period with total cash and
short-term investments of $899 million, an increase from $317
million last year. The quarter-end cash balance included $406
million in proceeds from the April 2020 convertible notes offering
and $200 million in outstanding borrowings from the company’s
revolving credit facility. Due to the strong cash flow, the company
repaid $130 million in outstanding borrowings from its revolving
credit facility during the second quarter. Subsequent to
quarter-end, the company repaid the facility’s remaining $200
million outstanding balance.
Shareholder Returns
As previously announced, the company suspended its dividend in
June 2020 and at this point does not anticipate declaring a
dividend for the rest of this year. The company’s first quarter
cash dividend was deferred until 2021 and will be payable on April
23, 2021 to stockholders of record at the close of business on
April 9, 2021.
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
www.aeo-inc.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® and Aerie® brands. Our purpose is to show the
world that there’s REAL power in the optimism of youth. The company
operates stores in the United States, Canada, Mexico, and Hong
Kong, and ships to 81 countries worldwide through its websites.
American Eagle and Aerie merchandise also is available at more than
200 international locations operated by licensees in 25 countries.
For more information, please visit www.aeo-inc.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 2020 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 1, 2020 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 the third quarter 2020 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 impact that the COVID-19 pandemic, the 2020
U.S. Presidential election and disruption related to social unrest
will have on our operations and financial results, which is
difficult to accurately predict; 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 1,
February 1,
August 3,
2020
2020
2019
ASSETS Cash and cash equivalents $
898,787
$
361,930
$
267,166
Short-term investments
-
55,000
50,000
Merchandise inventory
421,196
446,278
534,762
Accounts receivable
107,243
119,064
98,604
Prepaid expenses and other
155,141
65,658
69,541
Total current assets
1,582,367
1,047,930
1,020,073
Property and equipment, net
659,351
735,120
754,031
Operating lease right-of-use assets
1,271,491
1,418,916
1,462,544
Intangible assets, including goodwill
51,432
53,004
56,326
Non-current deferred income taxes
30,224
22,724
16,759
Other assets
33,111
50,985
49,426
Total Assets $
3,627,976
$
3,328,679
$
3,359,159
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable
$
295,296
$
285,746
$
316,995
Current portion of operating lease liabilities
348,921
299,161
279,207
Accrued income and other taxes
12,783
9,514
17,754
Accrued compensation and payroll taxes
66,131
43,537
54,683
Dividends payable
22,837
-
-
Unredeemed gift cards and gift certificates
43,165
56,974
34,742
Other current liabilities and accrued expenses
51,281
56,824
60,265
Total current liabilities
840,414
751,756
763,646
Long-term debt, net
516,953
-
-
Non-current operating lease liabilities
1,253,105
1,301,735
1,338,634
Other non-current liabilities
19,604
27,335
28,302
Total non-current liabilities
1,789,662
1,329,070
1,366,936
Commitments and contingencies
-
-
-
Preferred stock
-
-
-
Common stock
2,496
2,496
2,496
Contributed capital
647,284
577,856
568,413
Accumulated other comprehensive income
(47,991
)
(33,168
)
(36,630
)
Retained earnings
1,807,687
2,108,292
2,070,077
Treasury stock
(1,411,576
)
(1,407,623
)
(1,375,779
)
Total stockholders' equity
997,900
1,247,853
1,228,577
Total Liabilities and Stockholders' Equity $
3,627,976
$
3,328,679
$
3,359,159
Current Ratio
1.88
1.39
1.33
AMERICAN EAGLE OUTFITTERS,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars and shares in thousands,
except per share amounts)
(unaudited)
GAAP Basis
13 Weeks Ended
August 1,
% of
August 3,
% of
2020
Revenue
2019
Revenue
Total net revenue $
883,510
100.0
%
$
1,040,879
100.0
%
Cost of sales, including certain buying, occupancy and warehousing
expenses
618,311
70.0
%
658,308
63.3
%
Gross profit
265,199
30.0
%
382,571
36.7
%
Selling, general and administrative expenses
223,711
25.3
%
253,051
24.3
%
Impairment, restructuring, and COVID-19 related charges
14,611
1.7
%
2,728
0.3
%
Depreciation and amortization expense
39,114
4.4
%
44,870
4.3
%
Operating (loss) income
(12,237
)
-1.4
%
81,922
7.8
%
Other (expense) income, net
(6,993
)
-0.8
%
3,990
0.4
%
(Loss) income before income taxes
(19,230
)
-2.2
%
85,912
8.2
%
(Benefit) provision for income taxes
(5,478
)
-0.6
%
20,931
2.0
%
Net (loss) income $
(13,752
)
-1.6
%
$
64,981
6.2
%
Net (loss) income per basic share $
(0.08
)
$
0.38
Net (loss) income per diluted share $
(0.08
)
$
0.38
Weighted average common shares outstanding - basic
166,315
170,756
Weighted average common shares outstanding - diluted
166,315
171,781
GAAP Basis
26 Weeks Ended
August 1,
% of
August 3,
% of
2020
Revenue
2019
Revenue
Total net revenue $
1,435,202
100.0
%
$
1,927,169
100.0
%
Cost of sales, including certain buying, occupancy and warehousing
expenses
1,141,697
79.5
%
1,219,677
63.3
%
Gross profit
293,505
20.5
%
707,492
36.7
%
Selling, general and administrative expenses
411,908
28.7
%
483,791
25.1
%
Impairment, restructuring, and COVID-19 related charges
170,231
11.9
%
4,272
0.2
%
Depreciation and amortization
81,844
5.7
%
89,661
4.7
%
Operating (loss) income
(370,478
)
-25.8
%
129,768
6.7
%
Other (expense) income, net
(10,122
)
-0.7
%
8,172
0.4
%
(Loss) income before income taxes
(380,600
)
-26.5
%
137,940
7.1
%
(Benefit) provision for income taxes
(109,685
)
-7.6
%
32,206
1.7
%
Net (loss) income $
(270,915
)
-18.9
%
$
105,734
5.4
%
Net (loss) income per basic share $
(1.63
)
$
0.61
Net (loss) income per diluted share $
(1.63
)
$
0.61
Weighted average common shares outstanding - basic
166,461
172,291
Weighted average common shares outstanding - diluted
166,461
173,701
AMERICAN EAGLE OUTFITTERS,
INC.
