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American Eagle Outfitters Delivers Record Second Quarter Revenue and Strong EPS Growth

AEO | August 17, 2016

American Eagle Outfitters Delivers Record Second Quarter Revenue and Strong EPS Growth

Comparable Sales Increase 3% and EPS Rises 35% to $0.23

American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.23 for the second quarter ended July 30, 2016, a 35% increase from EPS of $0.17 for the comparable quarter last year. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, Chief Executive Officer commented, “For the past few years, we have worked hard to lift our brands through merchandise leadership and innovation, strengthen our customer focus and invest in technology. Our efforts around these priorities are clearly paying off, as again evidenced by our strong earnings growth in the second quarter. As we enter the fall season, our execution, focus and market opportunities are greater than ever. In today’s evolving retail landscape, we are committed to offering the very best product and customer experience to position AEO’s brands as leaders in a new generation of successful retail brands.”

Second Quarter 2016 Results

Total net revenue increased 3% to $823 million from $797 million last year.
Consolidated comparable sales increased 3%, following an 11% increase last year.
Gross profit increased 8% to $307 million and as a rate to revenue, expanded 160 basis points to 37.3%. The increase was driven by improved merchandise margin due to lower cost and higher realized selling prices. This was partially offset by increased delivery expense related to growth in digital sales.
Selling, general and administrative expense of $200 million increased 2% compared to last year and improved 20 basis points as a rate to revenue to 24.3%. Investments in brand advertising and variable selling expense were partially offset by expense management efforts.
Operating income increased 29% to $69 million from $53 million last year, and the operating margin expanded by 160 basis points to 8.3% as a rate to revenue.
Other expense was comprised of $3 million related to currency loss on cash held in Canadian dollars. This compares to other expense of $2 million last year.
EPS of $0.23 increased 35% from EPS of $0.17 last year.

Inventory

Total merchandise inventories at the end of the second quarter increased 3% to $422 million, due in part to accelerated receipts to support our marketing programs. Strong inventory management remains a key priority. Third quarter 2016 ending inventory at cost is expected to be up in the low-single digits.

Capital Expenditures

For the quarter, capital expenditures totaled $36 million and $61 million for the year to date period. The company now expects fiscal 2016 capital expenditures to be approximately $160 million, on the low end of the prior guidance of $160 to $170 million.

Cash and Investments

The company ended the quarter with total cash of $248 million compared to $327 million last year. Over the past year, we invested $227 million in share buybacks, returned $94 million in dividends and invested $135 million in capital expenditures, resulting in a lower cash balance.

Store Information

In the quarter, the company opened 5 stores and closed 7 stores. Internationally, the company opened 13 licensed stores. For additional second quarter actual and fiscal 2016 projected store information, see the accompanying table.

Third Quarter Outlook

Based on an anticipated low single digit increase in comparable sales, management expects third quarter 2016 EPS to be approximately $0.40 to $0.41. This guidance excludes potential asset impairment and restructuring charges, and compares to EPS of $0.35 last year.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at 9:00 am 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.

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 more than 150 international stores operated by licensees. 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 2016 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors beyond the company's control. Such factors include, but are not limited to the risk that the company’s operating, financial and capital plans may not be achieved and the risks described in the Risk Factor Section of the company's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or implied will not be realized.


AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


			July 30,			January 30,			August 1,
			2016			2016			2015
			(unaudited)						(unaudited)

ASSETS
	Cash and cash equivalents	$	247,934		$	260,067		$	327,290
	Merchandise inventory		422,151			305,178			408,541
	Accounts receivable		65,282			80,912			50,693
	Prepaid expenses and other		90,852			77,218			72,106
	Total current assets		826,219			723,375			858,630
	Property and equipment, net		700,270			703,586			715,650
	Intangible assets, net		50,761			51,832			47,154
	Goodwill		17,399			17,186			13,006
	Non-current deferred income taxes		44,370			64,927			74,140
	Other assets		54,169			51,340			51,629
	Total Assets	$	1,693,188		$	1,612,246		$	1,760,209

