American Eagle Outfitters Reports Fourth Quarter and Fiscal 2014 Results
March 4, 2015 | By Business Wire News
PITTSBURGH
American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS from continuing operations of $0.36 for the fourth quarter ended January 31, 2015, compared to adjusted EPS of $0.27 for the comparable quarter last year, an increase of 33%.
The company also announced adjusted EPS from continuing operations of $0.63 for the year ended January 31, 2015, compared to adjusted EPS of $0.74 for the year ended February 1, 2014, a 15% decrease. GAAP EPS of $0.46 includes restructuring and asset impairment charges of ($0.17) per share, which are outlined in the accompanying GAAP to Non-GAAP reconciliations. This represents 7% growth from GAAP EPS of $0.43 last year. The EPS figures refer to diluted earnings per share.
Jay Schottenstein, Interim CEO commented, “After a tough start to fiscal 2014, I’m pleased to see our initiatives and business priorities begin to deliver results. We achieved a solid fourth quarter, exceeding our expectations. The team executed well through an incredibly challenging macro environment. Improved merchandise assortments, combined with a better customer experience, drove strengthened sales trends and we successfully reduced promotions.”
The company provided first quarter EPS guidance of $0.09 to $0.12 compared to EPS of $0.02 last year.
Jay Schottenstein continued, “We’re encouraged to see momentum continue into the spring season. We have significant opportunity for earnings recovery. While we fully recognize the volatility within our sector, I believe we are very well positioned, with a top notch leadership team focused on the right priorities to strengthen our business and deliver profitable growth and returns to shareholders.”
Fourth Quarter 2014 Results
The following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.
- Total net revenue increased 3% to $1.07 billion from $1.04 billion last year.
- Consolidated comparable sales were flat.
- Gross profit increased 13% to $376 million and rose 320 basis points to 35.1% as a rate to revenue. The margin improvement was driven primarily by reduced markdowns and was partially offset by 90 basis points of rent deleverage, combined with higher delivery costs related to an increase in direct orders, including orders fulfilled through our buy online ship from store program.
- Selling, general and administrative expense of $227 million increased 5% from last year and deleveraged 50 basis points to 21.2% as a rate to revenue. Planned investments in marketing and incentive compensation led to the increase and were partially offset by reductions in overhead and miscellaneous expenses.
- Operating income increased 31% to $112 million. The operating margin expanded 230 basis points to 10.5% as a rate to revenue.
- EPS from continuing operations of $0.36 compares to adjusted EPS of $0.27 last year, a 33% increase.
Fiscal Year 2014 Results
The following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.
- Total net revenue decreased 1% to $3.28 billion from $3.31 billion last year. Consolidated comparable sales decreased 5% over the same period last year.
- Gross profit increased 1% to $1.15 billion and increased 60 basis points to 35.2% as a rate to revenue, primarily as a result of lower markdowns, which were offset by the deleverage of rent on negative comparable sales.
- Selling, general and administrative expense of $806 million increased 2%, and deleveraged 70 basis points to 24.6% as a rate to revenue. The increase resulted primarily from investments in marketing and incentive costs, which were partially offset by reductions in corporate overhead and variable expenses.
- Operating income decreased 11% to $207 million. The operating margin decreased 80 basis points to 6.3%.
- Adjusted EPS from continuing operations of $0.63 compares to adjusted EPS of $0.74 last year, a 15% decrease.
Discontinued Operations
In connection with the exit of the 77kids business in Fiscal 2012, the Company became secondarily liable for obligations under the lease agreements for 21 store leases assumed by the third party purchaser. In Fiscal 2014, the third party purchaser did not fulfill its obligations under the leases. As a result, the Company has incurred an after-tax charge of $8.5 million, net of letter of credit proceeds provided by the purchaser, to terminate the remaining store leases. The cash outflow for the termination costs are expected to be paid in the first quarter of fiscal 2015, ending the Company’s obligation under the agreement.
Inventory
Total merchandise inventories at the end of the fourth quarter declined 4% to $279 million compared to $292 million last year. At cost per foot, inventory decreased 5%. First quarter 2015 ending inventory at cost per foot is expected to be down in the low single-digits.
