UNITED STATES
SECURITIES AND EXCHANGEEXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 20172023
OR
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-33338
American Eagle Outfitters, Inc.
(Exact name of registrant as specified in its charter)
Delaware | No. 13-2721761 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
77 Hot Metal Street, Pittsburgh, PA | 15203-2329 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (412) (412) 432-3300
Former name, former address and former fiscal year, if changed since last report:
N/ASecurities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | AEO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES Yes☒ NO No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES Yes☒ NO No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smallsmaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES Yes☐ NO No☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 177,307,946197,538,350 shares of Common SharesStock were outstanding at December 4, 2017.November 17, 2023.
2
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
Page Number | ||||
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Item 1. | 7 | |||
Consolidated Balance Sheets: October 28, |
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10 | ||||
Consolidated Statements of Cash Flows: 39 weeks ended October 28, |
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Item 2. |
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Item 3. |
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Item 4. |
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Item | 1. |
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Item | 1A. | 41 | ||
Item 2. |
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Item 3. | Defaults Upon Senior Securities | N/A | ||
Item 4. | Mine Safety Disclosures | N/A | ||
Item 5. | Other Information |
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Item 6. |
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23
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those contained in this Quarterly Report and in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 filed with the Securities and Exchange Commission (the "SEC") on March 13, 2023 (the "Fiscal 2022 Form 10-K") that may not be in the control of management. As used herein, “Fiscal 2023” refers to the 53-week period that will end on February 3, 2024. “Fiscal 2022” refers to the 52-week period ended January 28, 2023.
All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
4
5
6
PART I - FINANCIALFINANCIAL INFORMATION
AMERICAN EAGLE OUTFITTERS, INC.
|
| October 28, |
|
| January 28, |
|
| October 29, |
|
| October 28, |
|
| January 28, |
|
| October 29, |
| ||||||
(In thousands, except per share amounts) |
| 2017 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
| (Unaudited) |
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| (Unaudited) |
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Assets |
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Current assets: |
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|
|
|
|
|
|
|
|
|
|
|
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|
| |||
Cash and cash equivalents |
| $ | 257,527 |
|
| $ | 378,613 |
|
| $ | 291,667 |
|
| $ | 240,940 |
|
| $ | 170,209 |
|
| $ | 82,133 |
|
Merchandise inventory |
|
| 534,019 |
|
|
| 358,446 |
|
|
| 492,602 |
|
|
| 769,315 |
|
|
| 585,083 |
|
|
| 797,731 |
|
Accounts receivable, net |
|
| 77,113 |
|
|
| 86,634 |
|
|
| 74,812 |
|
|
| 239,374 |
|
|
| 242,386 |
|
|
| 250,879 |
|
Prepaid expenses and other |
|
| 61,553 |
|
|
| 77,536 |
|
|
| 77,768 |
|
|
| 103,789 |
|
|
| 102,563 |
|
|
| 146,362 |
|
Total current assets |
|
| 930,212 |
|
|
| 901,229 |
|
|
| 936,849 |
|
|
| 1,353,418 |
|
|
| 1,100,241 |
|
|
| 1,277,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating lease right-of-use assets |
|
| 995,023 |
|
|
| 1,086,999 |
|
|
| 1,148,832 |
| ||||||||||||
Property and equipment, at cost, net of accumulated depreciation |
|
| 726,168 |
|
|
| 707,797 |
|
|
| 708,488 |
|
|
| 742,793 |
|
|
| 781,514 |
|
|
| 789,809 |
|
Intangible assets, at cost, net of accumulated amortization |
|
| 46,979 |
|
|
| 49,373 |
|
|
| 49,993 |
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Goodwill |
|
| 14,972 |
|
|
| 14,887 |
|
|
| 17,315 |
| ||||||||||||
Goodwill, net |
|
| 264,825 |
|
|
| 264,945 |
|
|
| 271,209 |
| ||||||||||||
Intangible assets, net |
|
| 88,201 |
|
|
| 94,536 |
|
|
| 96,530 |
| ||||||||||||
Non-current deferred income taxes |
|
| 29,025 |
|
|
| 49,250 |
|
|
| 49,627 |
|
|
| 20,791 |
|
|
| 36,483 |
|
|
| 34,135 |
|
Other assets |
|
| 54,424 |
|
|
| 60,124 |
|
|
| 60,268 |
|
|
| 55,735 |
|
|
| 56,238 |
|
|
| 54,857 |
|
Total assets |
| $ | 1,801,780 |
|
| $ | 1,782,660 |
|
| $ | 1,822,540 |
|
| $ | 3,520,786 |
|
| $ | 3,420,956 |
|
| $ | 3,672,477 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 330,716 |
|
| $ | 246,204 |
|
| $ | 314,111 |
|
| $ | 300,031 |
|
| $ | 234,340 |
|
| $ | 188,448 |
|
Current portion of operating lease liabilities |
|
| 294,898 |
|
|
| 337,258 |
|
|
| 332,160 |
| ||||||||||||
Unredeemed gift cards and gift certificates |
|
| 47,676 |
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|
| 67,618 |
|
|
| 47,531 |
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Accrued compensation and payroll taxes |
|
| 43,561 |
|
|
| 54,184 |
|
|
| 56,939 |
|
|
| 96,484 |
|
|
| 51,912 |
|
|
| 36,436 |
|
Accrued rent |
|
| 80,580 |
|
|
| 78,619 |
|
|
| 79,255 |
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Accrued income and other taxes |
|
| 17,262 |
|
|
| 12,220 |
|
|
| 29,373 |
|
|
| 19,255 |
|
|
| 10,919 |
|
|
| 13,056 |
|
Unredeemed gift cards and gift certificates |
|
| 29,475 |
|
|
| 52,966 |
|
|
| 30,130 |
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Current portion of deferred lease credits |
|
| 12,887 |
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|
| 12,780 |
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|
| 12,783 |
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Other liabilities and accrued expenses |
|
| 38,359 |
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|
| 36,810 |
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|
| 40,288 |
| ||||||||||||
Other current liabilities and accrued expenses |
|
| 72,887 |
|
|
| 66,901 |
|
|
| 67,799 |
| ||||||||||||
Total current liabilities |
|
| 552,840 |
|
|
| 493,783 |
|
|
| 562,879 |
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|
| 831,231 |
|
|
| 768,948 |
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|
| 685,430 |
|
Non-current liabilities: |
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|
|
|
|
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|
|
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|
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|
|
|
|
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Deferred lease credits |
|
| 50,439 |
|
|
| 45,114 |
|
|
| 47,677 |
| ||||||||||||
Non-current accrued income taxes |
|
| 4,590 |
|
|
| 4,537 |
|
|
| 4,573 |
| ||||||||||||
Non-current operating lease liabilities |
|
| 927,019 |
|
|
| 1,021,200 |
|
|
| 1,089,710 |
| ||||||||||||
Long-term debt, net |
|
| - |
|
|
| 8,911 |
|
|
| 411,911 |
| ||||||||||||
Other non-current liabilities |
|
| 30,712 |
|
|
| 34,657 |
|
|
| 35,451 |
|
|
| 24,247 |
|
|
| 22,734 |
|
|
| 22,894 |
|
Total non-current liabilities |
|
| 85,741 |
|
|
| 84,308 |
|
|
| 87,701 |
|
|
| 951,266 |
|
|
| 1,052,845 |
|
|
| 1,524,515 |
|
Commitments and contingencies |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |||
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 177,084, 181,886 and 181,863 shares outstanding, respectively |
|
| 2,496 |
|
|
| 2,496 |
|
|
| 2,496 |
| ||||||||||||
Preferred stock, $0.01 par value; 5,000 shares authorized; none |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Common stock, $0.01 par value; 600,000 shares authorized; |
|
| 2,496 |
|
|
| 2,496 |
|
|
| 2,496 |
| ||||||||||||
Contributed capital |
|
| 588,978 |
|
|
| 603,890 |
|
|
| 597,919 |
|
|
| 343,695 |
|
|
| 341,775 |
|
|
| 389,726 |
|
Accumulated other comprehensive loss |
|
| (34,798 | ) |
|
| (36,462 | ) |
|
| (31,160 | ) |
|
| (32,865 | ) |
|
| (32,630 | ) |
|
| (41,267 | ) |
Retained earnings |
|
| 1,812,821 |
|
|
| 1,775,775 |
|
|
| 1,744,227 |
|
|
| 2,234,761 |
|
|
| 2,137,126 |
|
|
| 2,080,852 |
|
Treasury stock, 72,482, 67,680 and 67,703 shares, respectively |
|
| (1,206,298 | ) |
|
| (1,141,130 | ) |
|
| (1,141,522 | ) | ||||||||||||
Treasury stock, at cost, 52,028, 54,502, and 62,178 shares, respectively |
|
| (809,798 | ) |
|
| (849,604 | ) |
|
| (969,275 | ) | ||||||||||||
Total stockholders’ equity |
|
| 1,163,199 |
|
|
| 1,204,569 |
|
|
| 1,171,960 |
|
|
| 1,738,289 |
|
|
| 1,599,163 |
|
|
| 1,462,532 |
|
Total liabilities and stockholders’ equity |
| $ | 1,801,780 |
|
| $ | 1,782,660 |
|
| $ | 1,822,540 |
|
| $ | 3,520,786 |
|
| $ | 3,420,956 |
|
| $ | 3,672,477 |
|
Refer to Notes to Consolidated Financial Statements
37
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||||||||||||
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||||||
(In thousands, except per share amounts) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Total net revenue |
| $ | 960,433 |
|
| $ | 940,609 |
|
| $ | 2,566,826 |
|
| $ | 2,512,619 |
|
| $ | 1,301,055 |
|
| $ | 1,240,583 |
|
| $ | 3,582,859 |
|
| $ | 3,493,745 |
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
|
| 585,520 |
|
|
| 562,793 |
|
|
| 1,621,441 |
|
|
| 1,534,194 |
|
|
| 757,258 |
|
|
| 760,810 |
|
|
| 2,172,867 |
|
|
| 2,255,929 |
|
Gross profit |
|
| 374,913 |
|
|
| 377,816 |
|
|
| 945,385 |
|
|
| 978,425 |
|
|
| 543,797 |
|
|
| 479,773 |
|
|
| 1,409,992 |
|
|
| 1,237,816 |
|
Selling, general and administrative expenses |
|
| 217,146 |
|
|
| 219,912 |
|
|
| 615,842 |
|
|
| 615,503 |
|
|
| 361,992 |
|
|
| 311,101 |
|
|
| 1,006,210 |
|
|
| 917,687 |
|
Restructuring charges |
|
| 3,695 |
|
|
| — |
|
|
| 18,888 |
|
|
| — |
| ||||||||||||||||
Impairment, restructuring and other charges |
|
| — |
|
|
| — |
|
|
| 21,275 |
|
|
| — |
| ||||||||||||||||
Depreciation and amortization expense |
|
| 43,149 |
|
|
| 39,636 |
|
|
| 123,878 |
|
|
| 117,319 |
|
|
| 56,444 |
|
|
| 51,124 |
|
|
| 169,026 |
|
|
| 146,664 |
|
Operating income |
|
| 110,923 |
|
|
| 118,268 |
|
|
| 186,777 |
|
|
| 245,603 |
|
|
| 125,361 |
|
|
| 117,548 |
|
|
| 213,481 |
|
|
| 173,465 |
|
Other (expense) income, net |
|
| (13,243 | ) |
|
| 603 |
|
|
| (19,574 | ) |
|
| 2,403 |
| ||||||||||||||||
Debt related charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,066 |
| ||||||||||||||||
Interest (income) expense, net |
|
| (2,871 | ) |
|
| 3,878 |
|
|
| (1,229 | ) |
|
| 11,887 |
| ||||||||||||||||
Other (income) expense, net |
|
| (3,984 | ) |
|
| 782 |
|
|
| (9,446 | ) |
|
| (5,501 | ) | ||||||||||||||||
Income before income taxes |
|
| 97,680 |
|
|
| 118,871 |
|
|
| 167,203 |
|
|
| 248,006 |
|
|
| 132,216 |
|
|
| 112,888 |
|
|
| 224,156 |
|
|
| 107,013 |
|
Provision for income taxes |
|
| 33,947 |
|
|
| 43,111 |
|
|
| 56,997 |
|
|
| 90,179 |
|
|
| 35,516 |
|
|
| 31,616 |
|
|
| 60,434 |
|
|
| 36,466 |
|
Net income |
| $ | 63,733 |
|
| $ | 75,760 |
|
| $ | 110,206 |
|
| $ | 157,827 |
|
| $ | 96,700 |
|
| $ | 81,272 |
|
| $ | 163,722 |
|
| $ | 70,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per basic share |
| $ | 0.36 |
|
| $ | 0.42 |
|
| $ | 0.62 |
|
| $ | 0.87 |
| ||||||||||||||||
Net income per diluted share |
| $ | 0.36 |
|
| $ | 0.41 |
|
| $ | 0.61 |
|
| $ | 0.86 |
| ||||||||||||||||
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends per common share |
| $ | 0.125 |
|
| $ | 0.125 |
|
| $ | 0.375 |
|
| $ | 0.375 |
| ||||||||||||||||
Basic net income per common share |
| $ | 0.50 |
|
| $ | 0.44 |
|
| $ | 0.84 |
|
| $ | 0.39 |
| ||||||||||||||||
Diluted net income per common share |
| $ | 0.49 |
|
| $ | 0.42 |
|
| $ | 0.83 |
|
| $ | 0.36 |
| ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding - basic |
|
| 177,288 |
|
|
| 181,819 |
|
|
| 178,272 |
|
|
| 181,196 |
|
|
| 195,343 |
|
|
| 186,305 |
|
|
| 195,467 |
|
|
| 178,637 |
|
Weighted average common shares outstanding - diluted |
|
| 179,132 |
|
|
| 184,615 |
|
|
| 180,260 |
|
|
| 183,651 |
|
|
| 198,367 |
|
|
| 195,776 |
|
|
| 197,969 |
|
|
| 207,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Retained earnings, beginning |
| $ | 1,772,233 |
|
| $ | 1,693,371 |
|
| $ | 1,775,775 |
|
| $ | 1,659,267 |
| ||||||||||||||||
Net income |
|
| 63,733 |
|
|
| 75,760 |
|
|
| 110,206 |
|
|
| 157,827 |
| ||||||||||||||||
Cash dividends and dividend equivalents |
|
| (22,733 | ) |
|
| (23,349 | ) |
|
| (68,119 | ) |
|
| (69,754 | ) | ||||||||||||||||
Reissuance of treasury stock |
|
| (412 | ) |
|
| (1,555 | ) |
|
| (5,041 | ) |
|
| (3,113 | ) | ||||||||||||||||
Retained earnings, ending |
| $ | 1,812,821 |
|
| $ | 1,744,227 |
|
| $ | 1,812,821 |
|
| $ | 1,744,227 |
|
Refer to Notes to Consolidated Financial Statements
48
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||||||||||||
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||||||
(In thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net income |
| $ | 63,733 |
|
| $ | 75,760 |
|
| $ | 110,206 |
|
| $ | 157,827 |
|
| $ | 96,700 |
|
| $ | 81,272 |
|
| $ | 163,722 |
|
| $ | 70,547 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Foreign currency translation (expense) income |
|
| (4,677 | ) |
|
| (1,805 | ) |
|
| 1,504 |
|
|
| (1,287 | ) | ||||||||||||||||
Other comprehensive (expense) income: |
|
| (4,677 | ) |
|
| (1,805 | ) |
|
| 1,504 |
|
|
| (1,287 | ) | ||||||||||||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Foreign currency translation adjustments |
|
| (21,299 | ) |
|
| (1,250 | ) |
|
| (235 | ) |
|
| (422 | ) | ||||||||||||||||
Other comprehensive loss: |
|
| (21,299 | ) |
|
| (1,250 | ) |
|
| (235 | ) |
|
| (422 | ) | ||||||||||||||||
Comprehensive income |
| $ | 59,056 |
|
| $ | 73,955 |
|
| $ | 111,710 |
|
| $ | 156,540 |
|
| $ | 75,401 |
|
| $ | 80,022 |
|
| $ | 163,487 |
|
| $ | 70,125 |
|
Refer to Notes to Consolidated Financial Statements
59
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(Unaudited)
|
| 39 Weeks Ended |
| |||||
|
| October 28, |
|
| October 29, |
| ||
(In thousands) |
| 2017 |
|
| 2016 |
| ||
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 110,206 |
|
| $ | 157,827 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 125,370 |
|
|
| 118,173 |
|
Share-based compensation |
|
| 12,056 |
|
|
| 23,024 |
|
Deferred income taxes |
|
| 19,846 |
|
|
| 14,647 |
|
Foreign currency transaction gain |
|
| (5,002 | ) |
|
| (806 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Merchandise inventory |
|
| (173,020 | ) |
|
| (186,594 | ) |
Accounts receivable |
|
| 9,515 |
|
|
| 4,070 |
|
Prepaid expenses and other |
|
| 16,220 |
|
|
| (499 | ) |
Other assets |
|
| 2,872 |
|
|
| (5,893 | ) |
Accounts payable |
|
| 80,844 |
|
|
| 117,967 |
|
Unredeemed gift cards and gift certificates |
|
| (23,581 | ) |
|
| (18,265 | ) |
Deferred lease credits |
|
| 5,287 |
|
|
| (2,577 | ) |
Accrued compensation and payroll taxes |
|
| (9,499 | ) |
|
| (22,002 | ) |
Accrued income and other taxes |
|
| 5,519 |
|
|
| 7,038 |
|
Accrued liabilities |
|
| 11,467 |
|
|
| (3,256 | ) |
Total adjustments |
|
| 77,894 |
|
|
| 45,027 |
|
Net cash provided by operating activities |
|
| 188,100 |
|
|
| 202,854 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
| (134,920 | ) |
|
| (107,616 | ) |
Acquisition of intangible assets |
|
| (645 | ) |
|
| (1,215 | ) |
Net cash used for investing activities |
|
| (135,565 | ) |
|