GAAP TO NON-GAAP
RECONCILIATION
(Dollars in thousands, except per
share amounts)
(unaudited)
13 Weeks Ended
August 1, 2020
Operating (Loss)
Income
Diluted (Loss) per Common
Share
GAAP Basis
$
(12,237
)
$
(0.08
)
% of Revenue
-1.4
%
Add: Incremental COVID-19 related
expenses and restructuring(1):
14,611
0.05
Non-GAAP Basis
$
2,374
$
(0.03
)
% of Revenue
0.3
%
(1) $14.6 million Incremental COVID-19 related expenses and
restructuring charges: - $13.9 million of incremental COVID-19
related expenses consisting of personal protective equipment and
supplies for our associates and customers
- $0.7 million of corporate severance charges
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP
RECONCILIATION
(Dollars in thousands, except per
share amounts)
(unaudited)
13 Weeks Ended
August 3, 2019
Operating Income
Diluted Earnings per Common
Share
GAAP Basis
$
81,922
$
0.38
% of Revenue
7.8
%
Add: Restructuring
charges(1):
2,728
0.01
Non-GAAP Basis
$
84,650
$
0.39
% of Revenue
8.1
%
(1) - $2.7 million for pre-tax corporate restructuring charges,
primarily severance
AMERICAN EAGLE OUTFITTERS, INC.
Earnings Before Interest and
Taxes
GAAP TO NON-GAAP
RECONCILIATION
(Dollars in thousands)
(unaudited)
13 Weeks Ended
August 1,
August 3,
2020
2019
Net (Loss) Income
$
(13,752
)
$
64,981
Add: (Benefit) provision for
income taxes
(5,478
)
20,931
Add: Depreciation and
amortization
39,114
44,870
Add: Interest expense (income),
net
8,547
(1,605
)
EBITDA
$
28,431
$
129,177
Add: Incremental COVID-19 related
expenses and restructuring(1) (2)
14,611
2,728
Adjusted EBITDA
$
43,042
$
131,905
(1) $14.6 million Incremental
COVID-19 related expenses and restructuring charges:
- $13.9 million of incremental
COVID-19 related expenses consisting of personal protective
equipment and supplies for our associates and customers
- $0.7 million of corporate
severance charges
(2) - $2.7 million for pre-tax
corporate restructuring charges, primarily severance
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
Second Quarter
YTD Second Quarter
2020
2020
Consolidated stores at beginning of period
1,093
1,095
Consolidated stores opened during the period
AE Brand
1
3
Aerie stand-alone
14
15
Todd Snyder
1
1
Consolidated stores closed during the period
AE Brand
(8)
(12)
Aerie stand-alone
(2)
(3)
Tailgate Clothing Co.
(1)
(1)
Total consolidated stores at end of period
1,098
1,098
AE Brand
931
Aerie stand-alone
160
Aerie side-by-side(2)
175
Tailgate Clothing Co.
4
Todd Snyder
3
Stores remodeled and refurbished during the period
3
4
Total gross square footage at end of period (in '000)
6,828
6,828
International license locations at end of period (1)
220
220
Aerie Openings
Aerie stand-alone
14
15
Total Aerie side-by-side stores (2)
2
3
Total Aerie Openings
16
18
(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.
AMERICAN EAGLE OUTFITTERS,
INC.
GAAP TO NON-GAAP
RECONCILIATION
DEMAND SALES & TOTAL
REVENUE BY BRAND
Q2 2020 vs. Q2 2019
(unaudited)
Aerie Brand
AE Brand
Total(4)
%
Change
%
Change
%
Change
Digital: Digital Demand (Ordered sales)(1)
113%
21%
48%
Total Net Revenue(1)
142%
47%
74%
Total(2): Total Demand(3)
25%
-29%
-19%
Total Net Revenue
32%
-26%
-15%
(1) Digital Demand Sales represent sales orders placed
through our e-commerce channels during the period. Total Net
Revenue represents revenue recognized in accordance with the
Company’s revenue recognition policies, which reflect revenue upon
the customer receipt date of the merchandise. (2) Total
includes Direct, Stores, and International (3) Total Demand
represents Digital demand sales plus total store revenue (4)
Total includes Aerie Brand, AE Brand, and Todd Snyder
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200909005576/en/
Olivia Messina 412-432-3300 LineMedia@ae.com
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