Capital Expenditures
In 2014, capital expenditures totaled $245 million, which was above earlier expectations due in part to incremental strategic omni-channel investments, including retail fulfillment in the Hazleton distribution center, as well as the pilot of the Oracle point of sale system. The company expects capital expenditures to be approximately $150 million in 2015. This includes the chain-wide roll-out of the point of sale system, supporting technologies and the completion of our new fulfillment center, as well as new and remodeled store investments.
Real Estate
In the quarter, the company opened 6 new stores consisting of the following:
- 3 stores in the United Kingdom,
- 2 stores in Mexico, and
- 1 store in Asia.
The company closed 42 locations, including 39 AE and 3 aerie stores. Five international licensed stores opened during the quarter, including the first stores in Indonesia and Thailand, and the company ended the year with 99 licensed stores in 16 countries. For additional fourth quarter 2014 actual and fiscal 2015 projected real estate information, see the accompanying table.
Cash and Investments
The company ended the quarter with total cash and investments of $411 million compared to $429 million last year.
First Quarter Outlook
Based on a midsingle digit increase in comparable sales, management expects first quarter 2015 EPS to be approximately $0.09 to $0.12, which includes the expected negative impact of $0.02 per share due to the West Coast port slowdown. This guidance excludes potential asset impairment and restructuring charges, and compares to EPS of $0.02 last year.
Conference Call and Supplemental Financial Information
Today, management will host a conference call and real time webcast at 10:30 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, Hong Kong and the United Kingdom, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 101 international stores operated by licensees in 17 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 first quarter 2015 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.
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AMERICAN EAGLE OUTFITTERS, INC. |
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| CONSOLIDATED BALANCE SHEETS | ||||||||||
| (Dollars in thousands) | ||||||||||
|
January 31, |
February 1, | |||||||||
| 2015 | 2014 | |||||||||
| (unaudited) | ||||||||||
| ASSETS | ||||||||||
| Cash and cash equivalents | $ | 410,697 | $ | 418,933 | ||||||
| Short-term investments | – | 10,002 | ||||||||
| Merchandise inventory | 278,972 | 291,541 | ||||||||
| Accounts receivable | 67,894 | 73,882 | ||||||||
| Prepaid expenses and other | 73,848 | 83,724 | ||||||||
| Deferred income taxes | 53,894 | 45,478 | ||||||||
| Total current assets | 885,305 | 923,560 | ||||||||
| Property and equipment, net | 694,856 | 637,417 | ||||||||
| Intangible assets, net | 47,206 | 49,271 | ||||||||
| Goodwill | 13,096 | 13,530 | ||||||||
| Non-current deferred income taxes | 14,035 | 24,835 | ||||||||
| Other assets | 37,202 | 45,551 | ||||||||
| Total Assets | $ |
1,691,700 |
$ | 1,694,164 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| Accounts payable | $ | 191,146 | $ | 203,872 | ||||||
| Accrued compensation and payroll taxes | 44,884 | 23,560 | ||||||||
| Accrued rent | 78,567 | 76,397 | ||||||||
| Accrued income and other taxes | 27,902 | 5,778 | ||||||||
| Unredeemed gift cards and gift certificates | 47,888 | 47,194 | ||||||||
| Current portion of deferred lease credits | 12,969 | 13,293 | ||||||||
| Other current liabilities and accrued expenses | 50,529 | 45,384 | ||||||||
| Total current liabilities | 453,885 | 415,478 | ||||||||
| Deferred lease credits | 54,516 | 59,510 | ||||||||
| Non-current accrued income taxes | 10,456 | 16,543 | ||||||||
