Pittsburgh, March 11, 2009 - American Eagle Outfitters, Inc. (NYSE:AEO) today announced that adjusted earnings for the fourth quarter ended January 31, 2009 were $0.19 per diluted share, excluding non-cash other-than-temporary investment security and store impairment charges totaling $0.03 per diluted share. This compares to $0.66 per diluted share for the quarter ended February 2, 2008.
The company also that announced adjusted earnings for the fiscal year ended January 31, 2009 were $0.99, excluding non-cash other-than-temporary investment security and store impairment charges totaling $0.13 per diluted share. This compares to $1.82 per diluted share for the year ended February 2, 2008.
"The fourth quarter proved to be a disappointing conclusion to an extremely challenging year," said Jim O'Donnell, Chief Executive Officer. "In response to sharply lower demand in the fourth quarter, we increased unplanned promotions, enabling us to successfully clear through inventory. While our earnings were clearly not up to our standards or our potential, our business remains profitable and financially healthy."
O'Donnell continued, "Looking ahead, we cannot accept this kind of performance, recession or not. We know that our customer responds when we have the right fashion at the right price. As such, we are vigorously pursuing major improvements within all of our brands, while maintaining a conservative approach toward inventory investments, capital spending and operating expense. We expect to capitalize on opportunities within our business, and be well-positioned for a rebound."
Fourth Quarter Results
Total sales for the quarter ended January 31, 2009 decreased 9% to $905.7 million compared to $995.4 million for the quarter ended February 2, 2008. Fourth quarter comparable store sales decreased 16%, compared to a 2% decline last year.
Gross profit for the fourth quarter was $311.6 million, or 34.4% as a rate to sales, compared to $455.3 million, or 45.7% as a rate to sales last year. The merchandise margin declined by 990 basis points, primarily due to higher markdowns, as a result of lower-than-expected sales. Additionally, the initial mark-up declined as a result of increased merchandise cost. As a rate to sales, buying, occupancy and warehousing costs increased by 140 basis points, due primarily to de-leveraging of rent related to the fourth quarter comparable store sales decline.
Selling, general and administrative expense of $221.5 million includes a $6.7 million charge related to the impairment of certain underperforming stores. Excluding this charge, SG&A expense decreased 1% to $214.8 million from $217.6 million last year. Reduced incentive compensation and expense controls drove the decline over last year. As a rate to sales, SG&A increased to 24.4% from 21.9% last year, primarily due to the store impairment charge and the fourth quarter comparable store sales decline.
Operating income for the quarter was $53.4 million, compared to $209.2 million last year. The operating margin was 5.9%, compared to 21.0% last year.
Other income, net was $2.9 million versus $10.7 million last year. The decline was primarily due to lower interest income, which resulted from an overall decrease in interest rates and lower investment balances compared to last year.
Additionally, we recognized a $3.0 million other-than-temporary impairment charge in connection with the valuation of our investment securities. (See paragraph titled Investment Securities.)
The company generated net income during the fourth quarter of $32.7 million, compared to $140.5 million last year.
Fiscal 2008 Results
Total sales for the year ended January 31, 2009 decreased 2% to $2.989 billion, compared to $3.055 billion for year ended February 2, 2008. Comparable store sales decreased 10% for the year compared to the same period last year.
Gross profit for the year was $1.174 billion, or 39.3% as a rate to sales, compared to $1.423 billion, or 46.6% as a rate to sales last year. The merchandise margin declined by 560 basis points, primarily due to higher markdowns. Buying, occupancy and warehousing costs increased by 170 basis points, due to new stores as well as the comparable store sales decline.
Selling, general and administrative expenses of $740.7 million includes a $6.7 million charge related to store impairment. Excluding this charge, SG&A expense increased 3% to $734.0 million from $715.2 million last year. As a rate to sales, SG&A increased to 24.8% from 23.4% last year, primarily due to the comparable store sales decline, as well as the impairment charge.
Operating income for the year was $302.1 million, compared to $598.8 million last year. The operating margin was 10.1%, compared to 19.6% last year.
Other income, net was $17.8 million versus $37.6 million last year. The decline was primarily due to lower interest income, which resulted from an overall decrease in interest rates and lower investment balances compared to last year.
Additionally, we recognized a $22.9 million other-than-temporary impairment charge in connection with the valuation of our investment securities. (See paragraph titled Investment Securities.)