| (108,831 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
Payments on capital leases |
|
| (8,705 | ) |
|
| (5,604 | ) |
Repurchase of common stock as part of publicly announced programs |
|
| (87,682 | ) |
|
| — |
|
Repurchase of common stock from employees |
|
| (12,300 | ) |
|
| (6,898 | ) |
Net proceeds from stock options exercised |
|
| 225 |
|
|
| 16,177 |
|
Excess tax benefit from share-based payments |
|
| — |
|
|
| 758 |
|
Cash dividends paid |
|
| (66,385 | ) |
|
| (67,945 | ) |
Net cash used for financing activities |
|
| (174,847 | ) |
|
| (63,512 | ) |
Effect of exchange rates changes on cash |
|
| 1,226 |
|
|
| 1,089 |
|
Net change in cash and cash equivalents |
|
| (121,086 | ) |
|
| 31,600 |
|
Cash and cash equivalents - beginning of period |
|
| 378,613 |
|
|
| 260,067 |
|
Cash and cash equivalents - end of period |
| $ | 257,527 |
|
| $ | 291,667 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes |
| $ | 36,822 |
|
| $ | 77,562 |
|
Cash paid during the period for interest |
| $ | 818 |
|
| $ | 881 |
|
13 Weeks Ended October 28, 2023 and October 29, 2022
(In thousands, except per share amounts) |
| Shares |
|
| Common |
|
| Contributed |
|
| Retained |
|
| Treasury |
|
| Accumulated Other |
|
| Stockholders' |
| |||||||
Balance at July 30, 2022 |
|
| 187,312 |
|
| $ | 2,496 |
|
| $ | 380,959 |
|
| $ | 2,000,021 |
|
| $ | (970,536 | ) |
| $ | (40,017 | ) |
| $ | 1,372,923 |
|
Stock awards |
|
| — |
|
|
| — |
|
|
| 6,591 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,591 |
|
Repurchase of common stock from employees |
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (193 | ) |
|
| — |
|
|
| (193 | ) |
Reissuance of treasury stock |
|
| 94 |
|
|
| — |
|
|
| (660 | ) |
|
| (441 | ) |
|
| 1,454 |
|
|
| — |
|
|
| 353 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 81,272 |
|
|
| — |
|
|
| — |
|
|
| 81,272 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,250 | ) |
|
| (1,250 | ) |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| 2,836 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,836 |
|
Balance at October 29, 2022 |
|
| 187,388 |
|
| $ | 2,496 |
|
| $ | 389,726 |
|
| $ | 2,080,852 |
|
| $ | (969,275 | ) |
| $ | (41,267 | ) |
| $ | 1,462,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at July 29, 2023 |
|
| 197,481 |
|
| $ | 2,496 |
|
| $ | 334,447 |
|
| $ | 2,158,294 |
|
| $ | (810,672 | ) |
| $ | (11,566 | ) |
| $ | 1,672,999 |
|
Stock awards |
|
| — |
|
|
| — |
|
|
| 9,794 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,794 |
|
Repurchase of common stock from employees |
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (270 | ) |
|
| — |
|
|
| (270 | ) |
Reissuance of treasury stock |
|
| 74 |
|
|
| — |
|
|
| (557 | ) |
|
| — |
|
|
| 1,144 |
|
|
| — |
|
|
| 587 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 96,700 |
|
|
| — |
|
|
| — |
|
|
| 96,700 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,299 | ) |
|
| (21,299 | ) |
Cash dividends declared and dividend equivalents ($0.10 per share) |
|
| — |
|
|
| — |
|
|
| 483 |
|
|
| (20,233 | ) |
|
| — |
|
|
| — |
|
|
| (19,750 | ) |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| (472 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (472 | ) |
Balance at October 28, 2023 |
|
| 197,538 |
|
| $ | 2,496 |
|
| $ | 343,695 |
|
| $ | 2,234,761 |
|
| $ | (809,798 | ) |
| $ | (32,865 | ) |
| $ | 1,738,289 |
|
10
39 Weeks Ended October 28, 2023 and October 29, 2022
(In thousands, except per share amounts) |
| Shares |
|
| Common |
|
|
| Contributed |
|
| Retained |
|
| Treasury |
|
| Accumulated Other |
|
| Stockholders' |
| ||||||||
Balance at January 29, 2022 |
|
| 168,699 |
|
| $ | 2,496 |
|
|
| $ | 636,355 |
|
| $ | 2,203,772 |
|
| $ | (1,378,106 | ) |
| $ | (40,845 | ) |
| $ | 1,423,672 |
| |
Stock awards |
|
| — |
|
|
| — |
|
|
|
| 29,249 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,249 |
| |
Repurchase of common stock from employees |
|
| (584 | ) |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (9,772 | ) |
|
| — |
|
|
| (9,772 | ) | |
Reissuance of treasury stock |
|
| 1,617 |
|
|
| — |
|
|
|
| (24,618 | ) |
|
| (1,539 | ) |
|
| 27,425 |
|
|
| — |
|
|
| 1,268 |
| |
Adoption of Accounting Standards Update 2020-06, net of tax |
|
| — |
|
|
| — |
|
|
|
| (67,686 | ) |
|
| 18,830 |
|
|
| — |
|
|
| — |
|
|
| (48,856 | ) | |
Accelerated share repurchase |
|
| (17,023 | ) |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (200,000 | ) |
|
| — |
|
|
| (200,000 | ) | |
Exchange of Convertible Senior Notes |
|
| 34,679 |
|
|
| — |
|
|
|
| (187,894 | ) |
|
| (144,507 | ) |
|
| 591,178 |
|
|
| — |
|
|
| 258,777 |
| |
Net income |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 70,547 |
|
|
| — |
|
|
| — |
|
|
| 70,547 |
| |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (422 | ) |
|
| (422 | ) | |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
|
| 2,836 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,836 |
| |
Cash dividends declared and dividend equivalents ($0.36 per share) |
|
| — |
|
|
| — |
|
|
|
| 1,484 |
|
|
| (66,251 | ) |
|
| — |
|
|
| — |
|
|
| (64,767 | ) | |
Balance at October 29, 2022 |
|
| 187,388 |
|
| $ | 2,496 |
|
|
| $ | 389,726 |
|
| $ | 2,080,852 |
|
| $ | (969,275 | ) |
| $ | (41,267 | ) |
| $ | 1,462,532 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at January 28, 2023 |
|
| 195,064 |
|
| $ | 2,496 |
|
|
| $ | 341,775 |
|
| $ | 2,137,126 |
|
| $ | (849,604 | ) |
| $ | (32,630 | ) |
| $ | 1,599,163 |
| |
Stock awards |
|
| — |
|
|
| — |
|
|
|
| 34,777 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,777 |
| |
Repurchase of common stock from employees |
|
| (766 | ) |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (10,666 | ) |
|
| — |
|
|
| (10,666 | ) | |
Reissuance of treasury stock |
|
| 2,141 |
|
|
| — |
|
|
|
| (28,038 | ) |
|
| (3,330 | ) |
|
| 33,364 |
|
|
| — |
|
|
| 1,996 |
| |
Redemption of Convertible Senior Notes |
|
| 1,099 |
|
|
| — |
|
|
|
| (6,281 | ) |
|
| (2,137 | ) |
|
| 17,108 |
|
|
| — |
|
|
| 8,690 |
| |
Net income |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 163,722 |
|
|
| — |
|
|
| — |
|
|
| 163,722 |
| |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (235 | ) |
|
| (235 | ) | |
Cash dividends declared and dividend equivalents ($0.30 per share) |
|
| — |
|
|
| — |
|
|
|
| 1,499 |
|
|
| (60,620 | ) |
|
| — |
|
|
| — |
|
|
| (59,121 | ) | |
Contributions from non-controlling interests |
|
| — |
|
|
| — |
|
| — |
|
| (37 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37 | ) |
Balance at October 28, 2023 |
|
| 197,538 |
|
| $ | 2,496 |
|
|
| $ | 343,695 |
|
| $ | 2,234,761 |
|
| $ | (809,798 | ) |
| $ | (32,865 | ) |
| $ | 1,738,289 |
|
Refer to Notes to Consolidated Financial Statements
611
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| 39 Weeks Ended |
| |||||
|
| October 28, |
|
| October 29, |
| ||
(In thousands) |
| 2023 |
|
| 2022 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 163,722 |
|
| $ | 70,547 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 174,559 |
|
|
| 150,462 |
|
Share-based compensation |
|
| 35,289 |
|
|
| 29,962 |
|
Deferred income taxes |
|
| 15,691 |
|
|
| 25,416 |
|
Loss on impairment of assets |
|
| 10,759 |
|
|
| - |
|
Loss on exchange of Convertible Senior Notes |
|
| - |
|
|
| 55,687 |
|
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 3,906 |
|
|
| 36,662 |
|
Merchandise inventory |
|
| (186,546 | ) |
|
| (244,864 | ) |
Operating lease assets |
|
| 201,810 |
|
|
| 256,523 |
|
Operating lease liabilities |
|
| (241,760 | ) |
|
| (248,721 | ) |
Other assets |
|
| 793 |
|
|
| (41,066 | ) |
Accounts payable |
|
| 65,630 |
|
|
| (43,378 | ) |
Accrued compensation and payroll taxes |
|
| 44,584 |
|
|
| (105,466 | ) |
Accrued and other liabilities |
|
| (4,094 | ) |
|
| (28,466 | ) |
Net cash provided by (used for) operating activities |
|
| 284,343 |
|
|
| (86,702 | ) |
Investing activities: |
|
|
|
|
|
| ||
Capital expenditures for property and equipment |
|
| (134,915 | ) |
|
| (199,364 | ) |
Other investing activities |
|
| (9,346 | ) |
|
| (700 | ) |
Net cash used for investing activities |
|
| (144,261 | ) |
|
| (200,064 | ) |
Financing activities: |
|
|
|
|
|
| ||
Proceeds from revolving line of credit and convertible notes |
|
| 30,000 |
|
|
| 343,000 |
|
Principal payments on revolving line of credit |
|
| (30,000 | ) |
|
| — |
|
Net proceeds from stock options exercised |
|
| 1,561 |
|
|
| 1,799 |
|
Repurchase of common stock from employees |
|
| (10,666 | ) |
|
| (9,772 | ) |
Cash dividends paid |
|
| (59,121 | ) |
|
| (64,767 | ) |
Principal paid in connection with exchange of Convertible Senior Notes due 2025 |
|
| — |
|
|
| (136,077 | ) |
Accelerated share repurchase |
|
| — |
|
|
| (200,000 | ) |
Other financing activities |
|
| (762 | ) |
|
| 1,670 |
|
Net cash used for financing activities |
|
| (68,988 | ) |
|
| (64,147 | ) |
Effect of exchange rates changes on cash |
|
| (363 | ) |
|
| (1,724 | ) |
Net change in cash and cash equivalents |
|
| 70,731 |
|
|
| (352,637 | ) |
Cash and cash equivalents - beginning of period |
|
| 170,209 |
|
|
| 434,770 |
|
Cash and cash equivalents - end of period |
| $ | 240,940 |
|
| $ | 82,133 |
|
Refer to Notes to Consolidated Financial Statements
12
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”“Company", “we”, and “our”), a Delaware corporation, at October 28, 20172023 and October 29, 20162022 and for the 13 and 39 week periods ended October 28, 20172023 and October 29, 20162022 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q.Report. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’sour Fiscal 2016 Annual Report.2022 Form 10-K. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotesnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.Report.
As used in this report, all references to “we,” “our” andThe Company operates under the “Company” refer to American Eagle Outfitters, Inc.® ("AE") and its wholly owned subsidiaries. “American Eagle Outfitters,” “American Eagle,” “AEO” and the “AE Brand” refer to our American Eagle Outfitters stores. “Aerie” refers to our Aerie® by American Eagle® stores. “AEO Direct” refers to our e-commerce operations, www.ae.com and www.aerie.com. “Tailgate” refers to our Tailgate brand of vintage, sports- inspired apparel. “Todd Snyder” refers to our brands. We also operate Todd Snyder New York ("Todd Snyder"), a premium menswear brand.brand, and Unsubscribed, which focuses on consciously made slow fashion.
OurFounded in 1977, the Company is a leading multi-brand specialty retailer that operates more than 1,000 retail stores in the U.S. and internationally, online through our digital channels at www.ae.com and www.aerie.com, www.toddsnyder.com, www.unsubscribed.com and through more than 300 international store locations managed by third-party operators. Through its portfolio of brands, the Company offers high quality, on-trend clothing, accessories, and personal care products at affordable prices. We sell directly to consumers through our retail channel, which includes our stores and concession-based shop-within-shops. We operate stores in the U.S., Canada, Mexico, Hong Kong and Japan. We also have license agreements with third parties to operate American Eagle and Aerie stores throughout Asia (including India), Europe, India, Latin America, and the Middle East. The Company's online business, AEO Direct, ships to approximately 80 countries worldwide.
Quiet Platforms is affected by the patterna logistics company that operates a network of seasonality commonin-market fulfillment centers, locating products closer to most retail apparel businesses. need, creating inventory efficiencies, cost benefits and affordable same-day and next-day delivery options for customers and stores to help us manage costs and improve service.
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occursoccurring in the third and fourth fiscal quarters, reflecting the increased demand during the back-to-school and year-end holiday selling seasons, respectively. TheOur quarterly results forof operations also may fluctuate based upon such factors as the currenttiming of certain holiday seasons, the number and prior periods are not necessarily indicativetiming of future financial results.new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic and political conditions.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries.subsidiaries and consolidated entities where the Company's ownership percentage is less than 100%. Non-controlling interests are included as a component of contributed capital within the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity and was not material for any period presented. All intercompany transactions and balances have been eliminated in consolidation. At October 28, 2017,2023, the Company operated in onetwo reportable segment.segments, American Eagle and Aerie.
Fiscal Year
The Company’s financialOur fiscal year is a 52/53 week52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2017”2023” refers to the 53 week53-week period endingthat will end on February 3, 2018.2024. “Fiscal 2016”2022” refers to the 52 week52-week period ended January 28, 2017.2023.
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Estimates
Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews the Company’sits estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
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Recent Accounting Pronouncements
In May 2014,August 2020, the Financial Accounting StandardStandards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts2020-06, Debt with CustomersConversion and Other Options (“ASU 2014-09”2020-06”). ASU 2014-09 is a comprehensive, which simplifies the accounting for convertible debt instruments. The new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depictguidance eliminates two of the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Originally, ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2016. In July 2015, the FASB voted to approve amendments deferring the effective date by one year to be effective for annual reporting periods beginning after December 15, 2017. Accordingly, the Company will adopt ASU 2014-09 on February 4, 2018 using the modified retrospective method. The adoption of ASU 2014-09 will not have a material impact on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016–02”) which replaces the existing guidancethree models in Accounting Standard CertificationStandards Codification (“ASC”) 840, Leases.470-20, Debt with Conversion and Other Options that require separating embedded conversion features from convertible instruments. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheetguidance also addresses how convertible instruments are accounted for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.diluted earnings per share (“EPS”) calculation. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application.2021. The Company will adopt inadopted ASU 2020-06 at the beginning of Fiscal 20192022 using the modified retrospective method.
Refer to Note 5 and is currently evaluating the impact of ASU 2016-02 to its Consolidated Financial Statements, but expects that it will result in a significant increase to its long-term assets and liabilities on the Consolidated Balance Sheets.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) (“ASU 2016-09”). ASU 2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2016-09 prospectively on January 29, 2017 and it did not have a material impactNote 8 to the Consolidated Financial Statements for the 13 or 39 weeks ended October 28, 2017.additional information regarding EPS and long-term debt, respectively.