| Other non-current liabilities | 33,097 | 36,455 | ||||||||
| Total non-current liabilities | 98,069 | 112,508 | ||||||||
| Commitments and contingencies | – | – | ||||||||
| Preferred stock | – | – | ||||||||
| Common stock | 2,496 | 2,496 | ||||||||
| Contributed capital | 569,675 | 573,008 | ||||||||
| Accumulated other comprehensive income | (9,944 | ) | 12,157 | |||||||
| Retained earnings | 1,543,085 | 1,569,851 | ||||||||
| Treasury stock | (965,566 | ) | (991,334 | ) | ||||||
| Total stockholders’ equity | 1,139,746 | 1,166,178 | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | 1,691,700 | $ | 1,694,164 | ||||||
| Current Ratio | 1.95 | 2.22 | ||||||||
| AMERICAN EAGLE OUTFITTERS, INC. | ||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
| (Dollars and shares in thousands, except per share amounts) | ||||||||||||||
| (unaudited) | ||||||||||||||
| GAAP Basis | ||||||||||||||
| 13 Weeks Ended | 13 Weeks Ended | |||||||||||||
| January 31, | % of | February 1, | % of | |||||||||||
| 2015 | Revenue | 2014 | Revenue | |||||||||||
| Total net revenue | $ | 1,071,853 | 100.0 | % | $ | 1,041,707 | 100.0 | % | ||||||
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
696,043 | 64.9 | % | 735,687 | 70.6 | % | ||||||||
| Gross profit | 375,810 | 35.1 | % | 306,020 | 29.4 | % | ||||||||
| Selling, general and administrative expenses | 226,721 | 21.2 | % | 222,191 | 21.3 | % | ||||||||
| Loss on impairment of assets | – | 0.0 | % | 25,149 | 2.4 | % | ||||||||
| Depreciation and amortization | 36,879 | 3.4 | % | 34,703 | 3.4 | % | ||||||||
| Operating income | 112,210 | 10.5 | % | 23,977 | 2.3 | % | ||||||||
| Other income, net | 1,552 | 0.1 | % | 35 | 0.0 | % | ||||||||
| Income before income taxes | 113,762 | 10.6 | % | 24,012 | 2.3 | % | ||||||||
| Provision for income taxes | 43,688 | 4.1 | % | 13,502 | 1.3 | % | ||||||||
| Income from continuing operations | 70,074 | 6.5 | % | 10,510 | 1.0 | % | ||||||||
|
Loss from discontinued operations, net of tax (1) |
(8,465 | ) | -0.7 | % | – | 0.0 | % | |||||||
| Net income | $ | 61,609 | 5.8 | % | $ | 10,510 | 1.0 | % | ||||||
| Basic income per common share: | ||||||||||||||
| Income from continuing operations | $ | 0.36 | $ | 0.05 | ||||||||||
| Loss from discontinued operations | (0.04 | ) | – | |||||||||||
| Net income per basic share | $ | 0.32 | $ | 0.05 | ||||||||||
| Diluted income per common share: | ||||||||||||||
| Income from continuing operations | $ | 0.36 | $ | 0.05 | ||||||||||
| Loss from discontinued operations | (0.04 | ) | – | |||||||||||
| Net income per diluted share | $ | 0.32 | $ | 0.05 | ||||||||||
|
Weighted average common shares outstanding – basic |
194,606 | 192,953 | ||||||||||||
|
Weighted average common shares outstanding – diluted |
195,627 | 194,287 | ||||||||||||
| GAAP Basis | ||||||||||||||
| 52 Weeks Ended | 52 Weeks Ended | |||||||||||||
| January 31, | % of | February 1, | % of | |||||||||||
| 2015 | Revenue | 2014 | Revenue | |||||||||||
| Total net revenue | $ | 3,282,867 | 100.0 | % | $ | 3,305,802 | 100.0 | % | ||||||
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
2,128,193 | 64.8 | % | 2,191,803 | 66.3 | % | ||||||||
| Gross profit | 1,154,674 | 35.2 | % | 1,113,999 | 33.7 | % | ||||||||
| Selling, general and administrative expenses | 806,498 | 24.6 | % | 796,505 | 24.1 | % | ||||||||
| Restructuring charges | 17,752 | 0.6 | % | – | 0.0 | % | ||||||||
| Loss on impairment of assets | 33,468 | 1.0 | % | 44,465 | 1.3 | % | ||||||||
| Depreciation and amortization | 141,191 | 4.3 | % | 131,974 | 4.0 | % | ||||||||
| Operating income | 155,765 | 4.7 | % | 141,055 | 4.3 | % | ||||||||
| Other income, net | 3,737 | 0.1 | % | 1,022 | 0.0 | % | ||||||||
| Income before income taxes | 159,502 | 4.8 | % | 142,077 | 4.3 | % | ||||||||
| Provision for income taxes | 70,715 | 2.2 | % | 59,094 | 1.8 | % | ||||||||