The company generated net income during the fiscal year of $179.1 million, compared to $400.0 million last year.
Inventory
Total merchandise inventories at the end of the fourth quarter were $294.9 million, an increase of $8.4 million compared $286.5 million last year. The increase was primarily a result of 122 new stores and represented a decrease of 8% on a cost per square foot basis. Looking ahead, the company expects first quarter average weekly inventory to be down in the mid single-digits on a cost per square foot basis..
AEO Direct
The company's direct business, which includes ae.com, aerie.com, 77kids.com and martinandosa.com, is an important area of growth. In fiscal 2008, sales increased 26% to $307.0 million compared to $243.5 million in fiscal 2007.
Capital Expenditures
For the fourth quarter, capital expenditures were $39 million compared to $60 million last year. For fiscal 2008, capital expenditures totaled $265 million compared to $250 million last year. Of the 2008 capital expenditures, approximately one half related to new and remodeled stores. The balance of the 2008 capital spend related to investments in the company's home office, distribution centers and IT initiatives to support AEO Direct and brand growth.
The company continues to expect 2009 capital expenditures to be in the range of $110 to $135 million. Of this amount, approximately one half relates to new and remodeled stores, including a flagship store in Times Square. The remaining half relates to the completion of the current distribution center and headquarters projects, as well as IT initiatives.
Real Estate
In the fourth quarter, the company opened three AE stores, five aerie stores and one MARTIN + OSA store and closed seven AE stores. In fiscal 2008, the company opened a total of 35 AE stores, 77 aerie stores and 10 MARTIN + OSA stores. Together with 30 AE store remodels, and 11 store closings, gross square footage increased 11%. In 2009, the company is planning approximately 11 new and 25 to 35 remodeled AE stores and 17 new aerie stores, for total square footage growth of approximately 3%.
Cash and Cash Equivalents, Short-term Investments and Long-term Investments
The company ended the fourth quarter with total cash and cash equivalents, short-term investments and long-term investments of $735 million. This includes $262 million of investments in auction rate and preferred securities, net of impairment.
Investment Securities
During the fourth quarter, the company incurred an other-than-temporary impairment charge of $3.0 million recognized in earnings, and a net temporary impairment charge of $5.3 million recognized through other comprehensive income, in connection with the valuation of its investment portfolio. For the fiscal year 2008, the company incurred an other-than-temporary impairment charge of $22.9 million recognized in earnings, and a net temporary impairment charge of $35.3 million recognized through other comprehensive income.
2009 Outlook
"Looking ahead, protecting our profitability, while thoughtfully investing in our future are the principles behind our 2009 plan," said Chief Financial Officer, Joan Hilson. "With economic uncertainties prevailing, our plan reflects prudence across all financial aspects, including inventory investments, expense reductions and lowered capital spending. Last year, we proactively began lowering our cost structure, with a number of expense initiatives, which included the elimination of open positions, the consolidation of non-merchandise supply procurement and across the board budget reductions. These initiatives totaled savings of approximately $50 million. This year, we will continue to pursue expense reductions across all areas of our organization."
First Quarter 2009 Guidance
Based on our current view of sales trends, we expect first quarter earnings to be in a range of $0.04 to $0.07 per share, compared to earnings of $0.21 per share last year. This guidance excludes the possibility of additional losses related to investment securities.
Conference Call Information
At 9:00 a.m. Eastern Time on March 11, 2009, 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 at www.ae.com or www.streetevents.com. Anyone unable to listen to the call can access a replay beginning March 11, 2009 at 12:00 p.m. Eastern Time through March 25, 2009. To listen to the replay, dial 1-877-660-6853, or internationally dial 1-201-612-7415, and reference account 3055 and confirmation code 311680. An audio replay of the conference call will also be available at www.ae.com.
Non-GAAP Measures
This press release includes information on non-GAAP earnings per share information. This 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. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with the Company's GAAP financial statements. This amount is not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the Company's business and operations.