Foreign Currency Translation
In accordance with “ASC”ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies were translated into United StatesU.S. dollars (“USD”) (the reporting currency) at the exchange rates prevailing at the balance sheet date. RevenuesThe Company translates revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the consolidated results of operations, whereas related translation adjustments are reported as an element of other comprehensive income (loss) in accordance with ASC 220, Comprehensive Income.
Revenue Recognition
Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenuesWe are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.
Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company recordsexposed to the impact of adjustmentsforeign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to its sales return reserve quarterly within total net revenueour consolidated financial results. During the 13 and cost39 weeks ended October 28, 2023, an unrealized loss of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.
Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance,$21.3 million and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized$0.2 million, respectively, was included in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below.
The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned.
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Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses
Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively “merchandise costs”) and buying, occupancy and warehousing costs.
Design costs areother comprehensive loss, which were primarily related to the Company's Design Center operationsfluctuations of the USD to Mexican peso and include compensation, travel and entertainment, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.
Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities relatedUSD to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales.Canadian dollar exchange rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales. Additionally, selling, general and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of allowances for uncollectible receivables, foreign currency transaction gain/loss, interest income/expense and realized investment gains/losses.
As of October 28, 2017, allowances for uncollectible receivables were $20.4 million. There were no allowances for uncollectible receivables as of October 29, 2016.
Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
As of October 28, 2017 and October 29, 2016, the Company held no investments.
Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalentsequivalents.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of certain of our customers to make required payments for products or services delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical and investments.expected future receivables, reserve trends and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’s reserves have approximated actual experience.
Merchandise Inventory
Merchandise inventory is valued at the lower of average cost or market,net realizable value, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when both title and riskcontrol of loss for the merchandise havehas transferred to the Company.
The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is
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determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.
The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.
Property and Equipment
9Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. The useful lives of our major classes of assets are as follows:
Buildings | 25 years | |
Leasehold improvements | Lesser of 10 years or the term of the lease | |
Fixtures and equipment Information technology | Five years Three to five years |
As of October 28, 2023, the weighted average remaining useful life of our assets was approximately six years.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company’s management evaluates the value of leasehold improvements, store fixtures, and operating lease right-of-use ("ROU") assets associated with retail stores. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income within the Consolidated Statements of Operations.
Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. The significant assumption used in our fair value analysis is forecasted revenue. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our consolidated operating results could be adversely affected.
When the Company closes, remodels, or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense.
There were no long-lived asset impairment charges recorded during the 13 weeks ended October 28, 2023 or October 29, 2022. During the 39 weeks ended October 28, 2023, the Company recorded impairment of property and equipment of $10.8 million. No long-lived asset impairment charges were recorded during the 39 weeks ended October 29, 2022. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment and refer to Note 13 to the Consolidated Financial Statements for additional information regarding the impairment of these assets.
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Goodwill and Intangible Assets
The Company’s goodwill is primarily related to the acquisition of Quiet Logistics, in Fiscal 2021, as well as its importing operations and Canadian business, and represents the excess of cost over fair value of net assets of businesses acquired. In accordance with ASC 350, Intangibles – Goodwill and Other, the Company evaluates goodwill for possible impairment at least annually as of the last day of the fiscal year and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of a reporting unit may be below its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment charge is recorded in the period of the evaluation based on that difference. As a result of the Company's annual goodwill impairment test as of January 28, 2023, the Company concluded that its goodwill was not impaired. No indicators of impairment were present during the 13 or 39 weeks ended October 28, 2023 and October 29, 2022.
Definite-lived intangible assets are initially recorded at fair value, with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over 10 to 15 years.
The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 360 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended October 28, 2023 or October 29, 2022.
Refer to Note 7 to the Consolidated Financial Statements for additional information regarding goodwill and intangible assets.
Construction Allowances
As part of certain lease agreements for retail stores, the Company receives construction allowances from lessors, which are generally comprised of cash amounts. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.
Self-Insurance Liability
The Company uses a combination of insurance and self-insurance mechanisms for certain losses related to employee medical benefits and worker’s compensation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped by stop-loss contracts with insurance companies. However, any significant variation of future claims from historical trends could cause actual results to differ from the accrued liability.
Leases
The Company leases all store premises, the Canadian distribution center in Mississauga, Ontario, regional distribution facilities, some of its office space and certain information technology and office equipment. These leases are generally classified as operating leases.
Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes and certain other expenses. When measuring operating lease ROU assets and operating lease liabilities, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.
Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of operating lease ROU assets and operating lease liabilities.
When determining the present value of future payments for an operating lease that does not have a readily determinable implicit rate, the Company uses its incremental borrowing rate as of the date of initial possession of the leased asset.
For leases that qualify for the short-term lease exemption, the Company does not record an operating lease liability or operating lease ROU asset. Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.
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Co-branded and Private Label Credit Cards
The Company offers a co-branded credit card and a private-label credit card under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (the “Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the Agreement. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations.
Customer Loyalty Program
The Company offers a highly digitized loyalty program called Real Rewards by American Eagle and Aerie™ (the “Program”). The Program features both shared and unique benefits for loyalty members and credit card holders. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Members earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.
Points earned under the Program on purchases at AE and Aerie are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The portion of the sales revenue attributed to the reward points is deferred and recognized when the reward is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the reward, and the impact of adjustments is recorded in revenue.
The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606.
Long-Term Debt
In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the "2025 Notes"). Prior to the adoption of ASU 2020-06 in Fiscal 2022, the 2025 Notes were accounted for under the cash conversion model, which is one of the models eliminated by ASU 2020-06. The adoption of ASU 2020-06 resulted in the 2025 Notes being accounted for as a single balance in long-term debt, rather than being accounted for as separate debt and equity components.
In June 2022, the Company entered into an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to $700 million, subject to customary borrowing base limitations (the "Credit Facility"). The Credit Facility expires on June 24, 2027.
Refer to Note 8 to the Consolidated Financial Statements for additional information regarding Long-Term Debt.
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Income Taxes
The Company calculates income taxes in accordance with ASC 740, Income Taxes (“(“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial StatementStatements carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially impact the Company’s effective income tax rate.
The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.
The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance, requirerequires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.income (loss).
Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.
Revenue Recognition
PropertyThe Company recognizes revenue pursuant to ASC 606. Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and Equipmenthandling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.
PropertyRevenue is recorded net of estimated and equipmentactual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. The presentation on a gross basis of the sales return reserve consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and other and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.
Revenue is not recorded on the basisissuance of cost, including costs to prepare the asset for use, with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:
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As of October 28, 2017, the weighted average remaining useful life of our assetsgift cards. A current liability is approximately 8.3 years.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded. No long-lived asset impairment charges were recorded during the 13 or 39 weeks ended October 28, 2017 or October 29, 2016.
Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment.
Goodwill
The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, Tailgate and Todd Snyder brands, and Hong Kong and China businesses. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 28, 2017. During the fourth quarter of Fiscal 2016, the goodwill was fully impaired for the Hong Kong and China businesses. All other goodwill for the Company was not impaired as a result of the annual impairment test.
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Intangible Assets
Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which consists primarily of trademark assets, are generally amortized over 15 to 25 years.
The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded during the 13 or 39 weeks ended October 28, 2017 or October 29, 2016.
Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.
Gift Cards
The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. TheAdditionally, the Company estimatesrecognizes revenue on gift card breakage, and recognizes revenuedetermined through historical redemption trends. Revenue on unredeemed gift cards, based on an estimate of the amounts that will not be redeemed ("gift card breakage"), is recorded in proportion to actual gift cardcards redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. TheDuring both the 13 weeks ended October 28, 2023 and October 29, 2022, the Company recorded $1.6 million and $1.5approximately $1.7 million of revenue related to gift card breakage during the 13 weeks ended October 28, 2017 and October 29, 2016, respectively.breakage. During the 39 weeks ended October 28, 20172023 and October 29, 2016,2022, the Company recorded $6.1$5.8 million and $5.3$6.6 million, respectively, of revenue related to gift card breakage.
Deferred Lease Credits
Deferred lease credits represent the unamortized portionThe Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of construction allowances received from landlords related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts receivedmerchandise sales by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the landlord.
Co-branded Credit Card
The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the AEO and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (“the Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding when the amounts are fixed or determinable and collectability is reasonably assured.licensee/franchisee. This revenue is recorded in other revenue, which isas a component of total net revenue in our Consolidated Statements of Operationswhen earned and Retained Earnings.collection is probable.
Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the customer loyalty program offered by the Company. For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below.
Customer Loyalty Program
The Company recently launcheddefers a new, highly digitized loyalty program called AEO ConnectedTM (the “Program”). This Program integrates the current credit card rewards program and the AEREWARDSÒ loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds and when reached rewards are distributed. Customers will earn discounts in the form of savings certificates, which are accounted for in accordance with ASC 605-25. Rewards earned are valid through the stated expiration date, which is approximately 45 days from the issuance date of the reward. Additional rewards are also given for key items such as jeans and bras. Rewards not redeemed during the 45 days redemption period are forfeited.
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Points earned under the Program on purchases at AEO and Aerie are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under the Program represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the awardloyalty points is deferred and recognized when the award is redeemed orrecognizes revenue when the points expire. Additionally, reward points earned on non-AEOare redeemed or Aerie purchasesexpire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption above for additional information.
Revenue associated with Quiet Platforms is recognized as the services are accountedperformed.
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Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses
Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”), Quiet Platforms' costs to service its customers and buying, occupancy and warehousing costs and services.
Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies and samples for in accordance with ASC 605-25. As the pointsour design teams, as well as rent and depreciation for our Design Center. These costs are earned, a current liability is recorded for the estimatedincluded in cost of sales as the award,respective inventory is sold.
Buying, occupancy and warehousing costs and services consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the impactstores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of adjustments issales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. SG&A expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased.
SG&A expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales. Additionally, SG&A expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales.
Debt Related Charges
Debt related charges consist primarily of a $55.7 million induced conversion expense on the exchange of the 2025 Notes, along with certain other costs related to actions we took to strengthen our capital structure during the 39 weeks ended October 29, 2022. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding the 2025 Notes
Interest (Income) Expense, Net
Interest expense, net primarily consists of interest expense related to the Company’s 2025 Notes and borrowings under our five-year, syndicated, asset-based revolving credit facilities, partially offset by interest income from cash and cash equivalents.
Other (Income) Expense, Net
Other income, net consists primarily of foreign currency fluctuations and changes in other non-operating items. Non-controlling interest was not material for any period presented and is included within other income, net.
Segment Information
In accordance with ASC 280, Segment Reporting (“ASC 280”), theThe Company has identified two operating segments (American Eagle Outfitters Brand and Aerie by American Eagle Outfitters Brand)brand) that also represent our reportable segments and reflect the basis used internally to review performanceChief Operating Decision Maker's (defined as our CEO) internal view of analyzing results and allocateallocating resources. All operating segmentsAdditionally, our Todd Snyder and Unsubscribed brands and Quiet Platforms have been aggregated andidentified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure, they are presented as one reportableunder the Other caption. For additional information regarding the Company’s segment as permitted by ASC 280. and geographic information, refer to Note 12 to the Consolidated Financial Statements.
19
3. Cash and Cash Equivalents
The following table summarizes the fair market values for the Company’s cash and marketable securities,cash equivalents, which are recorded onin the Consolidated Balance Sheets:
(In thousands) |
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
| |||
Cash |
| $ | 134,874 |
|
| $ | 84,960 |
|
| $ | 82,029 |
|
Interest bearing deposits |
|
| 106,066 |
|
|
| 85,249 |
|
|
| 104 |
|
Total cash and cash equivalents |
| $ | 240,940 |
|
| $ | 170,209 |
|
| $ | 82,133 |
|
(In thousands) |
| October 28, 2017 |
|
| January 28, 2017 |
|
| October 29, 2016 |
| |||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 185,546 |
|
| $ | 265,332 |
|
| $ | 209,581 |
|
Interest bearing deposits |
|
| 71,981 |
|
|
| 83,281 |
|
|
| 82,086 |
|
Commercial paper |
|
| — |
|
|
| 30,000 |
|
|
| — |
|
Total cash and cash equivalents |
| $ | 257,527 |
|
| $ | 378,613 |
|
| $ | 291,667 |
|
There were no sales or purchases of investments for the 13 and 39 weeks ended October 28, 2017 and October 29, 2016.
4. Fair Value Measurements
ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
12
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1 — Quoted prices in active markets.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In accordance with ASC 820, the following table represents theThe Company’s fair value hierarchy for itscash equivalents and short-term investments are Level 1 financial assets (cash equivalents)and are measured at fair value on a recurring basis, atfor all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents.
|
| Fair Value Measurements at October 28, 2023 |
| |||||||||||||
(In thousands) |
| Carrying Amount |
|
| Quoted Market Prices |
|
| Significant Other |
|
| Significant |
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash |
| $ | 134,874 |
|
| $ | 134,874 |
|
| $ | — |
|
| $ | — |
|
Interest bearing deposits |
|
| 106,066 |
|
|
| 106,066 |
|
|
| — |
|
|
| — |
|
Total cash and cash equivalents |
| $ | 240,940 |
|
| $ | 240,940 |
|
| $ | — |
|
| $ | — |
|
Long-Term Debt
As of October 28, 2017 and2023, there were no outstanding borrowing under the Company's Credit Facility. As of October 29, 2016:2022, the fair value of the Company's $343 million in outstanding borrowings under its Credit Facility approximated the carrying value.
|
| Fair Value Measurements at October 28, 2017 |
| |||||||||||||
(In thousands) |
| Carrying Amount |
|
| Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 185,546 |
|
| $ | 185,546 |
|
|
| — |
|
|
| — |
|
Interest bearing deposits |
|
| 71,981 |
|
|
| 71,981 |
|
|
| — |
|
|
| — |
|
Total cash and cash equivalents |
| $ | 257,527 |
|
| $ | 257,527 |
|
|
| — |
|
|
| — |
|
|
| Fair Value Measurements at October 29, 2016 |
| |||||||||||||
(In thousands) |
| Carrying Amount |
|
| Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 209,581 |
|
| $ | 209,581 |
|
|
| — |
|
|
| — |
|
Interest bearing deposits |
|
| 82,086 |
|
|
| 82,086 |
|
|
| — |
|
|
| — |
|
Total cash and cash equivalents |
| $ | 291,667 |
|
| $ | 291,667 |
|
| $ | — |
|
| $ | — |
|
In the eventApril 2020, the Company holds Level 3 investments, a discounted cash flow model is used to value those investments. There were no Level 3 investments atissued $415 million aggregate principal amount of 2025 Notes. As of October 28, 2017 or October 29, 2016.2023, the Company's 2025 Notes have been fully redeemed. The fair value of the Company's 2025 Notes was not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the 2025 Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, and is therefore within Level 2 of the fair value hierarchy.
Refer to Note 8 to the Consolidated Financial Statements for additional information regarding long-term debt and other credit arrangements.
20
Non-Financial Assets
The Company’s non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur or if an annual impairment test is required, and the Company is required to evaluate the non-financial instrumentasset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. DuringThe fair value is determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. There were no long-lived asset impairment charges recorded during the 13 andweeks ended October 28, 2023 or October 29, 2022. During the 39 weeks ended for October 28, 2017,2023, the Company didrecorded impairment of property and equipment of $10.8 million. No long-lived asset impairment charges were recorded during the 39 weeks ended October 29, 2022. Refer to Note 13 to the Consolidated Financial Statements for additional information on impairment, restructuring and other charges.
The fair value of the Company's ROU assets was based upon market rent assumptions.
The Company evaluates goodwill for possible impairment at least annually as of the last day of the fiscal year and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of a reporting unit may be below its carrying value. The Company last performed an annual goodwill impairment test using Level 3 inputs as defined in ASC 820 as of January 28, 2023. As a result of the Company's annual goodwill impairment test, the Company concluded that its goodwill was not impair any non-financial assets.impaired. No indicators of impairment were present during the 13 or 39 weeks ended October 28, 2023 and October 29, 2022.
