OREANDA-NEWS. American Eagle Outfitters, Inc. (NYSE: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. (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 82 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at more than 190 international locations operated by licensees. 

"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 expenses

     551,908     65.3 %     515,499     62.7 %
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 expenses

     1,035,922     64.5 %     971,463     61.8 %
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
income

  

Other
(expense)
income

   Net income  

Diluted income
per common
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
income

  

Other
(expense)
income

   Net income  

Diluted income
per common
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.