* * * *
American Eagle Outfitters, Inc., through its subsidiaries, ("AEO, Inc.")offers high-quality, on-trend clothing, accessories and personal care products at affordable prices. The American Eagle Outfitters brand targets 15 to 25 year old girls and guys, with 954 stores in the U.S. and Canada and online at www.ae.com. aerie by american eagle offers Dormwear and intimates collections for the AE girl, with 116 standalone stores in the U.S. and Canada and online at www.aerie.com. MARTIN + OSA provides Refined Casual fashions for 28 to 40 year old men and women at its 28 stores and online at www.martinandosa.com. The latest brand, 77kids by american eagle, is available online only at www.77kids.com. 77kids offers "kid cool," durable clothing and accessories for kids ages two to 10. AE.COM, the online home of the brands of AEO, Inc. ships to more than 60 countries worldwide.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements, which represent our expectations or beliefs concerning future events, specifically regarding first quarter earnings. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors beyond the company's control. Such factors include, but are not limited to the risk that the Company's operating, financial and capital plans may not be achieved and the risks described in the Risk Factor Section of the company's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or imp lied will not be realized.
AMERICAN EAGLE OUTFITTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Assets
January 31, 2009 (Unaudited)
February 2, 2008
Cash and cash equivalents
$473,342
$116,061
Short-term investments
10,510
503,878
Merchandise inventory
294,928
286,485
Accounts and note receivable
41,471
31,920
Prepaid expenses and other
59,660
35,486
Deferred income taxes
45,447
47,004
Total current assets
925,358
1,020,834
Property and equipment, net
740,240
625,568
Goodwill, net
10,706
11,479
Long-term investments
251,008
165,810
Non-current deferred income taxes
15,001
24,238
Other assets, net
21,363
19,751
Total Assets
$1,963,676
$1,867,680
Liabilities and Stockholders' Equity
Accounts payable
$152,068
$157,928
Notes payable
75,000
-
Accrued compensation and payroll taxes
29,417
49,494
Accrued rent
64,695
62,161
Accrued income and other taxes
6,259
22,803
Unredeemed gift cards and gift certificates
42,299
54,554
Current portion of deferred lease credits
13,726
12,953
Other current liabilities
18,299
16,285
Total current liabilities
401,763
376,178
Deferred lease credits
88,314
70,355
Non-current accrued income taxes
39,898
44,837
Other non-current liabilities
24,670
35,846
Total non-current liabilities
152,882
151,038
Commitments and contingencies
-
-
Preferred stock
-
-
Common stock
2,485
2,481
Contributed capital
513,574
493,395
Accumulated other comprehensive (loss) income
(14,389)
35,485
Retained earnings
1,694,161
1,601,784
Treasury stock
(786,800)
(792,681)
Total stockholders' equity
1,409,031
1,340,464
Total liabilities and stockholders' equity
$1,963,676
$1,867,680
Current ratio
2.30
2.71
AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)
13 Weeks Ended
January 31, 2009
% of sales
February 2, 2008
% of sales
(Unaudited)
(Unaudited)
Net sales
$905,713
100.0%
$995,401
100.0%
Cost of sales, including certain buying, occupancy and warehousing expenses
594,076
65.6%
540,086
54.3%
Gross profit
311,637
34.4%
455,315
45.7%
Selling, general and administrative expenses
221,490
24.4%
217,644
21.9%
Depreciation and amortization expense
36,794
4.1%
28,479
2.8%
Operating income
53,353
5.9%
209,192
21.0%
Other income, net
2,905
0.3%
10,654
1.1%
Other-than-temporary impairment charge
3,005
0.3%
-
0.0%
Income before income taxes
53,253
5.9%
219,846
22.1%
Provision for income taxes
20,522
2.3%
79,367
8.0%
Net income
$32,731
3.6%
$140,479
14.1%
Net income per basic common share:
$0.16
$0.67
Net income per diluted common share:
$0.16
$0.66
Weighted average common shares outstanding - basic
205,280
210,227
Weighted average common shares outstanding - diluted
206,565
214,059
52 Weeks Ended
January 31, 2009
% of sales
February 2, 2008
% of sales
(Unaudited)
Net sales
$2,988,866
100.0%
$3,055,419
