American Eagle Outfitters Reports Record Annual Sales of $3.5 Billion and 43% Growth in Adjusted EPS

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American Eagle Outfitters Reports Record Annual Sales of $3.5 Billion and 43% Growth in Adjusted EPS

Fourth Quarter Sales Rise to Record Level; Adjusted EPS Grows 41%

Board of Directors Authorizes 20 Million Share Repurchase Program and Increases Quarterly Dividend


PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYS: AEO) today reported adjusted fiscal year 2012 earnings for the 53 weeks ended February 2, 2013 of $1.39 per share, a 43% increase from fiscal year 2011 adjusted earnings of $0.97 per share for the 52 weeks ended January 28, 2012. GAAP earnings of $1.16 per share this year include a loss from discontinued operations of ($0.16) per share, a tax benefit of $0.06 per share and restructuring and store impairment charges of ($0.13) per share. The EPS figures refer to diluted earnings per share.

Robert Hanson, chief executive officer stated, "I'm extremely pleased with our progress in 2012 as the team delivered on our near-term priorities and exceeded our targeted financial metrics. In a competitive and volatile consumer environment, we drove a strong top line on leaner inventories, reduced markdowns and achieved cost leverage. We remain focused on our strategic plan aimed at fortifying our brands and processes and growing our business across North America. Concurrently, we are laying the ground work for transformational global expansion, while continuing to drive strong returns to our shareholders."

For the 14 weeks ended February 2, 2013 the company reported adjusted earnings of $0.55 per share, a 41% increase compared to adjusted EPS of $0.39 for the 13 weeks ended January 28, 2012. EPS was in line with the company's guidance. GAAP earnings of $0.47 per share this year include a tax benefit of $0.04 per share and restructuring and store impairment charges of ($0.12) per share. A reconciliation of GAAP to non-GAAP financial measures is provided in the following tables.

Cash Distributions to Shareholders

The board of directors authorized 20 million shares under a new share repurchase program and raised the quarterly cash dividend to $0.125 per share, a 14% increase. Due to the early payment of the first quarter dividend of $0.11, which was paid on December 28, 2012, the increased dividend distribution will begin in the second quarter. In 2012, the company returned $577 million to shareholders through dividend payments totaling $403 million and repurchased 8.4 million shares for a total of $174 million. After cash distributions, the company ended fiscal 2012 with total cash and short-term investments of $631 million.

"We remain committed to using our strong balance sheet and free cash flow to invest in our business to support long-term profitable growth and to consistently return cash to our shareholders," added Robert Hanson.

Fiscal 2012 Non-GAAP Results

The following discussion is based on Non-GAAP results, which exclude tax benefits, restructuring and store impairment costs as presented in the accompanying GAAP to Non-GAAP reconciliations.

  • Total net revenue for the 53 weeks increased 11% to a record $3.48 billion from $3.12 billion for the 52 week period last year. Consolidated comparable sales for the 53 weeks increased 9% over the comparable 53 week period last year. This follows a 4% increase last year.
  • Gross profit increased 21% to $1.39 billion and increased 330 basis points to 40.0% as a rate to revenue, driven by lower product costs, markdown improvements and rent leverage.
  • Selling, general and administrative expense of $829 million increased 16%, and 90 basis points as a rate to revenue. Increased incentive costs and planned advertising investments offset the leverage of other expenses, primarily store payroll.
  • Operating income increased 49% to $437 million. The operating margin expanded 320 basis points to 12.6%, the company's best operating margin rate since 2008.
  • Adjusted EPS of $1.39 compares to $0.97 last year, a 43% increase.

Fourth Quarter 2012 Non-GAAP Results

The following discussion is based on Non-GAAP results, which exclude tax benefits, restructuring and store impairment costs as presented in the accompanying GAAP to Non-GAAP reconciliations.

  • Total net revenue for the 14 weeks increased 9% to a record $1.12 billion from $1.03 billion for the 13 week period last year. Consolidated comparable sales for the 14 weeks increased 4% over the comparable 14 week period last year. This follows an 11% increase last year.
  • Gross profit increased 27% to $461 million and increased 600 basis points to 41.2% as a rate to revenue, driven by lower product costs, markdown improvements and rent leverage.
  • Selling, general and administrative expense of $253 million increased 230 basis points to 22.6% as a rate to revenue, due to higher incentive costs and planned advertising investments.
  • Operating income increased 48% to $177 million. The operating margin expanded 430 basis points to 15.9%, the company's best operating income rate since 2007.
  • Adjusted EPS of $0.55 compares to $0.39 last year, a 41% increase.

AEO Direct

For the year, comparable sales for AEO Direct increased 25% to total sales of $467 million. In the fourth quarter, comparable sales for AEO Direct increased 24%, compared to a 19% increase last year.

Inventory

Total merchandise inventories at the end of the fourth quarter declined 10% to $332 million compared to $368 million last year. At cost per foot, inventory decreased 8%. First quarter 2013 ending inventory cost per foot is expected to be down in the mid single-digits.

Capital Expenditures

In 2012, capital expenditures totaled $94 million, with approximately half related to store investments and the balance to information technology and investments in e-commerce. For fiscal 2013, the company expects capital expenditures of $250 million to $280 million. In addition to investments in store growth and maintenance projects, the company's capital spending plan includes building a new distribution center to support online growth, the installation of a new fleet-wide point-of-sale system and an upgraded merchandise planning system.

Real Estate

In 2012 total square footage decreased 1% from last year. The company opened 16 stores, closed 41 stores and completed 48 remodels. For additional fiscal 2012 actual and fiscal 2013 projected real estate information, see the accompanying table.