13
5. Earnings per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding:
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
(In thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
| 177,288 |
|
|
| 181,819 |
|
|
| 178,272 |
|
|
| 181,196 |
|
Dilutive effect of stock options and non-vested restricted stock |
|
| 1,844 |
|
|
| 2,796 |
|
|
| 1,988 |
|
|
| 2,455 |
|
Diluted number of common shares outstanding |
|
| 179,132 |
|
|
| 184,615 |
|
|
| 180,260 |
|
|
| 183,651 |
|
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
(In thousands) |
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income and numerator for basic EPS |
| $ | 96,700 |
|
| $ | 81,272 |
|
| $ | 163,722 |
|
| $ | 70,547 |
|
Add: Interest expense, net of tax, related to the 2025 Notes (1) |
|
| - |
|
|
| 529 |
|
|
| 58 |
|
|
| 4,897 |
|
Numerator for diluted EPS |
| $ | 96,700 |
|
| $ | 81,801 |
|
| $ | 163,780 |
|
| $ | 75,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator for basic EPS - weighted average shares |
|
| 195,343 |
|
|
| 186,305 |
|
|
| 195,467 |
|
|
| 178,637 |
|
Add: Dilutive effect of the 2025 Notes (1) |
|
| — |
|
|
| 8,418 |
|
|
| 278 |
|
|
| 27,280 |
|
Add: Dilutive effect of stock options and non-vested restricted stock |
|
| 3,024 |
|
|
| 1,053 |
|
|
| 2,224 |
|
|
| 1,582 |
|
Denominator for diluted EPS - adjusted weighted average shares |
|
| 198,367 |
|
|
| 195,776 |
|
|
| 197,969 |
|
|
| 207,499 |
|
Anti-dilutive shares (2) |
|
| 1,816 |
|
|
| 4,221 |
|
|
| 1,861 |
|
|
| 2,390 |
|
Equity awards to purchase approximately 2.5 million shares of common stock during both(1) During the 13 and 39 weeks ended October 28, 2017 and approximately 1.4 million shares of common stock during both the 13 and 39 weeks ended October 29, 2016 were outstanding, but were not included in2022, the computationCompany adopted ASU 2020-06. The Company utilizes the "if-converted" method of weighted averagecalculating diluted common share amounts as the effect of doing so would be anti-dilutive.
Additionally, approximately 0.1 million and 0.9 million shares of restricted stock units for the 13 and 39 weeks ended October 28, 2017, respectively, were outstanding, but not included in the computation of weighted average diluted common share amounts as the effect of doing so would be anti-dilutive.
EPS. Refer to Note 2 to the Consolidated Financial Statements for additional information regarding the impact of the adoption of ASU 2020-06.
(2) For all periods presented, anti-dilutive shares relate to stock options and unvested restricted stock.
21
Refer to Notes 8 and 9 to the Consolidated Financial Statements for additional information regarding the 2025 Notes and share-based compensation.compensation, respectively.
On June 3, 2022, the Company entered into an accelerated share repurchase agreement (the ASR Agreement) with JPMorgan Chase Bank (JPM). Pursuant to the terms of the ASR Agreement, on June 3, 2022, the Company paid $200.0 million in cash and received an initial delivery of 13.4 million shares of its common stock on June 3, 2022. At final settlement, on July 28, 2022, an additional 3.7 million shares were received. The cumulative repurchase under the ASR Agreement was 17.0 million shares repurchased at an average price per share of $11.75. The aforementioned shares have been recorded as treasury stock.
6. Property and Equipment
Property and equipment consists of the following:
|
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
(In thousands) |
| 2023 |
|
| 2023 |
|
| 2022 |
| |||
Property and equipment, at cost |
| $ | 2,774,161 |
|
| $ | 2,707,061 |
|
| $ | 2,657,167 |
|
Less: Accumulated depreciation and impairment |
|
| (2,031,368 | ) |
|
| (1,925,547 | ) |
|
| (1,867,358 | ) |
Property and equipment, net |
| $ | 742,793 |
|
| $ | 781,514 |
|
| $ | 789,809 |
|
|
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
(In thousands) |
| 2017 |
|
| 2017 |
|
| 2016 |
| |||
Property and equipment, at cost |
| $ | 1,994,071 |
|
| $ | 1,884,297 |
|
| $ | 1,858,863 |
|
Less: Accumulated depreciation and impairment |
|
| (1,267,903 | ) |
|
| (1,176,500 | ) |
|
| (1,150,375 | ) |
Property and equipment, net |
| $ | 726,168 |
|
| $ | 707,797 |
|
| $ | 708,488 |
|
7. Goodwill and Intangible Assets, net
IntangibleGoodwill and definite-lived intangible assets, net consist of the following:
|
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
(In thousands) |
| 2023 |
|
| 2023 |
|
| 2022 |
| |||
Goodwill, gross |
| $ | 269,021 |
|
| $ | 269,141 |
|
| $ | 275,405 |
|
Accumulated impairment (1) |
|
| (4,196 | ) |
|
| (4,196 | ) |
|
| (4,196 | ) |
Goodwill, net |
| $ | 264,825 |
|
| $ | 264,945 |
|
| $ | 271,209 |
|
|
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
(In thousands) |
| 2023 |
|
| 2023 |
|
| 2022 |
| |||
Intangible assets, at cost |
| $ | 146,739 |
|
| $ | 146,228 |
|
| $ | 145,935 |
|
Accumulated amortization |
|
| (58,538 | ) |
|
| (51,692 | ) |
|
| (49,405 | ) |
Intangible assets, net |
| $ | 88,201 |
|
| $ | 94,536 |
|
| $ | 96,530 |
|
|
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
(In thousands) |
| 2017 |
|
| 2017 |
|
| 2016 |
| |||
Trademarks, at cost |
| $ | 69,623 |
|
| $ | 68,978 |
|
| $ | 68,611 |
|
Less: Accumulated amortization |
|
| (22,644 | ) |
|
| (19,605 | ) |
|
| (18,618 | ) |
Intangible assets, net |
| $ | 46,979 |
|
| $ | 49,373 |
|
| $ | 49,993 |
|
8. Long-Term Debt, Net
Our long-term debt consisted of the following at October 28, 2023, January 28, 2023, and October 29, 2022:
(In thousands) |
| October 28, |
|
| January 28, |
|
| October 29, |
| |||
2025 Notes principal |
| $ | — |
|
| $ | 8,791 |
|
| $ | 69,601 |
|
Less: unamortized discount |
|
| — |
|
|
| 105 |
|
|
| 690 |
|
2025 Notes, net |
| $ | — |
|
| $ | 8,686 |
|
| $ | 68,911 |
|
Credit Facility borrowings |
| $ | — |
|
| $ | — |
|
| $ | 343,000 |
|
2025 Notes
In April 2020, the Company issued $415 million aggregate principal amount of 2025 Notes in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act. The 2025 Notes had a stated interest rate of 3.75%, payable semi-annually. The Company used the net proceeds from the issuance for general corporate purposes. The Company redeemed all of the remaining 2025 Notes during the 13 weeks ended April 29, 2023. See "-Note Exchanges" and "Early Redemption" below.
8. Other Credit Arrangements22
The Company did not have the right to redeem the 2025 Notes prior to April 17, 2023. On or after April 17, 2023 and prior to the fortieth scheduled trading day immediately preceding the maturity date, the Company could redeem all or any portion of the 2025 Notes, at its option, for cash, if the last reported sale price of our common stock had been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
Note Exchanges
In Fiscal 2014,June and December 2022, the Company entered into separate privately negotiated exchange agreements with certain holders of the 2025 Notes, to exchange $403.2 million in aggregate principal amount of the 2025 Notes for a combination of cash and shares of the Company's common stock, plus payment of accrued and unpaid interest (together, the "Note Exchanges").
In June 2022, the Company exchanged $342.4 million in aggregate principal amount of the 2025 Notes. The Company paid cash of $136.1 million to redeem a principal amount of the 2025 Notes with a carrying value of $339.2 million and issued approximately 34.7 million shares of the Company's common stock. In connection with these transactions, the Company recognized a pre-tax inducement charge of approximately $55.7 million during the 13 weeks ended July 30, 2022, which was recorded within debt-related charges on the Consolidated Statements of Operations.
In December 2022, the Company exchanged $60.8 million in aggregate principal amount of the 2025 Notes for shares of the Company's common stock, plus payment of accrued and unpaid interest. The Company issued approximately 7.6 million shares of the Company's common stock with a carrying value of $60.4 million. In connection with these transactions, the Company recognized a pre-tax inducement charge of approximately $4.7 million during the 13 weeks ended January 28, 2023, which was recorded within debt-related charges on the Consolidated Statements of Operations.
Early Redemption
On February 10, 2023, the Company issued a notice of optional redemption for all of its remaining outstanding 2025 Notes, notifying holders that, among other things, it had elected to exercise its right to redeem any and all of the outstanding 2025 Notes on April 17, 2023 (the "Early Redemption"). Subsequent to this notice, and prior to April 17, 2023, the 2025 Note holders redeemed a total of $8.8 million aggregate principal amount for a combined 1.1 million shares of the Company's common stock.
Following the Note Exchanges and Early Redemption, the aggregate principal amount of the 2025 Notes had been fully redeemed.
Interest expense for the 2025 Notes was:
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
(In thousands) |
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
Accrued interest for interest payments |
| $ | — |
|
| $ | 645 |
|
| $ | 70 |
|
| $ | 6,559 |
|
Amortization of discount |
|
| — |
|
|
| 89 |
|
|
| 10 |
|
|
| 872 |
|
Total interest expense |
| $ | — |
|
| $ | 734 |
|
| $ | 80 |
|
| $ | 7,431 |
|
Refer to Note 2 and Note 5 to the Consolidated Financial Statements for additional information regarding the impact of the adoption of ASU 2020-06.
Revolving Credit Agreement (“Facility
In June 2022, the Company entered into an amended and restated Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”).Agreement. The Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to $400$700 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibilityFacility expires on June 24, 2027. Before amendment and take advantagerestatement, the Company's previous credit agreement provided senior secured asset-based revolving credit for loans and letters of a favorable credit environment.up to $400 million and was scheduled to expire on January 30, 2024.
All obligations under the Credit FacilitiesFacility are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventoryCompany and certain other assets and have been further secured by first-priority mortgages on certain real property.subsidiaries.
As of October 28, 2017,2023, there were no outstanding borrowings and the Company was in compliance with the terms of the Credit Agreement and had $8.1$7.7 million outstanding in stand-by letters of credit. No loans wereAs of October 29, 2022, the Company had $343.0 million in outstanding borrowings under the Credit Agreement asAgreement.
23
Borrowings under the Credit Facility accrue interest at the election of the Company at an adjusted secured overnight financing rate ("SOFR") rate of SOFR plus 0.10% plus an applicable margin (ranging from 1.125% to 1.375%) or an alternate base rate plus an applicable margin (ranging from 0.125% to 0.375%), with each such applicable margin being based on average borrowing availability under the Credit Facility. Interest is payable quarterly and at the end of each applicable interest period. The weighted average interest rate for borrowings during the 39 weeks ended October 28, 2017.
14
Additionally,2023 was 6.0%. The total interest expense related to the Company has a borrowing agreement with one financial institution under which it may borrow an aggregate of $5.0 million USDCredit Facility borrowings for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the financial institution. As of39 weeks ended October 28, 2017,2023 was $1.1 million. The total interest expense related to the Company had no outstanding trade letters of credit.Credit Facility borrowings for the 13 and 39 weeks ended October 29, 2022 was $2.9 million and $3.9 million, respectively.
9. Share-Based Compensation
The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires companiesthe Company to measure and recognize compensation expense for all share-based payments at fair value. The Company adopted ASU 2016-09 prospectively at the beginning of Fiscal 2017 and now records excess tax benefits and deficiencies as a discrete adjustment to income tax expense when stock awards vest or are exercised, rather than in contributed capital where they have been historically recorded. ASU 2016-09 also requires cash flows related to excess tax benefits from share-based compensation to be presented in operating activities, rather than separately as a financing activity, in the Consolidated Statement of Cash Flows.
Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 weeks and 39 weeks ended October 28, 20172023 was $2.3$9.9 million ($1.57.3 million, net of tax) and $12.1$35.3 million ($7.925.8 million, net of tax), respectively, and for the 13 weeks and 39 weeks ended October 29, 20162022 was $6.3$6.8 million ($4.04.9 million, net of tax) and $23.0$30.0 million ($14.619.7 million, net of tax), respectively.
Stock Option Grants
The Company grants bothhas granted time-based and performance-based stock options. option awards, which vest over the requisite service period of the award. A summary of the Company’s stock option activity for the 39 weeks ended October 28, 20172023 follows:
|
|
|
|
|
| Weighted- Average |
|
| Weighted- Average Remaining Contractual |
|
| Aggregate |
| |||
|
| Options |
|
| Exercise Price |
|
| Term |
|
| Intrinsic Value |
| ||||
|
| (In thousands) |
|
|
|
|
|
| (In years) |
|
| (In thousands) |
| |||
Outstanding - January 28, 2017 |
|
| 2,314 |
|
| $ | 15.33 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 1,055 |
|
| $ | 14.59 |
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
| (29 | ) |
| $ | 11.51 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
| (852 | ) |
| $ | 14.82 |
|
|
|
|
|
|
|
|
|
Outstanding - October 28, 2017 |
|
| 2,488 |
|
| $ | 15.24 |
|
|
| 5.3 |
|
| $ | 0.3 |
|
Vested and expected to vest - October 28, 2017 |
|
| 2,341 |
|
| $ | 15.25 |
|
|
| 5.3 |
|
| $ | 0.3 |
|
Exercisable - October 28, 2017 (2) |
|
| 5 |
|
| $ | 13.70 |
|
|
| 1.3 |
|
| $ | 0.3 |
|
|
| Options |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
| (In thousands) |
|
|
|
|
| (In years) |
|
| (In thousands) |
| ||||
Outstanding - January 28, 2023 |
|
| 3,950 |
|
| $ | 17.01 |
|
|
|
|
|
|
| ||
Granted |
|
| 1,051 |
|
|
| 13.17 |
|
|
|
|
|
|
| ||
Exercised |
|
| (100 | ) |
|
| 15.38 |
|
|
|
|
|
|
| ||
Cancelled |
|
| (275 | ) |
|
| 16.75 |
|
|
|
|
|
|
| ||
Outstanding - October 28, 2023 |
|
| 4,626 |
|
|
| 16.19 |
|
|
| 4.2 |
|
|
| 13,807 |
|
Vested and expected to vest - October 28, 2023 |
|
| 3,665 |
|
|
| 16.37 |
|
|
| 2.9 |
|
|
| 4,030 |
|
Exercisable - October 28, 2023 (1) |
|
| 1,788 |
|
|
| 12.20 |
|
|
| 3.4 |
|
|
| 9,284 |
|
|
|
| Options exercisable represent “in-the-money” vested options based upon |
Cash received from the weighted-average exercise price of vested options compared to the Company’s stock options was $0.2 million for the 39 weeks endedprice on October 28, 2017 and $16.2 million for the 39 weeks ended October 29, 2016. The actual tax benefit realized from stock option exercises totaled $0.7 million for the 39 weeks October 28, 2017 and $(0.2) million for the 39 weeks ended October 29, 2016.
As of October 28, 2017,2023, there was $5.2$6.9 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of 2.01.9 years.
15
The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
|
| 39 Weeks Ended |
| 39 Weeks Ended |
| ||
|
| October 28, |
| October 29, |
| ||
Black-Scholes Option Valuation Assumptions |
| 2023 |
| 2022 |
| ||
Risk-free interest rate (1) |
|
| 3.4 | % |
| 2.5 | % |
Dividend yield |
|
| 2.8 | % |
| 3.8 | % |
Volatility factor (2) |
|
| 55.7 | % |
| 52.2 | % |
Weighted-average expected term (3) |
| 4.5 years |
| 4.5 years |
|
| ||||
| ||||
|
| |||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
24
|
|
|
|
|
|
Restricted Stock Grants
Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years.years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three yearthree-year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
The grant date fair value of alltime-based restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A Monte-Carlo simulation was utilized for performance-based restricted stock awards.
