EXHIBIT 99.1
AMERICAN EAGLE OUTFITTERS
Reports EPS of $0.21 for First Quarter 2008
Provides Second Quarter EPS Guidance
Pittsburgh, PA, May 28, 2008 - American Eagle Outfitters, Inc. (NYSE:AEO) today announced that earnings for the 13 weeks ended May 3, 2008 decreased 40% to $0.21 per diluted share, compared to the 13 week period ended May 5, 2007.
"Our first quarter results reflect a number of challenges during the quarter, both internal and external," said Jim O'Donnell, Chief Executive Officer. "We are taking quick action to strengthen the business, and I am pleased with the progress we were able to make during the quarter. In response to the economic environment, we are reducing inventory and expenses. At the same time, we continue to build the company for long-term growth in a prudent and measured manner. I am confident in the strength of our brands and our ability to drive profitable growth."
First Quarter Results
Total sales for the 13 weeks ended May 3, 2008 increased 5% to $640.3 million compared to $612.4 million for the 13 week period ended May 5, 2007. First quarter comparable store sales decreased 6%, compared to a 6% increase last year.
Gross profit for the first quarter was $263.7 million, or 41.2% as a rate to sales, compared to $298.5 million, or 48.7% as a rate to sales last year. The primary cause of the reduced margin was increased markdowns as a result of lower than expected sales. Rent increased as a rate to sales due to new store openings and the first quarter comp decline. Additionally, the company experienced higher delivery costs related to fuel surcharges.
Selling, general and administrative expenses of $169.6 million increased to 26.5% as a rate to sales from $157.0 million, or 25.6% as a rate last year. The higher rate this quarter is primarily due to the comp decline. The company de-leveraged direct compensation and benefits, services purchased, travel and communications. Incentive compensation, advertising and supplies improved as a rate to sales.
Operating income for the quarter was $64.5 million, compared to $116.0 million last year. The operating margin was 10.1%, compared to 18.9% last year.
The company generated net income during the first quarter of $43.9 million, compared to $78.8 million last year. As a percent to sales, net income was 6.9%, compared to 12.9% last year.
Inventory
Total merchandise inventories at the end of the first quarter were $262.2 million, a decrease of $12.6 million compared to last year. Inventory (excluding e-commerce) decreased 17% on a per square foot basis from a year ago. Looking ahead, the company expects second quarter ending inventory to be down in the low double-digits at cost per foot.
Real Estate
In the first quarter, the company opened 15 AE stores, 16 aerie stores and 3 MARTIN + OSA stores. In fiscal 2008, the company plans to open approximately 40 AE stores, 80 aerie stores and 11 MARTIN + OSA stores. Together with approximately 40 to 50 AE store remodels, the company expects to grow square footage by approximately 12%.
AEO Direct
The company's direct business, which includes ae.com, aerie.com and martinandosa.com, is also an important area of growth. For the quarter, sales grew approximately 29% over last year, driven primarily by an increase in both traffic and conversion.
Capital Expenditures
For the first quarter, capital expenditures were approximately $74 million. For fiscal 2008, management expects capital expenditures to be in the range of $250 to $275 million. Of this amount, approximately one half relates to new and remodeled stores. The balance of the 2008 capital spend relates to investments in the company's home office, distribution centers and IT initiatives to support AEO Direct and brand growth.
Cash and Cash Equivalents, Short-term Investments and Long-term Investments
The company ended the first quarter with total cash and cash equivalents, short-term investments and long-term investments of $705 million. This included approximately $368 million of investments in auction rate securities ("ARS"). During the quarter, the company recorded a temporary impairment of $5.1 million in the stockholder's equity section of the balance sheet, relating to its ARS portfolio.
Subsequent to quarter-end, $14 million of ARS were called at par, leaving the company with $354 million in ARS investments as of May 16, 2008. In light of the company's strong cash flow, management believes that the current lack of liquidity relating to its ARS investments will have no impact on its ability to fund its ongoing operations and growth initiatives.
Second Quarter Guidance
At this time, management is establishing second quarter earnings guidance of $0.28 to $0.30 per share, compared to $0.37 per share last year.
Conference Call Information
At 9:00 a.m. Eastern Time on May 28, 2008, the company's management team will host a conference call to review the financial results. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 five to seven minutes prior to the scheduled start time. The conference call will also be simultaneously broadcast over the Internet atwww.ae.com or www.streetevents.com. Anyone unable to listen to the call can access a replay beginning May 28, 2008 at 12:00 p.m. Eastern Time through June 11, 2008. To listen to the replay, dial 1-877-660-6853, or internationally dial 1-201-612-7415, and reference account 3055 and confirmation code 279173. An audio replay of the conference call will also be available at www.ae.com.