| Income from continuing operations | 88,787 | 2.6 | % | 82,983 | 2.5 | % | ||||||||
| Loss from discontinued operations, net of tax (1) | (8,465 | ) | -0.2 | % | 0 | 0.0 | % | |||||||
| Net income | $ | 80,322 | 2.3 | % | $ | 82,983 | 2.5 | % | ||||||
| Basic income per common share: | ||||||||||||||
| Income from continuing operations | $ | 0.46 | $ | 0.43 | ||||||||||
| Loss from discontinued operations | (0.04 | ) | – | |||||||||||
| Net income per basic share | $ | 0.42 | $ | 0.43 | ||||||||||
| Diluted income per common share: | ||||||||||||||
| Income from continuing operations | $ | 0.46 | $ | 0.43 | ||||||||||
| Loss from discontinued operations | (0.04 | ) | – | |||||||||||
| Net income per diluted share | $ | 0.42 | $ | 0.43 | ||||||||||
|
Weighted average common shares outstanding – basic |
194,437 | 192,802 | ||||||||||||
|
Weighted average common shares outstanding – diluted |
195,135 | 194,475 | ||||||||||||
| (1)- Loss from discontinued operations for the 13 and 52 weeks ended January 31, 2015 is a result of additional lease-related charges incurred in connection with the exit of the 77kids business. |
| AMERICAN EAGLE OUTFITTERS, INC. | ||||||||
| GAAP TO NON-GAAP RECONCILIATION | ||||||||
| (Dollars in thousands, except per share amounts) | ||||||||
| (unaudited) | ||||||||
|
|
52 Weeks Ended |
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|
|
January 31, 2015 |
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|
Diluted |
||||||||
|
income per |
||||||||
| Operating income |
common |
|||||||
| (loss) | share | |||||||
| GAAP Basis from Continuing Operations | $ | 155,765 | $ | 0.46 | ||||
| Add back: Asset Impairment and Corporate Restructuring Charges(1): | 51,220 | 0.17 | ||||||
| Non-GAAP Basis from Continuing Operations | $ | 206,985 | $ | 0.63 | ||||
| % of Total Net Revenue | 6.3 | % | ||||||
| (1) – Non-GAAP adjustments this year consist of $33.5 million of corporate and store asset impairments and $17.7 million of severance and related employee costs and corporate charges. | ||||||||
|
13 Weeks |
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|
Ended |
||||||||
|
January 31, |
||||||||
|
2015 |
||||||||
| GAAP Gross Margin Basis Point Improvement | 320 | |||||||
| Add: Buying, Occupancy and Warehousing Cost Basis Point Deleverage | 90 | |||||||
| Non-GAAP Merchandise Margin Basis Point Improvement | 410 | |||||||
| AMERICAN EAGLE OUTFITTERS, INC. | |||||||||||||||||||||||||
| GAAP TO NON-GAAP RECONCILIATION | |||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||
| 13 Weeks Ended | |||||||||||||||||||||||||
| February 1, 2014 | |||||||||||||||||||||||||
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|
Income | Diluted | |||||||||||||||||||||||
|
Selling, general |
Depreciation | before | income per | ||||||||||||||||||||||
| Gross |
& administrative |
and | Operating | income | common | ||||||||||||||||||||
| Profit | expenses | amortization | income (loss) | taxes | share | ||||||||||||||||||||
| GAAP Basis from Continuing Operations | $ | 306,020 | $ | 222,191 | $ | 34,703 | $ | 23,977 | $ | 24,012 | $ | 0.05 | |||||||||||||
|
Asset Impairment(1): |
– | – | – | (25,149 | ) | (25,149 | ) | (0.08 | ) | ||||||||||||||||
| Asset Write-offs & Corporate Charges(2): | (26,199 | ) | 6,328 | 4,118 | (36,645 | ) | (37,853 | ) | (0.12 | ) | |||||||||||||||
| Tax Related(3): | – | – | – | – | – | (0.02 | ) | ||||||||||||||||||
| Non-GAAP Basis from Continuing Operations | $ | 332,219 | $ | 215,863 | $ | 30,585 | $ | 85,771 | $ | 87,014 | $ | 0.27 | |||||||||||||
| % of Total Net Revenue | 31.9 | % | 20.7 | % | 3.0 | % | 8.2 | % | 8.3 | % | |||||||||||||||
| (1) – Pre-tax asset impairment for AEO & aerie brand stores. |