A summary of the Company’s restricted stock activity is presented in the following tables:table:
|
| Time-Based Restricted Stock Units |
|
| Performance-Based Restricted Stock Units |
| ||||||||||||||||||||||||||
|
| 39 Weeks Ended |
|
| 39 Weeks Ended |
|
| Time-Based Restricted |
|
| Performance-Based Restricted |
| ||||||||||||||||||||
|
| October 28, 2017 |
|
| October 28, 2017 |
|
| October 28, 2023 |
|
| October 28, 2023 |
| ||||||||||||||||||||
(Shares in thousands) |
| Shares |
|
| Weighted -Average Grant Date Fair Value |
|
| Shares |
|
| Weighted -Average Grant Date Fair Value |
|
| Shares |
|
| Weighted-Average Grant Date Fair Value |
|
| Shares |
|
| Weighted-Average Grant Date Fair Value |
| ||||||||
Nonvested - January 28, 2017 |
|
| 2,001 |
|
| $ | 15.39 |
|
|
| 2,825 |
|
| $ | 15.07 |
| ||||||||||||||||
Non-vested - January 28, 2023 |
|
| 2,749 |
|
| $ | 17.00 |
|
|
| 1,574 |
|
| $ | 20.11 |
| ||||||||||||||||
Granted |
|
| 1,489 |
|
| $ | 11.62 |
|
|
| 703 |
|
| $ | 14.97 |
|
|
| 1,893 |
|
| $ | 13.05 |
|
|
| 945 |
|
| $ | 14.97 |
|
Vested |
|
| (986 | ) |
| $ | 14.91 |
|
|
| (957 | ) |
| $ | 14.14 |
|
|
| (1,585 | ) |
| $ | 14.95 |
|
|
| (421 | ) |
| $ | 15.95 |
|
Cancelled |
|
| (194 | ) |
| $ | 14.13 |
|
|
| (295 | ) |
| $ | 16.13 |
|
|
| (204 | ) |
| $ | 15.51 |
|
|
| (81 | ) |
| $ | 23.16 |
|
Nonvested - October 28, 2017 |
|
| 2,310 |
|
| $ | 13.27 |
|
|
| 2,276 |
|
| $ | 15.17 |
| ||||||||||||||||
Non-vested - October 28, 2023 |
|
| 2,853 |
|
| $ | 15.63 |
|
|
| 2,017 |
|
| $ | 18.45 |
|
As of October 28, 2017,2023, there was $21.3$31.9 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.92.0 years. Based on current probable performance, thereThere is $4.1$5.7 million of unrecognized compensation expense related to performance-based restricted stock unit awards which willthat is expected to be recognized as achievement of performance goals is probable over a one to three year period.weighted-average period of 1.8 years.
As of October 28, 2017,2023, the Company had 9.312.0 million shares available for all equity grants.
10. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended October 28, 20172023 was 34.8%26.9% compared to 36.3%28.0% for the 13 weeks ended October 29, 2016.2022. The effective income tax rate for the 39 weeks
16
ended October 28, 2017 was 34.1% compared to 36.4% for the 39 weeks ended October 29, 2016. The decrease in the effective income tax rate for the 13 weeks ended October 28, 2017 was primarily due to the overall mix of earnings in jurisdictions with different tax rates. The decrease in the effective income tax rate for the 39 weeks ended October 28, 20172023 was 27.0% compared to 34.1% for the 39 weeks ended October 29, 2022. The decrease in the effective tax rate for the 13 weeks ended October 28, 2023 was primarily due to international tax provisions of the Tax Cuts and Jobs Act (the “Tax Act”), overall geographic mix of earnings in jurisdictions in which the Company operates, offset bynon-deductible executive compensation. The decrease in the effective tax rate for the 39 weeks ended October 28, 2023 was primarily due to the overall mixNote Exchange in Fiscal 2022 as a portion of earningsthe inducement charge was not deductible and state legislative changes that occurred in jurisdictions with different tax rates and changes in unrecognized tax benefits.Fiscal 2022.
The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as thea result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended October 28, 2017. 2023. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $3.9$1.1 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.
25
11. Legal Proceedings
The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
12. Segment Reporting
12. Restructuring Related Charges
In the 13 and 39 weeks ended October 28, 2017,accordance with ASC 280, Segment Reporting (“ASC 280”), the Company recordedhas identified two operating segments (American Eagle brand and Aerie brand) that also represent our reportable segments and reflect the Chief Operating Decision Maker’s (defined as our CEO) internal view of analyzing results and allocating resources. Additionally, our Todd Snyder brand, Unsubscribed brand, and Quiet Platforms have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure, they are presented under the Other caption, as permitted by ASC 280.
General corporate expenses are comprised of general and administrative costs that management does not attribute to any of our operating segments. These costs primarily relate to corporate administration, information and technology resources, finance and human resources functional and organizational costs, depreciation and amortization of corporate assets, and other general and administrative expenses resulting from corporate-level activities and projects.
Our CEO analyzes segment results and allocates resources between segments based on the adjusted operating income , or the operating income in periods where there are no adjustments, of each segment. Adjusted operating income is a non-GAAP financial measure ("non-GAAP" or "adjusted") that is defined by the Company as operating income excluding impairment, restructuring and other charges. Adjusted operating income is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements and provides a higher degree of transparency.
26
Reportable segment information is presented in the following table:
| For the 13 weeks ended |
|
| For the 39 weeks ended |
| ||||||||||
| October 28, 2023 |
|
| October 29, 2022 |
|
| October 28, 2023 |
|
| October 29, 2022 |
| ||||
Net Revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
American Eagle | $ | 857,378 |
|
| $ | 837,575 |
|
| $ | 2,295,487 |
|
| $ | 2,301,051 |
|
Aerie | $ | 393,042 |
|
| $ | 349,712 |
|
| $ | 1,132,537 |
|
| $ | 1,043,129 |
|
Total Segment Net Revenue | $ | 1,250,420 |
|
| $ | 1,187,287 |
|
| $ | 3,428,024 |
|
| $ | 3,344,180 |
|
Other | $ | 111,805 |
|
| $ | 115,346 |
|
| $ | 329,480 |
|
| $ | 315,332 |
|
Intersegment Elimination | $ | (61,170 | ) |
| $ | (62,050 | ) |
| $ | (174,645 | ) |
| $ | (165,768 | ) |
Total Net Revenue | $ | 1,301,055 |
|
| $ | 1,240,583 |
|
| $ | 3,582,859 |
|
| $ | 3,493,745 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Income: |
|
|
|
|
|
|
|
|
|
|
| ||||
American Eagle | $ | 184,029 |
|
| $ | 174,129 |
|
| $ | 418,232 |
|
| $ | 387,213 |
|
Aerie | $ | 75,850 |
|
| $ | 56,487 |
|
| $ | 188,772 |
|
| $ | 111,414 |
|
Total Segment Operating Income | $ | 259,879 |
|
| $ | 230,616 |
|
| $ | 607,004 |
|
| $ | 498,627 |
|
Other | $ | (8,601 | ) |
| $ | (11,650 | ) |
| $ | (35,250 | ) |
| $ | (39,381 | ) |
Intersegment Elimination | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
General corporate expenses | $ | (125,917 | ) |
| $ | (101,418 | ) |
| $ | (336,998 | ) |
| $ | (285,781 | ) |
Impairment, restructuring and other charges(1) | $ | - |
|
| $ | - |
|
| $ | (21,275 | ) |
| $ | - |
|
Total Operating Income | $ | 125,361 |
|
| $ | 117,548 |
|
| $ | 213,481 |
|
| $ | 173,465 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt related charges | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 60,066 |
|
Interest (income) expense, net | $ | (2,871 | ) |
| $ | 3,878 |
|
| $ | (1,229 | ) |
| $ | 11,887 |
|
Other (income) expense, net | $ | (3,984 | ) |
| $ | 782 |
|
| $ | (9,446 | ) |
| $ | (5,501 | ) |
Income before income taxes | $ | 132,216 |
|
| $ | 112,888 |
|
| $ | 224,156 |
|
| $ | 107,013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
| ||||
American Eagle | $ | 17,219 |
|
| $ | 20,477 |
|
| $ | 48,411 |
|
| $ | 55,000 |
|
Aerie | $ | 9,499 |
|
| $ | 24,404 |
|
| $ | 31,576 |
|
| $ | 85,663 |
|
Other | $ | 9,760 |
|
| $ | 20,801 |
|
| $ | 21,490 |
|
| $ | 25,933 |
|
General corporate expenditures | $ | 6,478 |
|
| $ | 5,825 |
|
| $ | 33,438 |
|
| $ | 32,768 |
|
Total Capital Expenditures | $ | 42,956 |
|
| $ | 71,507 |
|
| $ | 134,915 |
|
| $ | 199,364 |
|
(1) Represents pre-tax impairment, restructuring and other charges related to Quiet Platforms, including $10.8 million of long-lived asset impairment charges, $5.6 million of severance costs, and $4.9 million of contract related charges of $3.7 million and $29.9 million, respectively. These amounts consist of costs related to the planned exit of a joint business venture; charges for home office restructuring; and the previously announced initiative to explore the closure or conversion of Company owned and operated stores in Hong Kong, China, and the United Kingdom to licensed partnerships. The closure of the United Kingdom was completed in the 39 weeks ended October 28, 2017. 2023.
The Company expectsfollowing table presents summarized geographical information:
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
(In thousands) |
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
Total net revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 1,114,115 |
|
| $ | 1,076,096 |
|
| $ | 3,035,573 |
|
| $ | 3,011,419 |
|
Foreign (1) |
|
| 186,940 |
|
|
| 164,487 |
|
|
| 547,286 |
|
|
| 482,326 |
|
Total net revenue |
| $ | 1,301,055 |
|
| $ | 1,240,583 |
|
| $ | 3,582,859 |
|
| $ | 3,493,745 |
|
27
(1) Amounts represent sales from American Eagle and Aerie international retail stores, e-commerce sales that are billed to incur additional charges for corporateand/or shipped to foreign countries and international franchise royalty revenue.
13. Impairment Restructuring and Other Charges
The following table represents impairment, restructuring and other charges in Fiscal 2017. The magnitude is dependentrelated to Quiet Platforms. All amounts were recorded within impairment, restructuring and other charges on a numberthe Consolidated Statements of factors, including negotiating third-party agreements, adherence to notification requirements and local laws.
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||
|
| October 28, |
|
| October 28, |
| ||
(In thousands) |
| 2017 |
|
| 2017 |
| ||
Severance and related employee costs |
| $ | 2,431 |
|
| $ | 9,592 |
|
Lease termination and store closure costs |
|
| 1,264 |
|
|
| 9,296 |
|
Total cash restructuring charges (1) |
|
| 3,695 |
|
|
| 18,888 |
|
|
|
|
|
|
|
|
|
|
Joint business venture charges (2) |
|
| — |
|
|
| 9,311 |
|
Inventory charges (3) |
|
| — |
|
|
| 1,669 |
|
Total restructuring related charges |
| $ | 3,695 |
|
| $ | 29,868 |
|
|
|
|
|
|
|
17
A rollforward of the liabilities recognized in the Consolidated Balance Sheet is as follows. The accrued liability as of January 28, 2017 relates to previous restructuring activities disclosed in the Company’s Fiscal 2016 Form 10-K, which remained unpaid at the beginning of Fiscal 2017.
(In thousands) |
|
|
|
|
Accrued liability as of January 28, 2017 |
| $ | 1,175 |
|
Add: Costs incurred, excluding non-cash charges |
|
| 24,015 |
|
Less: Cash payments and adjustments |
|
| (15,391 | ) |
|
|
|
|
|
Accrued liability as of October 28, 2017 |
| $ | 9,799 |
|
18
Review by Independent Registered Public Accounting Firm
Ernst & Young LLP, our independent registered public accounting firm, has performed a limited review of the unaudited Consolidated Financial Statements for the thirteen and thirty-nine week periods ended October 28, 20172023. There were no impairment, restructuring and October 29, 2016, as indicated in their report on the limited review included below. Since they did not perform an audit, they express no opinion on the unaudited Consolidated Financial Statements referred to above.
Review Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
American Eagle Outfitters, Inc.
We have reviewed the consolidated balance sheets of American Eagle Outfitters, Inc. (the Company) as of October 28, 2017 and October 29, 2016, and the related consolidated statements of operations and retained earnings and comprehensive incomeother charges recorded for the thirteen and thirty-nine week periods13 weeks ended October 28, 2017 and October 29, 2016 and the consolidated statements2023.
|
| 39 Weeks Ended |
| |
|
| October 28, |
| |
(In thousands) |
| 2023 |
| |
Long-lived asset impairment charges(1) |
| $ | 10,759 |
|
Employee related costs(2) |
|
| 5,592 |
|
Other commercial related charges(3) |
|
| 4,924 |
|
Total impairment, restructuring and other charges |
| $ | 21,275 |
|
(1) $10.8 million of impairment of supply chain technology assets due to insufficient prospective cash flows forto support the thirty-nine week periods ended October 28, 2017 and October 29, 2016. These financial statements areasset value, resulting from the responsibilityrestructuring of Quiet Platforms
(2) $5.6 million of severance costs
(3) $4.9 million of contract related charges, resulting from the Company’s management.
We conducted our review in accordance with the standardsrestructuring of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.Quiet Platforms
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of American Eagle Outfitters, Inc. as of January 28 2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein), and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 10, 2017. In our opinion, the accompanying consolidated balance sheet of American Eagle Outfitters, Inc. as of January 28, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
December 7, 2017
19
ITEM 2. MANAGEMENT’S DISCUSSION ANDAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our Fiscal 2016 Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A") is intended to help the reader understand the Company, our operations and our present business environment. This MD&A is provided as a supplement to — and should be read in conjunction with — our MD&A for Fiscal 2022, which can be found in our Fiscal 2016 Annual Report on2022 Form 10-K.
In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.
Introduction
This report contains various “forward-looking statements” withinMD&A is organized as follows:
Executive Overview | General description of the Company’s business and certain segment information. |
Key Performance Indicators | Overview of key performance indicators reviewed by management to gauge the Company’s results. |
Current Trends and Outlook | Discussion of trends and uncertainties facing the Company, including those related to inflation, recent acquisitions and the Company's long-term plans for growth. In addition, this section also provides a summary of the Company's performance for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022. |
Results of Operations | Provides an analysis of certain components of the Company’s Consolidated Statements of Operations for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022. |
Liquidity and Capital Resources | Discussion of the Company’s financial condition and changes in financial condition and liquidity for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022. |
Critical Accounting Estimates | Discusses where information may be found about accounting policies and estimates considered to be important to the Company’s consolidated results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application. |
Recent accounting pronouncements the meaningCompany has adopted or is currently evaluating prior to adoption, including the dates of Section 27Aadoption or expected dates of adoption, as applicable, and anticipated effects on the Company’s audited Consolidated Financial Statements, are included in Note 2. “Summary of Significant Accounting Policies” of the Securities Act of 1933,Notes to the Consolidated Financial Statements included herein.
Executive Overview
We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under our American Eagle® and Aerie® brands.
We have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as amended,our CEO) analyzes segment results and Section 21Eallocates resources based on adjusted operating income (loss), which is a non-GAAP financial measure. See Note 12. “Segment Reporting,” of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events, includingNotes to the following:
the planned opening of approximately 15 to 20 AEO stores, including 10 to 15 Aerie side-by-side formats, and 15 Aerie stand-alone stores, and remodel of 15 to 20 existing AE stores to Aerie side-by-side format in North America during Fiscal 2017;
the success of our efforts to expand internationally, engage in future franchise/license agreements, and/or growth through acquisitions or joint ventures;
the selection of approximately 50 American Eagle Outfitters stores in the United States and CanadaConsolidated Financial Statements included herein for remodeling and refurbishing during Fiscal 2017;
the potential closure of approximately 20 to 23 American Eagle Outfitters and 4 to 7 Aerie stores primarily in North America during Fiscal 2017;
the success of our core American Eagle Outfitters and Aerie brands within North America and internationally;
the success of our business priorities and strategies;
the expected payment of a dividend in future periods;
the possibility that our credit facilities may not be available for future borrowings;
the possibility that rising prices of raw materials, labor, energy and other inputs to our manufacturing process, if unmitigated, will have a significant impact to our profitability; and
the possibility that we may be required to take additional store impairment charges related to underperforming stores.
We caution that these forward-looking statements, and those described elsewhere in this report, involve material risks and uncertainties and are subject to change based on factors beyond our control as discussed within Item 1A of this Quarterly Report on Form 10-Q and Item 1A of our Fiscal 2016 Annual Report on Form 10-K. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.information.
Key Performance Indicators
Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:
29
Comparable sales - — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the thirteenth13th month of operation. However, stores that have a gross square footage change of 25% or greater due to a remodel are removed from the comparable sales base but are included in total sales. These stores are returned to the comparable sales base in the thirteenth13th month following the remodel. Sales from American Eagle, Outfitters, Aerie, Todd Snyder, and TailgateUnsubscribed stores, as well as sales from AEO Direct and other digital channels, are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle Outfitters and Aerie brand comparable sales disclosures representinclude sales from stores and AEO Direct.
20
AEO DirectOmni-channel sales are includedperformance – Our management utilizes the following quality of sales metrics in the individual American Eagle Outfitters and Aerie brandevaluating our omni-channel sales performance: comparable sales, metric for the following reasons:
Our approach to customer engagement is “omni-channel”, which provides a seamless customer experience through both traditionalaverage unit retail price, total transactions, units per transaction, and non-traditional channels, including four wall store locations, web, mobile/tablet devices, social networks, email, in-store displays and kiosks. Additionally, we fulfill online orders at stores through our buy online, ship from store capability, maximizing store inventory exposure to digitalconsolidated comparable traffic. We also offer reserve online, pickupinclude these metrics in store service to our customers and givediscussion within this MD&A when we believe that they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):
Shopping behavior has continued to evolve across multiple channels that work in tandem to meetTotal transactions represents the count of customer needs. Management believes that presentingtransactions over a brand level performance metric that includes all channels (i.e.,period of time (inclusive of Company-owned stores and AEO Direct) isDirect, unless specified otherwise).