Store Impairment

During the fourth quarter, the company incurred pre-tax store asset impairment charges of $34 million, related to 42 aerie and nine AE stores.

Discontinued Operations- 77kids

On August 3, 2012, the company completed the sale of 77kids. In conjunction with the sale, the company incurred total after-tax losses of $32 million, or $0.16 per share, for the year ended February 2, 2013. 77kids results are presented as discontinued operations for all periods. Additionally, all prior period inventory balances for 77kids have been recorded as an asset held for sale on the company's consolidated balance sheets.

Future Outlook

With macro-economic headwinds and unfavorable weather affecting consumer spending in February, management is issuing first quarter EPS guidance of $0.16 to $0.19 per diluted share, compared to EPS from continuing operations of $0.22 last year. EPS guidance is based on comparable store sales in the negative mid-single digit range, compared to a 17% increase in the first quarter of last year. Management remains committed to its strategic plan annual targets of 7% to 9% top line CAGR, 12% to 15% EBIT CAGR, and a ROIC of 14% to 17%.

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.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. (NYS: 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 North America, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at approximately 55 international franchise stores in 14 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, specifically regarding first quarter and fiscal 2013 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)
   
 
February 2,January 28,
20132012
(unaudited)
 
ASSETS
Cash and cash equivalents$509,119$719,545
Short-term investments121,87325,499
Merchandise inventory332,452367,514
Assets held for sale-10,912
Accounts receivable46,32140,310
Prepaid expenses and other73,80574,947
Deferred income taxes58,23048,761
Total current assets1,141,8001,287,488
Property and equipment, net509,633582,162
Intangible assets, net38,13639,832
Goodwill11,48411,469
Non-current deferred income taxes31,28213,467
Other assets23,71816,384
Total Assets$1,756,053$1,950,802
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$176,874$183,783
Accrued compensation and payroll taxes65,53342,625
Accrued rent77,87376,921
Accrued income and other taxes29,15520,135
Unredeemed gift cards and gift certificates46,45844,970
Current portion of deferred lease credits13,38115,066
Other current liabilities and accrued expenses26,62821,901
Total current liabilities435,902405,401
Deferred lease credits59,57171,880
Non-current accrued income taxes19,01135,471
Other non-current liabilities20,38221,199
Total non-current liabilities98,964128,550
Commitments and contingencies--
Preferred stock--
Common stock2,4962,496
Contributed capital627,065552,797
Accumulated other comprehensive income29,29728,659
Retained earnings1,553,0581,771,464
Treasury stock(990,729)(938,565)
Total stockholders' equity1,221,1871,416,851
Total Liabilities and Stockholders' Equity$1,756,053$1,950,802
 
Current Ratio2.623.18
 
    
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
14 Weeks Ended13 Weeks Ended
February 2,% ofJanuary 28,% of
2013 Revenue2012 Revenue
 
Total net revenue$1,117,053100.0%$1,028,442100.0%
Cost of sales, including certain buying,
occupancy and warehousing expenses657,298 58.8%666,100 64.8%
Gross profit459,75541.2%362,34235.2%
Selling, general and administrative expenses255,25122.9%214,07120.8%
Loss on impairment of assets34,4273.1%19,1781.9%
Depreciation and amortization30,116 2.7%34,110 3.3%
Operating income139,96112.5%94,9839.2%
Other income, net1,446 0.1%338 0.1%
Income before income taxes141,40712.6%95,3219.3%
Provision for income taxes46,631 4.1%34,956 3.4%
Income from continuing operations94,7768.5%60,3655.9%
Loss from discontinued operations, net of tax- 0.0%(9,081) -0.9%
Net income$94,776 8.5%$51,284 5.0%
 
Basic income per common share:
Income from continuing operations$0.48$0.31
Loss from discontinued operations0.00  (0.05) 
Net income per basic share$0.48 $0.26 
 
Diluted income per common share:
Income from continuing operations$0.47$0.31
Loss from discontinued operations0.00  (0.05) 
Net income per diluted share$0.47 $0.26 
 
Weighted average common shares
outstanding - basic196,137193,798
Weighted average common shares
outstanding - diluted201,376195,913
 
53 Weeks Ended52 Weeks Ended
February 2,% ofJanuary 28,% of
2013 Sales2012 Sales
 
Total net revenue$3,475,802100.0%$3,120,065100.0%
Cost of sales, including certain buying,
occupancy and warehousing expenses2,085,480 60.0%1,975,471 63.3%
Gross profit1,390,32240.0%1,144,59436.7%
Selling, general and administrative expenses834,60124.0%718,12323.0%
Loss on impairment of assets34,8691.0%19,1780.6%
Depreciation and amortization126,246 3.6%137,958 4.5%
Operating income394,60611.4%269,3358.6%
Other income, net7,432 0.2%5,874 0.2%
Income before income taxes402,03811.6%275,2098.8%
Provision for income taxes137,940 4.0%99,930 3.2%
Income from continuing operations264,0987.6%175,2795.6%
Loss from discontinued operations, net of tax(31,990) -0.9%(23,574) -0.7%
Net income$232,108 6.7%$151,705 4.9%
 
Basic income per common share:
Income from continuing operations$1.35$0.90
Loss from discontinued operations(0.16)  (0.12) 
Net income per basic share$1.19 $0.78 
 
Diluted income per common share:
Income from continuing operations$1.32$0.89
Loss from discontinued operations(0.16)  (0.12) 
Net incom
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