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American Eagle Outfitters designs, markets and sells its own brand of laidback, current clothing targeting 15 to 25 year-olds, providing high-quality merchandise at affordable prices. The original collection includes standards like jeans and graphic Ts as well as essentials like accessories, outerwear, footwear, basics and swimwear. American Eagle currently operates 867 stores in 50 states, the District of Columbia and Puerto Rico, and 76 AE stores in Canada. American Eagle also operates ae.com, which offers additional sizes and styles of favorite AE merchandise and ships to more than forty countries around the world. The American Eagle brand also includes a Dormwear collection, aerie, which is available in 62 standalone stores, American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats and leggings for the AE girl. Designed to be sweetly sexy, comfortable and cozy, the aerie brand offers AE customers a new way to express their personal style everyday, from the dormroom to the coffee shop to the classroom. 77E, a new multi-channel entertainment platform, features original and user-generated content on ae.com, in AE stores, on television, and on Web sites such as Youtube, MySpace and Facebook. For more information, visit www.ae.com.
MARTIN + OSA, a concept targeting 28 to 40 year-old women and men, offers refined casual clothing and accessories, designed to be valuable, irresistible, inspiring, authentic and adventurous. MARTIN + OSA currently operates 22 stores. For additional information and updates, visitwww.martinandosa.com.
The company plans to launch a children's apparel brand, 77kids by american eagle, offering on-trend, high-quality clothing and accessories for kids age two to 10. 77kids will debut online atwww.77kids.com during Fiscal 2008, with brick-and-mortar stores in the U.S. planned for 2010.
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"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements, which represent our expectations or beliefs concerning future events, specifically regarding second quarter sales and earnings, inventory, real estate, aerie,MARTIN + OSA and 77kids by american eagle.All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Company's control. Such factors include, but are not limited to the risk that second quarter earnings expectations may not be achieved; real estate, aerie and MARTIN + OSA growth may not occur as planned; and those other risks described in the Risk Factors Section of the Company's Form 10-K and Form 10-Q's filed with the Securities and Exchange Commission. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The Company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or implied will not be realized.
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AMERICAN EAGLE OUTFITTERS, INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) |
Assets
| May 3,
2008
(Unaudited) | February 2,
2008
| May 5,
2007
(Unaudited) | |
| Current assets: | | | | |
| Cash and cash equivalents | $338,238 | $116,061 | $69,791 | |
| Short-term investments | 26,195 | 503,878 | 571,316 | |
| Merchandise inventory | 262,201 | 286,485 | 274,846 | |
| Accounts and note receivable | 41,651 | 31,920 | 39,553 | |
| Prepaid expenses and other | 92,403 | 35,486 | 57,287 | |
| Deferred income taxes | 41,091 | 47,004 | 39,971 | |
| Total current assets | 801,779 | 1,020,834 | 1,052,764 | |
| Property and equipment, net of accumulated depreciation and amortization | 667,691 | 625,568 | 523,487 | |
| Goodwill | 11,402 | 11,479 | 9,950 | |
| Long-term investments | 340,390 | 165,810 | 192,681 | |
| Non-current deferred income taxes | 27,038 | 24,238 | 32,219 | |
| Other assets, net | 20,195 | 19,571 | 18,557 | |
| $1,868,495 | $1,867,680 | $1,829,658 | |
| | | | |
| Liabilities and Stockholders' Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable | $116,268 | $157,928 | $138,545 | |
| Notes payable | 75,000 | - | - | |
| Accrued compensation and payroll taxes | 19,461 | 49,494 | 21,573 | |
| Accrued rent | 59,467 | 62,161 | 54,030 | |
| Accrued income and other taxes | 13,297 | 22,803 | 11,193 | |
| Unredeemed gift cards and gift certificates | 36,512 | 54,554 | 40,287 | |
| Current portion of deferred lease credits | 13,995 | 12,953 | 12,757 | |
| Other liabilities and accrued expenses | 16,333 | 16,285 | 16,874 | |
| Total current liabilities | 350,333 | 376,178 | 295,259 | |
| Non-current liabilities: | | | | |
| Deferred lease credits | 74,632 | 70,355 | 62,512 | |
| Non-current accrued income taxes | 47,922 | 44,837 | 46,929 | |