Our management considers
Gross profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of:of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs, (collectively “merchandise costs”)Quiet Platforms costs to service its customers and buying, occupancy and warehousing costs.costs and services. Design costs consist of:of compensation, rent, depreciation, travel, supplies, and samples.
Buying, occupancy and warehousing costs and services consist of:of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. operations.
The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross consolidated profit and results of operations.
Operating income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are comparable sales,net revenue, gross profit, our ability to control selling, general and administrativeSG&A expenses, and our level of capital expenditures. Management also uses earnings before interest
Cash flow and taxes as an indicator of operating results.
Return on invested capital — Our management uses return on invested capital as a key measure to assess our efficiency at allocating capital to profitable investments. This measure is critical in determining which strategic alternatives to pursue.
Omni-channel sales performance — Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: Comparable sales, average unit retail price (“AUR”), units per transaction (“UPT”), average transaction value, transactions, customer traffic and conversion rates.
Inventory turnoverliquidity — Our management evaluates inventory turnover as a measure of how productively inventory is boughtcash flow from operations and sold. Inventory turnover is important as it can signal slow moving inventory. This can be critical in determining the need to take markdowns on merchandise.
Cash flowinvesting and liquidity — Our management evaluates free cash flowfinancing activities in determining the sufficiency of our cash position. Free cashposition and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that free cash flow and liquidity will be sufficient to fund anticipated capital expenditures dividends and working capital requirements.requirements for the next twelve months and beyond.
Current Trends and Outlook
Inflation
During Fiscal 2022 and the 39 weeks ended October 28, 2023, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior, which constrained revenue and increased margin pressure. Given ongoing external uncertainties, we have taken additional actions to improve financial performance, including more extensive expense and capital expenditure reductions. For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see “Risk Factors” in Part I, Item 1A of our Fiscal 2022 Form 10-K.
Profit Improvement Program
We launched our profit improvement program during Fiscal 2023, which focused on a comprehensive review of our cost structure. Early actions have been focused on the components of gross margin and contributed to margin expansion in
30
the second and third quarters. Other significant work streams have been identified, actioned and incorporated into the company’s 2024 plans. The results of these initiatives are expected to yield gross margin expansion, as well as SG&A
and depreciation leverage, resulting in an improved operating profit rate.
Results of Operations
Overview
Our third quarter produced record sales and the eleventh consecutive quarter of positive comparable sales growth. Comparable sales were positive in both the AE and Aerie brands. Our results validated our investments in product leadership, innovation, quality and strong brand equity. Margin demonstrated sequential improvement year‐over-year as erosion narrowed significantly. SG&A expense declined compared to last year, resulting in strong expense leverage. We ended the quarter in solid financial condition, with $257.5 million in cash and no outstanding debt.
21
Total net revenue increased 2% to $960.4 million and consolidated comparable sales, including AEO Direct, increased 3%, following a 2% increase last year. By brand, American Eagle Outfitters comparable sales increased 1% while Aerie increased 19%.
Gross profit decreased 1% to $374.9 million compared to $377.8 million last year and decreased 120 basis points to 39.0% as a rate to total net revenue. The decline in margin rate is the result of increased promotional activity and shipping costs associated with a strong digital business.
Selling, general and administrative expense decreased 1% to $217.1 million compared to $219.9 million last year and leveraged 80 basis points to 22.6% as a rate to total net revenue. SG&A expense decreased as a result of lower incentives and expense discipline, partially offset by higher wages.
Net income for the quarter was $63.7 million, or $0.36 per diluted share, compared to $75.8 million, or $0.41 per diluted share, last year. On an adjusted basis, net income per diluted share this year was $0.37 per share, which excludes $0.01 per share of restructuring related charges. Additionally, this year we incurred a discrete charge of $13.9 million, or $0.05 per diluted share, in other expense associated with a reserve against a receivable.
During Fiscal 2017, we returned $155.8 million to shareholders through share repurchases of $87.7 million, and cash dividends of $68.1 million. We had $257.5 million in cash and cash equivalents as of October 28, 2017 compared to $291.7 million last year. Merchandise inventory at the end of the third quarter, was $534.0 million, comparedwe saw significant strength across both our digital channels and stores, with digital revenue increasing by 10% and store revenue increasing 3% on a year-over-year basis due to $492.6 million last year, an 8% increase. strong execution driving improved traffic across AE and Aerie. Additionally, our profit improvement program resulted in profit-flow through due to preliminary actions targeted at improving gross margin. Momentum across our brands has continued into the fourth quarter and we continue to make progress on profit improvement initiatives and our strategic priorities aimed at generating consistent, profitable growth.
Our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.Overview
This results of operations section contains non-GAAP financial measures (“non-GAAP” or “adjusted”), comprised of earnings per share information excluding non-GAAP items. This financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and is not necessarily comparable to similar measures presented by other companies. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP financial statements. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.
|
| 13 Weeks Ended |
| |
|
| October 28, |
| |
|
| 2017 |
| |
Net income per diluted share - GAAP Basis |
| $ | 0.36 |
|
Add: Restructuring related charges (1) |
|
| 0.01 |
|
Net income per diluted share - Adjusted or Non-GAAP Basis |
| $ | 0.37 |
|
|
|
Corporate severance related charges ($2.4 million) and corporate lease buyouts of ($1.3 million)
22
The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations. Operations:
| 13 Weeks Ended |
|
|
| 39 Weeks Ended |
|
|
| 13 Weeks Ended |
|
|
| 39 Weeks Ended |
|
| ||||||||||||||||||||||||||
| October 28, |
|
|
| October 29, |
|
|
| October 28, |
|
|
| October 29, |
|
|
| October 28, |
|
|
| October 29, |
|
|
| October 28, |
|
|
|
| October 29, |
|
| |||||||||
| 2017 |
|
|
| 2016 |
|
|
| 2017 |
|
|
| 2016 |
|
|
| 2023 |
|
|
| 2022 |
|
|
| 2023 |
|
|
|
| 2022 |
|
| |||||||||
Total net revenue |
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
|
| 100.0 |
| % | |
Cost of sales, including certain buying, occupancy and warehousing expenses | 61.0 |
|
| 59.8 |
|
|
| 63.2 |
|
|
| 61.1 |
|
|
|
| 58.2 |
|
|
| 61.3 |
|
|
|
| 60.6 |
|
|
|
|
| 64.5 |
|
| |||||||
Gross profit | 39.0 |
|
| 40.2 |
|
| 36.8 |
|
|
| 38.9 |
|
|
|
| 41.8 |
|
|
| 38.7 |
|
|
|
| 39.4 |
|
|
|
|
| 35.5 |
|
| ||||||||
Selling, general and administrative expenses | 22.6 |
|
| 23.4 |
|
| 24.0 |
|
|
| 24.5 |
|
|
|
| 27.8 |
|
|
| 25.1 |
|
|
|
| 28.1 |
|
|
|
|
| 26.3 |
|
| ||||||||
Restructuring charges | 0.4 |
|
|
| — |
|
| 0.8 |
|
|
|
| — |
|
| ||||||||||||||||||||||||||
Impairment, restructuring, and other charges |
|
| - |
|
|
| - |
|
|
|
| 0.6 |
|
|
| - |
| - |
|
| |||||||||||||||||||||
Depreciation and amortization expense | 4.5 |
|
| 4.2 |
|
|
| 4.8 |
|
|
| 4.6 |
|
|
|
| 4.4 |
|
|
| 4.1 |
|
|
|
| 4.7 |
|
|
|
|
| 4.2 |
|
| |||||||
Operating income | 11.5 |
|
| 12.6 |
|
| 7.2 |
|
|
| 9.8 |
|
|
|
| 9.6 |
|
|
| 9.5 |
|
|
|
| 6.0 |
|
|
|
|
| 5.0 |
|
| ||||||||
Other (expense) income, net |
| (1.4 | ) |
|
| — |
|
|
| (0.8 | ) |
|
| 0.1 |
|
| |||||||||||||||||||||||||
Debt related charges |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
|
|
| 1.7 |
|
| |||||||||||||||||||||
Interest (income) expense, net |
|
| (0.2 | ) |
|
| 0.3 |
|
|
|
| (0.0 | ) |
|
|
|
| 0.3 |
|
| |||||||||||||||||||||
Other (income) expense, net |
|
| (0.3 | ) |
|
| 0.1 |
|
|
|
| (0.3 | ) |
|
|
|
| (0.2 | ) |
| |||||||||||||||||||||
Income before income taxes | 10.1 |
|
| 12.6 |
|
| 6.4 |
|
|
| 9.9 |
|
|
|
| 10.1 |
|
|
| 9.1 |
|
|
|
| 6.3 |
|
|
|
|
| 3.2 |
|
| ||||||||
Provision for income taxes | 3.5 |
|
| 4.6 |
|
|
| 2.2 |
|
|
| 3.6 |
|
|
|
| 2.7 |
|
|
| 2.5 |
|
|
|
| 1.7 |
|
|
|
|
| 1.2 |
|
| |||||||
Net Income |
| 6.6 |
| % |
| 8.0 |
| % |
| 4.2 |
| % |
| 6.3 |
| % | |||||||||||||||||||||||||
Net income |
|
| 7.4 |
| % |
|
| 6.6 |
| % |
|
| 4.6 |
| % |
|
|
| 2.0 |
| % |
The following table shows our consolidated store data:
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Number of stores: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning of period |
|
| 1,184 |
|
|
| 1,160 |
|
|
| 1,175 |
|
|
| 1,133 |
|
Opened |
|
| 17 |
|
|
| 24 |
|
|
| 31 |
|
|
| 72 |
|
Closed |
|
| (2 | ) |
|
| (5 | ) |
|
| (7 | ) |
|
| (26 | ) |
End of period |
|
| 1,199 |
|
|
| 1,179 |
|
|
| 1,199 |
|
|
| 1,179 |
|
Total gross square feet at end of period (in '000) |
|
| 7,333 |
|
|
| 7,309 |
|
|
| 7,333 |
|
|
| 7,309 |
|
International licensed/franchise stores at end of |
|
| 301 |
|
|
| 261 |
|
|
| 301 |
|
|
| 261 |
|
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
| ||||||||||
|
| October 28, |
|
| October 29, |
|
| October 28, |
|
| October 29, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Number of stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
| 1,057 |
|
|
| 1,044 |
|
|
| 1,050 |
|
|
| 1,047 |
|
Opened |
|
| 5 |
|
|
| 11 |
|
|
| 26 |
|
|
| 19 |
|
Closed |
|
| (4 | ) |
|
| (3 | ) |
|
| (18 | ) |
|
| (14 | ) |
End of period |
|
| 1,058 |
|
|
| 1,052 |
|
|
| 1,058 |
|
|
| 1,052 |
|
Total gross square feet at end of period (in '000) |
|
| 6,641 |
|
|
| 6,638 |
|
|
| 6,641 |
|
|
| 6,638 |
|
International licensed/franchise stores at end of period (1) |
|
| 205 |
|
|
| 163 |
|
|
| 205 |
|
|
| 163 |
|
|
|
Our operations are conducted in one reportable segment, consistingAs of 943October 28, 2023, we operated 873 American Eagle Outfitters retail stores, which include 114includes 187 Aerie side-by-side locations, 110five locations with AE brand, Aerie brand and OFFLINE™ connected as one store, and 2 OFFLINE™ side-by-side locations, 307 Aerie stand-alone locationsstores (including 38 OFFLINE™ stand-alone stores and 31 OFFLINE™ side-by-side locations), and AEO Direct. Additionally, there were 4 Tailgate and 114 Todd Snyder stand-alone locations and five Unsubscribed locations.
31
Comparison of the 13 weeks ended October 28, 20172023 to the 13 weeks ended October 29, 20162022
Total net revenueNet Revenue
Total net revenue increased 2%, or $19.8 million, to $960.4 million5% for the 13 weeks ended October 28, 2023 at $1.301 billion, compared to $940.6 million$1.241 billion last year. The increase resultedDigital revenue increased 10%, while store revenue increased 3%. Digital results were driven by increased traffic due to several initiatives to improve customer engagement and experience. Last year included $12 million of revenue from a consolidated comparable sales increase of 3%excess end-of-season selloffs, which we did not anniversary this year, impacting revenue growth across brands and channels for the period following a 2% increase lastcurrent year.
By brand, including the respective AEO Direct sales, American Eagle Outfitters brand Total comparable sales increased 1%, or $10.7 million,by 5% year-over-year, primarily due to strong traffic and Aerie brand comparable sales increased 19%, or $13.5 million. Total comparable sales for AE women’s increased 1% and men’s increased 2%.
For the third quarter, consolidated comp traffictransactions across channels. Average unit retail increased in the low-double digits, while transactions increased in the mid-single digits. Average transaction value decreased slightly, driven by a decrease in units per transaction in the low-single digits, partially offset by an AURlower units per transaction.
American Eagle
Total net revenue for the 13 weeks ended October 28, 2023 for the American Eagle brand was $857.4 million, a 2% increase compared to $837.6 million for the 13 weeks ended October 29, 2022. Last year included $6 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. Total comparable sales increased 2% year-over-year, primarily due to digital traffic and transactions increasing in the low-single digits.low-double digits year-over-year.
23
Gross Profit
Gross profit decreased 1% or $2.9Aerie
Total net revenue for the 13 weeks ended October 28, 2023 for the Aerie brand was $393.0 million, a 12% increase compared to $374.9$349.7 million for the 13 weeks ended October 29, 2022. Last year included $6 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. Average unit retail price was up in the high-single digits year-over-year, partially offset by lower units per transaction. Total comparable sales increased 12% year-over-year driven by strong traffic and transactions.
Other
Total net revenue for the 13 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms declined 3% to $111.8 million compared to $377.8$115.3 million last year and decreased 120for the 13 weeks ended October 29, 2022. The decrease is attributable due to $8 million of lower revenue from Quiet Platforms, partially offset by a $4 million increase in Todd Snyder brand revenue.
Gross Profit
Gross profit increased by $64.0 million, or 13% to $543.8 million for the 13 weeks ended October 28, 2023 compared to $479.8 million for the 13 weeks ended October 29, 2022. As a percentage of total net revenue, our gross margin increased 310 basis points to 39.0%. 50 basis points41.8% for the 13 weeks ended October 28, 2023 from 38.7% for the 13 weeks ended October 29, 2022.
The increase in gross profit was primarily driven by incremental merchandise margin of the decline in the gross margin rate is the result of increased promotions to drive sales and conversion. Additionally, buying, occupany, and warehousing costs deleveraged 70 basis points as a result of higher delivery costs$43 million related to increased AEO Direct penetration. the increase in total net revenue, including an improvement in markup, and $20 million of lower markdowns reflecting inventory control.
There was $2.0$4.5 million and $3.1$3.7 million of share-based payment expense included in gross profit for the periods ended October 28, 20172023 and October 29, 2016,2022, respectively, comprised of both time and performance-based awards.
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrativeSG&A expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative (“
SG&A”)&A expenses decreased 1%increased 16% or $2.8$50.9 million to $217.1$362.0 million from $219.9$311.1 million last year. As a rate topercentage of total net revenue, SG&A expenses leveraged 80increased 270 basis points to 22.6%27.8%, compared to 23.4%25.1% last year. SG&A expense decreasedThe increase in expenses was primarily related to $25 million of increased incentive compensation and $10 million of increased store compensation, as well as increases in advertising and corporate related expenses. Incentive compensation increased
32
as we are accruing performance-based incentives this year based on improvements in trend profitability compared to no accrual last year. Store compensation increased as a result of lower incentiveswage increases and expense discipline,new store openings, partially offset by higher wages.efficiencies in our store labor model.
There was $0.3$5.4 million and $3.2$3.1 million of share-based payment expense included in SG&A expenses for the 13 week periods ended October 28, 20172023 and October 29, 2016,2022, respectively, comprised of both time and performance-based awards.
Restructuring Charges
Restructuring charges were $3.7Depreciation and Amortization Expense
Depreciation and amortization expense increased 10% or $5.3 million, to $56.4 million for the 13 weeks ended October 28, 2023, compared to $51.1 million for the 13 weeks ended October 29, 2022, which was primarily driven by investments in new stores and technology. As a percentage of total net revenue, depreciation and amortization expense was 4.4% for the 13 weeks ended October 28, 2023 compared to 4.1% for the 13 weeks ended October 29, 2022.