100.0%
Cost of sales, including certain buying, occupancy and warehousing expenses
1,814,765
60.7%
1,632,281
53.4%
Gross profit
1,174,101
39.3%
1,423,138
46.6%
Selling, general and administrative expenses
740,742
24.8%
715,180
23.4%
Depreciation and amortization expense
131,219
4.4%
109,203
3.6%
Operating income
302,140
10.1%
598,755
19.6%
Other income, net
17,790
0.6%
37,626
1.2%
Other-than-temporary impairment charge
22,889
0.8%
-
0.0%
Income before income taxes
297,041
9.9%
636,381
20.8%
Provision for income taxes
117,980
3.9%
236,362
7.7%
Net income
$179,061
6.0%
$400,019
13.1%
Net income per basic common share:
$0.87
$1.85
Net income per diluted common share:
$0.86
$1.82
Weighted average common shares outstanding - basic
205,169
216,119
Weighted average common shares outstanding - diluted
207,582
220,280
Total gross square footage at end of period:
6,328,167
5,709,932
Store count at end of period:
1,098
987
AMERICAN EAGLE OUTFITTERS, INC. GAAP to Non-GAAP reconciliation
(unaudited)
13 Weeks Ended
January 31, 2009
February 2, 2008
Diluted EPS on a GAAP basis (as reported)
$0.16
$0.66
Add back: Impact of other-than-temporary investment security impairment
0.01
-
Add back: Impact of store impairment
0.02
-
Non-GAAP Diluted EPS
$0.19
$0.66
52 Weeks Ended
January 31, 2009
February 2, 2008
Diluted EPS on a GAAP basis (as reported)
$0.86
$1.82
Add back: Impact of other-than-temporary investment security impairment
0.11
-
Add back: Impact of store impairment
0.02
-
Non-GAAP Diluted EPS
$0.99
$1.82
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
52 Weeks Ended
January 31, 2009
February 2, 2008
February 3, 2007
(Unaudited)
Operating activities:
Net income
$179,061
$400,019
$387,359
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization
133,141
110,753
89,698
Share-based compensation
20,296
33,670
36,556
Provision for deferred income taxes
24,473
(8,147)
(27,615)
Tax benefit from share-based payments
1,121
7,260
25,465
Excess tax benefit from share-based payments
(693)
(6,156)
(19,541)
Foreign currency transaction (gain) loss
(1,141)
1,221
687
Loss on impairment of assets
6,713
592
-
Other-than-temporary impairment charges
22,889
-
-
Proceeds from sale of trading securities
-
-
183,968
Changes in assets and liabilities:
Merchandise inventory
(13,735)
(19,074)
(53,527)
Accounts and note receivable
(10,094)
(5,660)
7,448
Prepaid expenses and other
(24,781)
(1,334)
(4,204)
Other assets, net
390
(3,242)
(5,357)
Accounts payable
(3,053)
(15,559)
32,345
Unredeemed gift cards and gift certificates
(11,392)
(699)
11,623
Deferred lease credits
18,887
4,640
7,791
Accrued income and other taxes
(20,697)
(31,416)
43,482
Accrued liabilities
(19,192)
(2,598)
33,090
Total adjustments
123,132
64,251
361,909
Net cash provided by operating activities
$302,193
$464,270
$749,268
Investing activities:
Capital expenditures
(265,335)
(250,407)
(225,939)
Proceeds from sale of assets
-
-
12,345
Purchase of investments
(48,655)
(1,772,653)
(1,353,339)
Sale of investments
393,559
2,126,891
915,952
Other investing activities
(1,180)
(1,170)
(140)
Net cash provided by investing activities
$78,389
$102,661
$(651,121)
Financing activities:
Payments on capital leases
(2,177)
(1,912)
(3,020)
Net proceeds from note payable
75,000
-
2,025
Repurchase of common stock as part of publicly announced programs
-
(438,291)
(146,485)
Repurchase of common stock from employees
(3,432)
(12,310)
(7,635)
Cash paid for fractional shares in connection with three-for-two stock split
-
-
(113)
Net proceeds from stock options exercised
3,799
13,183
28,447
Excess tax benefit from share-based payment
693
6,156
19,541
Cash dividends paid
(82,394)
(80,796)
(61,521)
Net cash provided by (used for) financing activities
$(8,511)
$(513,970)
$(168,761)
Effect of exchange rates on cash
(14,790)
3,363
(178)
Net increase in cash and cash equivalents
$357,281
$56,324
$(70,792)
Cash and cash equivalents - beginning of period
116,061
59,737
130,529
Cash and cash equivalents - end of period
$473,342
$116,061
$59,737
CONTACT: American Eagle Outfitters Inc. Judy Meehan, 412-432-3300
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