| (2) – Pre-tax charges including $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $9.1M of corporate & store asset write-offs, $3.3M of employee severance & related costs and $1.3M for the write-down of the Company’s corporate jet. |
| (3) – International valuation allowance, partially offset by tax benefits from changes in tax reserves. |
| AMERICAN EAGLE OUTFITTERS, INC. | |||||||||||||||||||||||||
| GAAP TO NON-GAAP RECONCILIATION | |||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||
| 52 Weeks Ended | |||||||||||||||||||||||||
| February 1, 2014 | |||||||||||||||||||||||||
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|
Income | Diluted | |||||||||||||||||||||||
|
Selling, general |
Depreciation |
|
before | income per | |||||||||||||||||||||
| Gross |
& administrative |
and |
Operating |
income | common | ||||||||||||||||||||
| Profit | expenses | amortization |
income (loss) |
taxes | share | ||||||||||||||||||||
| GAAP Basis from Continuing Operations | $ | 1,113,999 | $ | 796,505 | $ | 131,974 | $ | 141,055 | $ | 142,077 | $ | 0.43 | |||||||||||||
| Asset Impairment(1): | – | – | – | (44,465 | ) | (44,465 | ) | (0.14 | ) | ||||||||||||||||
| Asset Write-offs & Corporate Charges(2): | (28,624 | ) | 7,840 | 11,724 | (48,188 | ) | (49,396 | ) | (0.16 | ) | |||||||||||||||
| Tax Related(3): | – | – | – | – | – | (0.01 | ) | ||||||||||||||||||
| Non-GAAP Basis from Continuing Operations | $ | 1,142,623 | $ | 788,665 | $ | 120,250 | $ | 233,708 | $ | 235,938 | $ | 0.74 | |||||||||||||
| % of Total Net Revenue | 34.6 | % | 23.9 | % | 3.6 | % | 7.1 | % | 7.2 | % | |||||||||||||||
| (1) – Pre-tax asset impairments for AEO & aerie brand stores and Warrendale Distribution Center. |
| (2) – Pre-tax charges including $24.1M of charges related to fabric and product liabilities and the discontinuation of the AE Performance line, $14.3M of corporate & store asset write-offs, $6.3M for the write-down of the Company’s corporate jet and $4.7M of employee severance & related costs. |
| (3) – International valuation allowance, partially offset by tax benefits from changes in tax reserves. |
| AMERICAN EAGLE OUTFITTERS, INC. | |||||||
| COMPARABLE SALES RESULTS BY BRAND | |||||||
| (unaudited) | |||||||
| Fourth Quarter | |||||||
| Comparable Sales | |||||||
| 2014 | 2013 | ||||||
| American Eagle Outfitters, Inc. (1) | 0 | % | -7 | % | |||
| AE Total Brand (1) | -1 | % | -7 | % | |||
| aerie Total Brand (1) | 13 | % | -4 | % | |||
| Fiscal Year | |||||||
| Comparable Sales | |||||||
| 2014 | 2013 | ||||||
| American Eagle Outfitters, Inc. (1) | -5 | % | -6 | % | |||
| AE Total Brand (1) | -6 | % | -7 | % | |||
| aerie Total Brand (1) | 6 | % | -2 | % | |||
| (1) AEO Direct is included in consolidated and total brand comparable sales. | |||||||
| AMERICAN EAGLE OUTFITTERS, INC. | ||||||||||||
| REAL ESTATE INFORMATION | ||||||||||||
| (unaudited) | ||||||||||||
| Fourth Quarter | Fiscal Year | Fiscal 2015 | ||||||||||
| 2014 | 2014 | Guidance | ||||||||||
| Consolidated stores at beginning of period | 1,092 | 1,066 | 1,056 | |||||||||
|
Consolidated stores opened during the period AE Brand (1) |
6 | 60 | 20 – 25 | |||||||||
|
Consolidated stores closed during the period AE Brand |
(39 | ) | (49 | ) | (50 | ) | ||||||
| aerie | (3 | ) | (21 | ) | (20 | ) | ||||||
| Total consolidated stores at end of period | 1,056 | 1,056 | 1,006 – 1,011 | |||||||||
| Stores remodeled and refurbished during the period | 4 | 44 | 45 | |||||||||
| Total gross square footage at end of period | 6,613,110 | 6,613,110 | Not Provided | |||||||||
|
International licensed stores at end of period (1) |
99 | 99 | 122 | |||||||||
| (1)- International licensed stores are not included in the consolidated store data or the total gross square footage calculation. |
American Eagle Outfitters, Inc.
Kristen Zaccagnini, 412-432-3300