Operating Income
Operating income increased 7% or $7.9 million, to $125.4 million, or 0.4%9.6% as a rate topercentage of total net revenue, for the 13 weeks ended October 28, 2017. These charges are2023, compared to $117.5 million, or 9.5% as a percentage of total net revenue, for the 13 weeks ended October 29, 2022. The increase was primarily driven by higher gross profit, offset by increased SG&A and depreciation and amortization expenses.
American Eagle
Operating income for the 13 weeks ended October 28, 2023 for the American Eagle brand was $184.0 million, or 21.5% as a percentage of American Eagle total net revenue, compared to $174.1 million, or 20.8% as a percentage of American Eagle total net revenue, for the 13 weeks ended October 29, 2022.
The increase was primarily the result of corporate severance related charges of $2.4a $29 million and $1.3 million of corporate lease buyout charges.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 9% or $3.5 million to $43.1 million, compared to $39.6 million last year. As a rate toincrease in gross profit driven by incremental merchandise margin on the increase in total net revenue, as well as improved markup and lower markdowns reflecting inventory control.
The gross profit improvement was partially offset by a $16 million increase in SG&A costs, primarily from a $7 million increase in incentive and store compensation, as well as increases in advertising, variable selling and other store expenses, and a $3 million increase in depreciation and amortization expense related to new store openings.
Aerie
Operating income for the 13 weeks ended October 28, 2023 for the Aerie brand was 4.5%$75.9 million, or 19.3% as a percentage of Aerie total net revenue, compared to $56.5 million, or 16.2% as a percentage of Aerie total net revenue, for the 13 weeks ended October 29, 2022.
The increase was primarily the result of a $33 million increase in gross profit driven by incremental merchandise margin on the increase in total net revenue, as well as improved markup and lower markdowns reflecting inventory control, partially offset by incremental rent from new store openings and higher delivery and variable expense from increased digital sales. The gross profit improvement was partially offset by a $12 million increase in SG&A expenses primarily driven by store compensation and increased incentives.
Other
Operating loss for the 13 weeks ended October 28, 2023 for our other operations was ($8.6) million compared to ($11.7) million for the 13 weeks ended October 29, 2022. The increase was primarily the result of a $4 million increase from Quiet Platforms as a result of improved gross profit and lower expenses offset by a $2 million decline in the Todd Snyder brand as a result of increased rent and SG&A costs from new store openings.
General Corporate Expenses
General corporate expenses increased by $24 million for the 13 weeks ended October 28, 2023, primarily due to a $19 million increase in corporate compensation and incentives, as well as various increases in other corporate expenses.
33
Interest (Income) Expense, net
Interest (income) expense increased $6.8 million, to ($2.9) million, for the 13 weeks ended October 28, 2023, compared to $3.9 million for the 13 weeks ended October 29, 2022. The change was primarily attributable to lower borrowings on our Credit Facility and the elimination of convertible note interest expense on the 2025 Notes due to their Early Redemption this year, as well as a $3 million increase in interest income this year.
Other (Income) Expense, net
Other (income) expense, net was ($4.0) million for the 13 weeks ended October 28, 2023, compared to 4.2% last year.other (income) expense, net of $0.8 million for the 13 weeks ended October 29, 2022. The increase was driven by omni-channel, stores and IT technology investments.primarily attributable to foreign currency fluctuations.
Other (Expense) Income, Net
Other expense increased to $(13.2) million this year, compared to other income of $0.6 million last year. Included in other expense this year was a $13.9 million discrete charge, associated with a reserve against a receivable.
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended October 28, 20172023 was 34.8%26.9% compared to 36.3%28.0% for the 13 weeks ended October 29, 2016.2022. The decrease in the effective income tax rate for the 13 weeks ended October 28, 20172023 was primarily due to international tax provisions of the Tax Cuts and Jobs Act (the “Tax Act”), overall geographic mix of earnings in jurisdictions with different tax rates.in which the Company operates, offset by non-deductible executive compensation.
Net Income
Net income decreased 16%, or $12.0increased $15.4 million, to $63.7$96.7 million for the 13 weeks ended October 28, 2023, or 7.4% as a percentage of total net revenue, compared to net income of $81.3 million, or 6.6% as a percent topercentage of total net revenue from $75.8 million, or 8.0% as a percent to total net revenue last year. for the 13 weeks ended October 29, 2022.
Net income per share decreasedincreased to $0.36$0.49 per diluted share from $0.41for the 13 weeks ended October 28, 2023, compared to $0.42 per diluted share, last year. Net income per diluted share of $0.36 this year includes $0.01 per share of restructuring related charges and $0.05 per share of a discrete charge associated with a reserve against a receivable.for the 13 weeks ended October 29, 2022. The change in net income iswas attributable to the factors noted above.
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Comparison of the 39 weeks ended October 28, 20172023 to the 39 weeks ended October 29, 20162022
Total net revenueNet Revenue
Total net revenue increased 2%3%, or $54.2$89.1 million, to $2.567$3.583 billion for the 39 weeks ended October 28, 2023 compared to $2.513$3.494 billion for the 39 weeks ended October 29, 2022. Store revenue increased 4% and digital revenue was flat to last year. Last year included $36 million of revenue from excess end-of-season selloffs, which we did not anniversary this year, impacting revenue growth across brands and channels. Total comparable sales increased 1%.
American Eagle
Total net revenue for the 39 weeks ended October 28, 2023 decreased slightly for the American Eagle brand to $2.295 billion as compared to $2.301 billion for the 39 weeks ended October 29, 2022. Last year also included $16 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. For the 39 weeks ended October 28, 2023, total comparable sales decreased by 1%.
Aerie
Total net revenue for the 39 weeks ended October 28, 2023 for the Aerie brand was $1.133 billion, a 9% increase compared to $1.043 billion for the 39 weeks ended October 29, 2022. The increase was primarily due to 53 net new store openings since the first quarter of Fiscal 2022, as well as a 5% comparable sales increase. These amounts were partially offset by $18 million of revenue from excess end-of-season selloffs in the prior year, which we did not anniversary this year.
Other
Total net revenue for the 39 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms, was $329.5 million compared to $315.3 million for the 39 weeks ended October 29, 2022. The increase
34
was primarily due to an increase in Todd Snyder brand revenue of $23 million offset by a decline in Quiet Platforms revenue of $10 million.
Gross Profit
Gross profit increased 14% or $172.2 million, to $1.410 billion for the 39 weeks ended October 28, 2023 compared to $1.238 billion last year. Our gross margin percentage increased to 39.4% of revenue from 35.5% of revenue last year.
The increase resulted from a consolidated comparable salesin gross profit was driven by the total net revenue increase of 2% forin the period, following a 4% increase last year.
By brand, including the respective AEO Direct sales, American Eagle Outfitters brand comparable sales remained approximately flat, or $3.3 million, and Aerie brand, comparable sales increased 23%, or $48.0 million. Total comparable sales for AE women’s increased 1%as well as $60 million of lower inbound transportation costs and men’sproduct costs and $46 million of lower markdowns due to inventory control and lower end-of-season selloffs this year. Distribution, warehousing and delivery costs also decreased 2%.
For the year to date period, consolidated comp traffic increased in the high-single digits and transactions increased in the mid-single digits. Average transaction value decreased in the low-single digits, driven by a low-single digits decrease in units per transaction,$22 million, partially offset by an AUR increase in the low-single digits.
Gross Profit
Gross profit decreased 3% or $33.0$20 million to $945.4of incremental incentive compensation and increased rent of $7 million compared to $978.4 million last year, and the gross profit rate decreased 210 basis points to 36.8% compared to 38.9% last year. Gross profit this year includes $1.7 million, or 10 basis points, of inventory chargesprimarily related to restructuring activities in our United Kingdom and Asia markets. 150 basis points of decline in the gross profit rate is the result of increased promotions to drive sales and conversion. Additionally, buying, occupany, and warehousing costs deleveraged 50 basis points primarily as a result of higher delivery costs related to increased AEO Direct penetration.new store openings.
There was $7.2$15.3 million and $12.1$13.1 million of share-based payment expense included in gross profit for the 39 week periods ended October 28, 20172023 and October 29, 2016,2022, respectively, comprised of both time and performance-based awards.
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrativeSG&A expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
SG&A expenses of $615.8 were relatively flat as comparedincreased 10% or $88.5 million to $615.5$1.006 billion from $917.7 million last year. SG&A expense remained flat as a result of higher advertising investments and store salaries, offset by lower incentive compensation. As a rate topercentage of total net revenue, SG&A expenses leveraged 50increased 180 basis points to 24.0%28.1%, compared to 24.5%26.3% last year.
The increase in expenses was primarily related to $41 million of increased incentive compensation and $10 million of increased store compensation, as well as increases in advertising, professional services, corporate and store related expenses. Incentive compensation increased as we are accruing a baseline of performance-based incentives this year based on improvements in trend profitability compared to no accrual last year.
There was $4.8$19.9 million and $10.9$16.9 million of share-based payment expense included in SG&A expenses for the 39 week periods ended October 28, 20172023 and October 29, 2016,2022, respectively, comprised of both time and performance-based awards.
Impairment, Restructuring and Other Charges
RestructuringDuring the 39 weeks ended October 28, 2023, the Company recorded $21.3 million of impairment, restructuring and other charges related to Quiet Platforms, including $10.8 million of impairment of supply chain technology assets due to insufficient prospective cash flows to support the asset value resulting from the restructuring of Quiet Platforms, $5.6 million of employee severance, and $4.9 million of contract related charges, resulting from the restructuring of Quiet Platforms. There were $18.9no impairment, restructuring and other charges for the 39 weeks ended October 29, 2022.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 15%, or $22.4 million, to $169.0 million for the 39 weeks ended October 28, 2023, compared to $146.7 million for the 39 weeks ended October 29, 2022, which was primarily driven by investments in new stores and technology. As a percentage of total net revenue, depreciation and amortization expense was 4.7% this year compared to 4.2% last year.
Operating income
Operating income increased by 23%, or $40.0 million, to $213.5 million, or 0.8%6.0% as a rate topercentage of total net revenue, for the 39 weeks ended October 28, 2017. These charges are2023, compared to $173.5 million, or 5.0% as a percentage of total net revenue, for the result39 weeks ended October 29, 2022. The increase was primarily driven by higher gross profit, partially offset by higher
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SG&A and depreciation and amortization expenses, as well as $21.3 million of home officeimpairment, restructuring and the previously announced initiative to explore the closure or conversion of Company owned and operated stores in Hong Kong, China, and the United Kingdom to licensed partnerships. The closure of the United Kingdom was completed inother charges incurred this year.
American Eagle
Operating income for the 39 weeks ended October 28, 2017. We expect to incur additional charges2023 for corporate and international restructuring charges in Fiscal 2017.
Recorded separately from Restructuring Charges on the Consolidated Statements of Operations is $1.7American Eagle brand was $418.2 million, or 0.1%18.2% as a ratepercentage of American Eagle total net revenue, compared to total revenue, of inventory charges related to restructuring activities recorded$387.2 million, or 16.8% as a reduction in Gross Profit in our United Kingdom and Asia markets. Additionally, $9.3 million, or 0.4% as a rate to total revenue, for costs related to the planned exitpercentage of a joint business venture are recorded within Other (Expense) Income, Net.
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Depreciation and Amortization Expense
Depreciation and amortization expense increased 6% or $6.6 million to $123.9 million, compared to $117.3 million last year. As a rate toAmerican Eagle total net revenue, for the 39 weeks ended October 29, 2022.
The increase was primarily the result of a $63 million increase in gross profit from $25 million of lower markdowns reflecting inventory control and $27 million of incremental freight costs incurred last year, as well as a $14 million decrease in distribution, warehousing and delivery costs and a $10 million reduction in rent expense. These improvements were partially offset by an increase in incentive compensation expense. The gross profit improvement was partially offset by a $22 million increase in SG&A costs, primarily from increased incentive compensation of $10 million, advertising and store related expenses, partially offset by lower store salaries, as well as a $10 million increase in depreciation and amortization expense was 4.8% this year as compared to 4.6% last year. The increase was driven by omni-channel, stores and IT technology investments.
Other (Expense) Income, Net
Other expense was $(19.6) million this year, compared to $2.4 million of other income last year. Included in other expense this year is $9.3 million of costs related to the planned exit of a joint business venture, along with a $16.0 million discrete charge innew store openings.
Aerie
Operating income for the 39 weeks ended October 28, 2017 associated with2023 for the Aerie brand was $188.8 million, or 16.7% as a reserve againstpercentage of Aerie total net revenue, compared to $111.4 million, or 10.7% as a receivable,percentage of Aerie total net revenue, for the 39 weeks ended October 29, 2022.
The increase was primarily the result of a $105 million increase in gross profit driven by incremental margin on the increase in total net revenue, as well as improved markup, including a $34 million benefit from incremental freight costs incurred last year, and $26 million of lower markdowns reflecting inventory control. These improvements were partially offset by $10 million in incremental rent related to new store openings and $5 million of incremental incentive compensation expense. The gross profit improvement was partially offset by a $20 million increase in SG&A costs, primarily from increased store and incentive compensation expense, as well as an $8 million increase in depreciation and amortization expense related to new store openings.
Other
Operating loss for the 39 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms was ($35.3) million, excluding the aforementioned $21.3 million of impairment, restructuring and other charges related to Quiet Platforms, compared to ($39.4) million for the 39 weeks ended October 29, 2022. The improvement was primarily the result of increased operating income from the Todd Snyder and Unsubscribed brands of $3 million and increased operating income of Quiet Platforms of $1 million.
General Corporate Expenses
General corporate expenses increased $51 million due to increased corporate compensation and incentive expense of $33 million, a $6 million increase in corporate office rent and depreciation, as well as various increases in other corporate expenses.
Debt Related Charges
Debt related charges of $60.1 million for the 39 weeks ended October 29, 2022 consists primarily of a $55.7 million induced conversion expense related to the Note Exchange in June 2022, along with certain other costs related to actions taken to strengthen our capital structure. There were no debt related charges for the 39 weeks ended October 28, 2023.
Interest (Income) Expense, net
Interest (income) expense, net decreased $13.1 million, to ($1.2) million, for the 39 weeks ended October 28, 2023, compared to $11.9 million for the 39 weeks ended October 29, 2022. The decrease was primarily attributable to $10 million of lower interest expense on the 2025 Notes as a result of the Note Exchanges and Early Redemption and lower borrowings on our Credit Facility, as well as increased interest income this year.
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Other (Income) Expense, net
Other (income) expense, net increased $3.9 million, to ($9.4) million for the 39 weeks ended October 28, 2023, compared to ($5.5) million for the 39 weeks ended October 29, 2022. The increase was primarily attributable to foreign currency fluctuations.
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 39 weeks ended October 28, 20172023 was 34.1%27.0% compared to 36.4%34.1% for the 39 weeks ended October 29, 2016.2022. The decrease in the effective income tax rate this year isfor the 39 weeks ended October 28, 2023 was primarily due to the overall mixNote Exchange in June 2022 as a porton of earningsthe inducement charge was not deductible and state legislative changes that occurred in jurisdictions with different tax rates and changes in unrecognized tax benefits.Fiscal 2022.
Net Income
Net income decreased 30% or $47.6increased $93.2 million to $110.2$163.7 million for the 39 weeks ended October 28, 2023, or 4.2%4.6% as a percent topercentage of total net revenue, from $157.8compared to $70.5 million, or 6.3%2.0% as a percent topercentage of total net revenue last year. for the 39 weeks ended October 29, 2022.
Net income per diluted share decreasedincreased to $0.61$0.83 per diluted share from $0.86for the 39 weeks ended October 28, 2023, including $0.08 of impairment, restructuring and other charges, compared to net income of $0.36 per diluted share, last year. Net income per diluted shareincluding $0.24 of $0.61 this year includes $0.11 per diluted share of restructuringdebt related charges and $0.05 per share of a discrete charge associated with to a reserve against a receivable.for the 39 weeks ended October 29, 2022. The change in net income iswas attributable to the factors noted above.
International Operations
We have agreements with multiple third partythird-party operators to expand our brands internationally. Through these agreements,Our international licensing partners acquire the right to sell, promote, market, and/or distribute various categories of our products in a series of franchised, licensed or other brand-dedicated American Eagle Outfitters stores have openedgiven geographic area and will continue to open in areas including Eastern Europe, the Middle East, Central and South America, Northern Africa and parts of Asia. These agreements do not involve a significant capital investment or operational involvementsource products from us. We continueInternational licensees' rights include the right to increase the number of countriesown and operate retail stores and may include rights to sell in which we enter into these types of arrangements as part of our strategy to expand internationally. In the 13 weeks ended October 28, 2017 we signed a multi-year license agreement for the India territory, with the Aditya Birla Group, a leading Indian conglomerate, with the first stores expecting to open in Spring 2018.wholesale markets, shop-in-shop concessions and operate online marketplace businesses. As of October 28, 2017, we had 2052023, our international licensing partners operated in 301 licensed retail stores operated by our third party operatorsand concessions, as well as wholesale markets, online brand sites, and online marketplaces in 24approximately 30 countries. International third party operated stores are not included in the consolidated store data or the total gross square feet calculation.
