American Eagle Outfitters Reports Record Second Quarter Sales and Strong EPS Growth

American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.17 for the second quarter ended August 1, 2015, a significant increase from EPS of $0.03 for the comparable quarter last year, and above EPS guidance of $0.11 to $0.14. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, Interim CEO commented, “I’m pleased to report another strong quarter, and to see positive momentum continue. The team is delivering exceptional execution, and our customers have taken notice of improvements to our merchandise and overall customer experience. Both American Eagle and Aerie delivered strong sales and earnings growth across channels. We have two of the best-positioned brands in the marketplace today, and we are well poised to capitalize on our strengths. We have vast opportunity for ongoing improvements and will strive to deliver continued growth and returns to our shareholders.”

Second Quarter 2015 Results

• Total net revenue increased 12% to a record $797 million from $711 million last year.
• Consolidated comparable sales increased 11%, compared to a 7% decrease last year.
• Gross profit increased 20% to $285 million and the gross margin rate rose 230 basis points to 35.7%. Buying, occupancy and warehousing costs leveraged 130 basis points, primarily due to strong sales, combined with our fleet rationalization. Reduced markdowns drove another 100 basis points of margin expansion.
• Selling, general and administrative expense of $196 million increased 3% from $190 million last year. As a rate to revenue, SG&A leveraged 220 basis points to 24.5% compared to 26.7% last year. Expense reduction initiatives partially offset increases in incentive and variable selling expense, driven by strong sales performance.
• Operating income increased to $53 million from $12 million last year, and the operating margin expanded 500 basis points to 6.7% as a rate to revenue.
• Other expense of $2.2 million is primarily comprised of currency losses related to cash held in Canadian dollars.
• The tax rate of 34.7% includes a benefit of approximately $2.5 million, primarily due to an income tax settlement.
• EPS of $0.17 increased significantly from EPS of $0.03 last year.

Inventory
Total merchandise inventories at the end of the second quarter increased 4% to $409 million compared to $393 million last year. At cost per foot, inventory increased 5%, consistent with our guidance and below our sales growth rate. Third quarter 2015 ending inventory at cost is expected to be approximately flat.

Capital Expenditures
In the second quarter, capital expenditures totaled $37 million. For fiscal 2015, the company continues to expect capital expenditures of approximately $150 million, which includes the chain-wide roll-out of the point of sale system, supporting technologies and the completion of our new fulfillment center, as well as new and remodeled store investments.

Store Information
In the quarter, the company opened six new stores, including four factory stores, and closed three locations, including two AE and one aerie store. Seven international licensed stores opened during the quarter, including the first stores in South Korea and Singapore. For additional second quarter 2015 actual and fiscal 2015 projected store information, see the accompanying table.

Cash and Investments
The company ended the quarter with total cash and investments of $327 million, compared to $263 million last year.

Third Quarter Outlook
Based on an anticipated mid single-digit increase in comparable sales, management expects third quarter 2015 EPS to be approximately $0.28 to $0.31. This guidance excludes potential asset impairment and restructuring charges, and compares to adjusted EPS of $0.22 last year.

Conference Call and Supplemental Financial Information
Today, management will host a conference call and real time webcast at 11:00 a.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to http://investors.ae.com to access the webcast and audio replay. Also, a financial results presentation is posted on the company's website.

Non-GAAP Measures
This press release includes information on non-GAAP financial measures (“non-GAAP” or “adjusted”), including earnings per share information. These financial measures are not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and are not necessarily comparable to similar measures presented by other companies. The company believes that this non-GAAP information is useful as an additional means for investors to evaluate the company’s operating performance, when reviewed in conjunction with the company’s GAAP financial statements. These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company’s business and operations.

About American Eagle Outfitters, Inc.
American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle Outfitters® and Aerie® brands. The company operates more than 1,000 stores in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 116 international stores operated by licensees in 19 countries. For more information, please visit www.ae.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements, which represent our expectations or beliefs concerning future events, including third quarter 2015 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors beyond the company's control. Such factors include, but are not limited to the risk that the company’s operating, financial and capital plans may not be achieved and the risks described in the Risk Factor Section of the company's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or implied will not be realized.

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