| Other non-current liabilities | 31,138 | 35,846 | 28,858 | |
| Total non-current liabilities | 153,692 | 151,038 | 138,299 | |
| Commitments and contingencies | - | - | - | |
| Stockholders' equity: | | | | |
| Preferred stock | - | - | - | |
Common stock | 2,485 | 2,481 | 2,473 | |
| Contributed capital | 502,243 | 493,395 | 468,240 | |
| Accumulated other comprehensive income | 29,353 | 35,485 | 26,531 | |
| Retained earnings | 1,624,800 | 1601,784 | 1,350,400 | |
| Treasury stock | (794,411) | (792,681) | (451,544) | |
| Total stockholders' equity | 1,364,470 | 1,340,464 | 1,396,100 | |
| Total liabilities and stockholders' equity | $1,868,495 | $1,867,680 | $1,829,658 | |
| Current ratio | 2.29 | 2.71 | 3.57 | |
|
|
AMERICAN EAGLE OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars and shares in thousands, except per share amounts) (Unaudited) | | |
| | 13 Weeks Ended | | |
| | | | May 3,
2008 | % of sales | May 5,
2007 | % of sales | |
| Net sales | | | $640,302 | 100.0% | $612,386 | 100.0% | |
Cost of sales, including certain buying, occupancy and warehousing expenses (exclusive of depreciation shown separately below) | | | | | | | |
| | 376,635 | 58.8% | 313,927 | 51.3% | |
| Gross profit | | | 263,667 | 41.2% | 298,459 | 48.7% | |
| Selling, general and administrative expenses | | | 169,638 | 26.5% | 156,989 | 25.6% | |
| Depreciation and amortization expense | | | 29,550 | 4.6% | 25,482 | 4.2% | |
| Operating income | | | 64,479 | 10.1% | 115,988 | 18.9% | |
| Other income, net | | | 6,458 | 1.0% | 11,301 | 1.9% | |
| Income before income taxes | | | 70,937 | 11.1% | 127,289 | 20.8% | |
| Provision for income taxes | | | 27,042 | 4.2% | 48,519 | 7.9% | |
| Net income | | | $43,895 | 6.9% | $78,770 | 12.9% | |
| | | | | | | | |
| Net income per basic common share: | | | $0.21 | | $0.36 | | |
Net income per diluted common share: | | | $0.21 | | $0.35 | | |
| | | | | | | | |
| Weighted average common shares outstanding - basic | | | 204,841 | | 220,675 | | |
| Weighted average common shares outstanding - diluted | | | 208,104 | | 225,565 | | |
| | | | | | | | |
| Total gross square footage at end of period: | | | 5,888,629 | | 5,257,032 | | |
| Store count at end of period: | | | 1,018 | | 920 | | |
| | | | | | | |
|
AMERICAN EAGLE OUTFITTERS, INC. | |
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) | |
(Unaudited) | |
| 13 Weeks Ended | |
| May 5,
2008 | May 3,
2007 | |
| Operating activities: | | | |
| Net income | $43,895 | $78,770 | |
| Adjustments to reconcile income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 29,550 | 25,482 | |
| Share-based compensation | 8,882 | 12,506 | |
| Deferred income taxes | 5,192 | (84) | |
| Tax benefit from share-based payments | 154 | 2,866 | |
| Excess tax benefit from share-based payments | (125) | (2,628) | |
| Changes in assets and liabilities: | | | |
| Merchandise inventory | 23,836 | (8,157) | |
| Accounts and note receivable | (9,309) | (13,459) | |
| Prepaid expenses and other | (57,432) | (23,410) | |
| Other assets, net | (460) | (1,728) | |
| Accounts payable | (41,456) | (33,407) | |
| Unredeemed gift cards and gift certificates | (17,970) | (14,471) | |
| Deferred lease credits | 4,355 | (3,017) | |
| Accrued liabilities | (40,259) | (96,939) | |
| Total adjustments | (95,042) | (156,446) | |
| Net cash used for operating activities | $(51,147) | $(77,676) | |
| Investing activities: | | | |
| Capital expenditures | (73,629) | (65,321) | |
| Purchase of investments | (49,897) | (301,421) | |
| Sale of investments | 347,133 | 558,680 | |
| Other investing activities | (163) | (820) | |
| Net cash provided by investing activities | $223,444 | $191,118 | |
| Financing activities: | | | |
| Payments on capital leases | (589) | (388) | |
| Net proceeds from note payable | 75,000 | - | |
| Repurchase of common stock as part of publicly announced programs | - | (85,233) | |
| Repurchase of common stock from employees | (3,365) | (11,631) | |
| Net proceeds from stock options exercised | 984 | 6,951 | |
| Excess tax benefit from exercise of stock options | 125 | 2,628 | |
| Cash dividends paid | (20,425) | (16,520) | |
| Net cash provided by (used for) financing activities | $51,730 | $(104,193) | |
| Effect of exchange rates on cash | (1,850) | 805 | |
| Net increase in cash and cash equivalents | $222,177 | $10,054 | |
| Cash and cash equivalents - beginning of period | 116,061 | 59,737 | |
| Cash and cash equivalents - end of period | $338,238 | $69,791 | |
| | | | |
|
CONTACT: |
| American Eagle Outfitters, Inc. |
| Judy Meehan, 412-432-3300 |
| |