As of October 28, 2017,2023, we had 103 company-operated104 company-owned stores in Canada, 3279 in Mexico, 618 in Hong Kong, 6 in China and 6seven in Puerto Rico. During the 39 weeks ended October 28, 2017, we completed the closure of all storesRico and three in the United Kingdom. We continue to evaluate further opportunities to expand internationally, which may include additional company-operated stores as well as stores operated by third party operators under license, franchise and/or joint venture agreements.Japan.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1 — Quoted prices in active markets.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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As of October 28, 2017, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash and cash equivalents.
In accordance with ASC 820, the following table represents the fair value hierarchy of our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of October 28, 2017:
|
| Fair Value Measurements at October 28, 2017 |
| |||||||||||||
(In thousands) |
| Carrying Amount |
|
| Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 185,546 |
|
| $ | 185,546 |
|
|
| — |
|
|
| — |
|
Interest bearing deposits |
|
| 71,981 |
|
|
| 71,981 |
|
|
| — |
|
|
| — |
|
Total cash and cash equivalents |
| $ | 257,527 |
|
| $ | 257,527 |
|
|
| — |
|
|
| — |
|
Liquidity and Capital Resources
Our uses of cash are generallyhave historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion, and the return of value to shareholdersstockholders through the repurchase of common stock and the payment of dividends. Additionally, our uses of cash have included the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts.
Historically, theseour uses of cash have been funded with cash flow from operations and existing cash on hand. Also, we hold a five-yearWe also maintain an asset-based revolving credit facility that allows us to borrow up to $400$700 million, which will expire in DecemberJune 2027. As of 2019. Additionally,October 28, 2023, there were no borrowings under the Credit Facility. In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025. As of October 28, 2023, the Company's 2025 Notes have been fully redeemed. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding our useslong-term debt.
As of October 28, 2023, we had approximately $240.9 million in cash include the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts.cash equivalents. We expect to be able to fund our future cash requirements through current cash holdings as well as cash generated from operations.and available liquidity.
Our growth strategy includes fortifying our brands and further e-commerce and store expansion or acquisitions. We periodically consider and evaluate these options to support future growth. In the event we do pursue such options, we could require additional equity or debt financing. There can be no assurance that we would be successful in closing any potential transaction, or that any endeavor we undertake would increase our profitability.
The following sets forth certain measures of our liquidity:
|
| October 28, |
|
| January 28, |
|
| October 29, |
| ||||||||||||||||
|
| 2017 |
|
| 2017 |
|
| 2016 |
|
| October 28, |
|
| January 28, |
|
| October 29, | ||||||||
Working Capital (in thousands) |
| $ | 377,372 |
|
| $ | 407,446 |
|
| $ | 373,970 |
|
| $ | 522,187 |
|
| $ | 331,293 |
|
| $ | 591,675 |
|
|
Current Ratio |
|
| 1.68 |
|
|
| 1.83 |
|
|
| 1.66 |
|
|
| 1.63 |
|
|
| 1.43 |
|
|
| 1.86 |
|
|
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Working capital decreased $30.1increased $190.9 million compared to January 28, 20172023 and increased $3.4decreased $69.5 million compared to last year. The $30.1$69.5 million decrease in our working capital and corresponding decrease in the current ratio as ofcompared to October 28, 2017,29, 2022, is driven by the following: $121.1a $158.8 million increase in cash and cash equivalents offset by a $111.6 million increase in accounts payable, a $60.0 million increase in accrued compensation and payroll taxes, a $42.6 million decrease in cash driven by cash flow from operations of $188.1prepaid expenses and other, and a $11.5 million offset by share repurchases of $87.7 million, capital expenditures of $134.9 million and dividends of $66.4 million. Additionally, we had a net increasedecrease in non-cash working capital balances of $91.0, primarily the result of higher inventory levels as compared to Fiscal 2016 year end. accounts receivable.
Cash Flows fromProvided by (Used For) Operating Activities
Net cash provided by operating activities totaled $188.1 million and $202.9$284.3 million for the 39 weeks ended October 28, 2017 and2023, compared to net cash used for operating activities of $86.7 million for the 39 weeks ended October 29, 2016, respectively.2022. For both periods, our major source of cash from operations was merchandise sales and our primary outflow of cash forfrom operations was for the payment of operational costs.
Cash Flows fromUsed for Investing Activities
Net cash used for investing activities totaled $144.3 million for the 39 weeks ended October 28, 2023, compared to net cash used for investing activities of $200.1 million for the 39 weeks ended October 29, 2022. Investing activities for the 39 weeks ended October 28, 20172023 and October 29, 2022 primarily consisted of $134.9 million and $199.4 million, respectively, of capital expenditures for property and equipment. Investing
Cash Flows Used for Financing Activities
Net cash used for financing activities totaled $69.0 million for the 39 weeks ended October 28, 2023, compared to net cash used for financing activities of $64.1 million for the 39 weeks ended October 29, 2016 primarily included $107.6 million of capital expenditures for property and equipment.
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Cash Flows from Financing Activities
2022. Cash used for financing activities for the 39 weeks ended October 28, 20172023 consisted primarily of $87.7$59.1 million of purchases of common stock under publically announced programs, $66.4 millionused for cash dividends paid at a quarterly rate of $0.125$0.10 per share, $12.3and $10.7 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments and $8.7 million for the payments on capital leases.payments.
Cash used for financing activities for the 39 weeks ended October 29, 20162022 consisted primarily of $67.9$200.0 million used to repurchase the Company's common stock under the ASR Agreement, $136.1 million used for the principal paid in connection with the Note Exchange, $64.8 million used for cash dividends paid at a quarterly rate of $0.125$0.18 per share $6.9during the 26 weeks ended July 30, 2022 and $9.8 million used for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments, and $5.6 million for the payments on capital leases, partially offset by $16.2$343.0 million of net proceeds from stock option exercises. There were no purchases of common stock from publically announced programs last year.borrowings under our Credit Facility.
Revolving Credit FacilitiesFacility
In Fiscal 2014,June 2022, we entered into aan amended and restated Credit Agreement, (“Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”). The Credit Agreementwhich provides senior secured asset-based revolving credit for loans and letters of credit up to $400.0$700 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibilityFacility expires on June 24, 2027. Before amendment and take advantagerestatement, the Company's previous credit agreement provided senior secured asset-based revolving credit for loans and letters of a favorable credit environment.up to $400 million and was scheduled to expire on January 30, 2024.
All obligations under the Credit FacilitiesFacility are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventoryCompany and certain other assets and have been further secured by first-priority mortgages on certain real property.subsidiaries.
As of October 28, 2017, we were2023, the Company was in compliance with the terms of the Credit Agreement and had $8.1no borrowings and $7.7 million outstanding in stand-by letters of credit. No loans wereAs of October 29, 2022, the Company had $343.0 million in outstanding borrowings under the Credit Agreement on October 28, 2017.Agreement.
Additionally, we have a borrowing agreement with one financial institution under which we may borrow an aggregate of $5.0 million for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions. As of October 28, 2017, we had no outstanding trade letters of credit.
Capital Expenditures for Property and Equipment
Capital expenditures for the 39 weeks ended October 28, 20172023 were $134.9 million, and included $76.8$67.8 million related to investments in our stores. In thestores, including 31 new stores (14 American Eagle stores, 13 weeks ended October 28, 2017, we opened 1 newcombined Aerie location. Also, we openedstand-alone stores and OFFLINE™ stand-alone stores, and 4 new AE stores; 1 in Mexico, 1 in CanadaTodd Snyder stores), and the remaining 2 in the U.S. to better position select markets.fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($25.044.5 million), e-commerceQuiet Platforms ($22.915.7 million), the improvement of our distribution centerssupply chain infrastructure ($8.83.9 million), and other home office projects ($1.43.0 million).
For Fiscal 2017,2023, we expect capital expenditures to be in the range of $160approximately $150 million to $170$175 million inrelated to the continued support of our expansion efforts, stores, investments including selective remodels of high performing, long-term locations, information technology upgrades to support growth, and investments in e-commerce.e-commerce, as well as to support and enhance our supply chain and Quiet Platforms. We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations.
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Share Repurchases
During Fiscal 2019, our Board of Directors (“Board”) authorized the repurchase of 30.0 million shares under a share repurchase program.
During the 39 weeks ended October 28, 2017, as part of2023, we did not repurchase any shares under our publicly announced share repurchase program, we repurchased 6.0 million shares for $87.7 million, at a weighted average price of $14.59 per share.
During Fiscal 2016, our Board authorized the repurchase of 25.0 million shares under a new share repurchase program which expires on January 30, 2021.program. As of October 28, 2017, 19.02023, our total remaining share repurchase authorization was 13.0 million shares remain outstanding under the current authorization.shares.
During the 39 weeks ended October 28, 20172023 and October 29, 2016,2022, we repurchased approximately 0.8 million and 0.40.6 million shares, respectively, from certain employees at market prices totaling $12.3$10.7 million and $6.9$9.8 million, respectively. These shares were repurchased for the payment of taxes, in connection with the vesting of share-based payments, as permitted under our equity incentive plans.
The aforementioned repurchased shares repurchased have been recorded as treasury stock.
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Dividends
During the 13 weeks ended October 28, 2017,2023, our Board declared a quarterly cash dividend of $0.125$0.10 per share on September 13, 2023, which was paid on October 20, 2017.27, 2023.
The Company maintains the right to defer the record and payment dates of any declared dividends, depending upon, among other factors, business performance and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S.United States taxation, and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis.
Critical Accounting PoliciesEstimates
Our critical accounting policies and estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended January 28, 20172023 contained in our Fiscal 2016 Annual Report on2022 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q.Report. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There were no material changesWe are primarily exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. An unrealized loss of $21.3 million and $0.2 million is included in our exposure to market risk from Januaryaccumulated other comprehensive income during the 13 and 39 weeks ended October 28, 2017.2023, respectively. Our market risk profile as of January 28, 20172023 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal 2016 Annual Report on2022 Form 10-K.10-K, which is unchanged as of October 28, 2023.
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ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to ourthe management of American Eagle Outfitters, Inc. (the “Management”), including our Principal Executive Officerprincipal executive officer and our Principal Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, managementManagement recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Quarterly Report, on Form 10-Q, as of October 28, 2017,2023, the Company performed an evaluation was performed under the supervision and with the participation of our management,Management, including the Principal Executive Officerprincipal executive officer and Principal Financial Officer,principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in RuleRules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our Principal Executive Officerprincipal executive officer and our Principal Financial Officer haveprincipal financial officer concluded that, our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report, on Form 10-Q.our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There werehas been no changeschange in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that occurred during the 13 weeks ended October 28, 2017 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
3040
PART II – OTHEROTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving consumer privacy, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. We believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our consolidated financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims. Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Applying this threshold, there are no environmental matters to disclose for this period.
Refer to Note 11. “Legal Proceedings” of the Notes to the Consolidated Financial Statements included herein for additional information.
Risk factors that affect our business and financial results are discussed within Part I, Item 1A of our Fiscal 2016 Annual Report on2022 Form 10-K. There have been no material changes to our risk factors as disclosed in the disclosures relating to this item from those set forth in our Fiscal 2016 Annual Report on2022 Form 10-K.
ITEM 2.UNREGISTERED2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS.PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of our common stock during the 13 weeks ended October 28, 2017.2023:
|
| Total |
|
|
|
|
| Total Number of |
|
| Maximum Number of |
| ||||
|
| Number of |
|
| Average |
|
| Shares Purchased as |
|
| Shares that May |
| ||||
|
| Shares |
|
| Price Paid |
|
| Part of Publicly |
|
| Yet Be Purchased |
| ||||
Period |
| Purchased |
|
| Per Share |
|
| Announced Programs |
|
| Under the Program |
| ||||
|
| (1) |
|
| (2) |
|
| (1) |
|
| (1) (3) |
| ||||
Month #1 (July 30, 2023 through August 26, 2023) |
|
| 797 |
|
| $ | 14.81 |
|
|
| — |
|
| 12,977,130 |
| |
Month #2 (August 27, 2023 through September 30, 2023) |
|
| 3,071 |
|
| $ | 16.43 |
|
|
| — |
|
| 12,977,130 |
| |
Month #3 (October 1, 2023 through October 28, 2023) |
|
| 12,801 |
|
| $ | 16.21 |
|
|
| — |
|
| 12,977,130 |
| |
Total |
|
| 16,669 |
|
| $ | 16.18 |
|
|
| — |
|
| 12,977,130 |
|
|
| Total |
|
|
|
|
|
| Total Number of |
|
| Maximum Number of |
| |||
|
| Number of |
|
| Average |
|
| Shares Purchased as |
|
| Shares that May |
| ||||
|
| Shares |
|
| Price Paid |
|
| Part of Publicly |
|
| Yet Be Purchased |
| ||||
Period |
| Purchased |
|
| Per Share |
|
| Announced Programs |
|
| Under the Program |
| ||||
|
| (1) |
|
| (2) |
|
| (1) |
|
| (1) (3) |
| ||||
Month #1 (July 30, 2017 through August 26, 2017) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19,000,000 |
|
Month #2 (August 27, 2017 through September 30, 2017) |
|
| 7,140 |
|
| $ | 12.27 |
|
|
| — |
|
|
| 19,000,000 |
|
Month #3 (October 1, 2017 through October 28, 2017) |
|
| 12,916 |
|
| $ | 13.78 |
|
|
| — |
|
|
| 19,000,000 |
|
Total |
|
| 20,056 |
|
| $ | 13.24 |
|
|
| — |
|
|
| 19,000,000 |
|
|
|
|
|
|
|
On December 7, 2017,(C) Rule 10b5-1 Trading Plans
During the Company entered into an indemnification agreement (the “Indemnification Agreement”) with James H. Keefer, Jr.fiscal quarter ended October 28, 2023, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 105b-1 trading arrangement" (as those terms are defined in Item 408 of Regulation S-K), the Company’s Vice President – Controller and Chief Accounting Officer. The Indemnification Agreement isexcept as described in the same form as the indemnification agreement that we have entered into with our other directors and executive officers and previously has been filed with the SEC.table below:
The terms of the Indemnification Agreement, subject to certain exceptions, generally provide that the Company will indemnify the indemnitee to the fullest extent permitted by law in connection with any claims, suits or proceedings arising as a result of his or her service as a director or officer of the Company or any subsidiary of the Company, including against third-party claims and proceedings brought by or in right of the Company. No indemnification will be paid pursuant to the Indemnification Agreement (i) on account of any proceedings brought by the indemnitee, including any proceedings against the Company (except as otherwise provided in the Indemnification Agreement), (ii) if a court finally determines that the indemnification is prohibited under applicable law, (iii) on account of any proceeding arising against the indemnitee for the disgorgement of profits from the purchase or sale of securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or (iv) relating to the clawback or recoupment of any bonus or other incentive-based or equity-based compensation previously received by indemnitee or payment of any profits realized by indemnitee from the sale of securities of the Company. Additionally, the Indemnification Agreement provides that the indemnitee is entitled to the advancement of certain expenses, subject to certain exceptions and repayment conditions, incurred in connection with such claims, suits or proceedings.
Any indemnification agreement to be entered into between the Company and a newly-appointed director or executive officer following the date hereof will be substantially similar to the form of the Indemnification Agreement described herein.
3141
| Action |
| Rule 10b5-1* | Non - Rule 10b5-1** | Total Shares of Common Stock to be Sold | Expiration Date |
Jennifer Foyle, President, Executive Creative Director, AE and Aerie | Adoption | October 13, 2023 | X | Up to 80,000 | October 16, 2024 |
* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
** “Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act.
42
ITEM 6. EXHIBITS.
* Exhibit |
| |
| Certification by Jay L. Schottenstein pursuant to Rule 13a-14(a) or Rule 15d-14(a) | |
* Exhibit 31.2 | Certification by | |
**Exhibit 32.1 | ||
**Exhibit 32.2 | ||
* Exhibit 101 |
| |
* Exhibit 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2023, formatted in inline XBRL |
|
|
|
|
* Filed with this report.
32** Furnished with this report.
43
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 7, 2017November 21, 2023
American Eagle Outfitters, Inc. (Registrant) | |||
By: |
| ||
Jay L. Schottenstein | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: |
| ||
| |||
Executive Vice President, Chief Financial Officer | |||
(Principal Financial Officer) |
44
33