LIABILITIES AND STOCKHOLDERS' EQUITY
	Accounts payable	$	286,691		$	182,789		$	263,145
	Accrued compensation and payroll taxes		35,908			79,302			37,851
	Accrued rent		78,621			77,482			77,127
	Accrued income and other taxes		10,250			22,223			14,654
	Unredeemed gift cards and gift certificates		31,532			48,274			30,502
	Current portion of deferred lease credits		12,810			12,711			13,240
	Other current liabilities and accrued expenses		42,719			40,901			55,625
	Total current liabilities		498,531			463,682			492,144
	Deferred lease credits		51,100			50,104			56,421
	Non-current accrued income taxes		4,795			4,566			5,441
	Other non-current liabilities		38,365			42,518			40,525
	Total non-current liabilities		94,260			97,188			102,387
	Commitments and contingencies		-			-			-
	Preferred stock		-			-			-
	Common stock		2,496			2,496			2,496
	Contributed capital		591,532			590,820			577,146
	Accumulated other comprehensive income		(29,356	)		(29,868	)		(18,378	)
	Retained earnings		1,693,371			1,659,267			1,553,380
	Treasury stock		(1,157,646	)		(1,171,339	)		(948,966	)
	Total stockholders' equity		1,100,397			1,051,376			1,165,678
	Total Liabilities and Stockholders' Equity	$	1,693,188		$	1,612,246		$	1,760,209

	Current Ratio		1.66			1.56			1.74


AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)


		13 Weeks Ended
		July 30,		% of			August 1,		% of
		2016		Revenue			2015		Revenue

Total net revenue	$	822,594		100.0	%	$	797,428		100.0	%
Cost of sales, including certain buying,
occupancy and warehousing expenses		515,499		62.7	%		512,389		64.3	%
Gross profit		307,095		37.3	%		285,039		35.7	%
Selling, general and administrative expenses		199,536		24.3	%		195,791		24.5	%
Depreciation and amortization		38,900		4.7	%		36,109		4.5	%
Operating income		68,659		8.3	%		53,139		6.7	%
Other expense, net		(3,134	)	-0.3	%		(2,237	)	-0.3	%
Income before income taxes		65,525		8.0	%		50,902		6.4	%
Provision for income taxes		23,933		2.9	%		17,637		2.2	%
Net income		41,592		5.1	%		33,265		4.2	%

Net income per basic share	$	0.23				$	0.17
Net income per diluted share	$	0.23				$	0.17

Weighted average common shares
outstanding - basic		181,048					195,508
Weighted average common shares
outstanding - diluted		183,413					196,885


		26 Weeks Ended
		July 30,		% of			August 1,		% of
		2016		Revenue			2015		Revenue

Total net revenue	$	1,572,010		100.0	%	$	1,496,948		100.0	%
Cost of sales, including certain buying,
occupancy and warehousing expenses		971,463		61.8	%		949,697		63.4	%
Gross profit		600,547		38.2	%		547,251		36.6	%
Selling, general and administrative expenses		395,529		25.2	%		380,882		25.4	%
Depreciation and amortization		77,683		4.9	%		71,236		4.8	%
Operating income		127,335		8.1	%		95,133		6.4	%
Other income, net		1,801		0.1	%		3,733		0.2	%
Income before income taxes		129,136		8.2	%		98,866		6.6	%
Provision for income taxes		47,068		3.0	%		36,548		2.4	%
Net income		82,068		5.2	%		62,318		4.2	%

Net income per basic share	$	0.45				$	0.32
Net income per diluted share	$	0.45				$	0.32

Weighted average common shares
outstanding - basic		180,872					195,241
Weighted average common shares
outstanding - diluted		182,922					196,532


AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)

	Second Quarter
	Comparable Sales
	2016		2015
American Eagle Outfitters, Inc. ⁽¹⁾	3	%	11	%

AE Total Brand ⁽¹⁾	1	%	10	%
aerie Total Brand ⁽¹⁾	24	%	18	%

	YTD Second Quarter
	Comparable Sales
	2016		2015
American Eagle Outfitters, Inc. ⁽¹⁾	5	%	9	%

AE Total Brand ⁽¹⁾	3	%	9	%
aerie Total Brand ⁽¹⁾	28	%	15	%

(1) AEO Direct is included in consolidated and total brand comparable sales.


AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)

			Second Quarter	YTD Second Quarter	Fiscal 2016
			2016	2016	Guidance
Consolidated stores at beginning of period			1,046	1,047	1,047
	Consolidated stores opened during the period
		AE Brand	4	6	15 - 20
		aerie	0	1	10 - 15
		Tailgate Clothing Co.	1	1	3
	Consolidated stores closed during the period
		AE Brand	(3)	(4)	(20) - (25)
		aerie	(4)	(7)	(10)
Total consolidated stores at end of period			1,044	1,044	1,045 - 1,050

Stores remodeled and refurbished during the period			25	37	55 - 65
Total gross square footage at end of period			6,598,956	6,598,956	Not Provided

International license locations at end of period ⁽¹⁾			158	158	181

(1) International license locations are not included in the consolidated store data or the total gross square footage calculation.