American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.41 for the third quarter ended October 29, 2016, a 17% increase from EPS from continuing operations of $0.35 for the comparable quarter last year. The EPS figures refer to diluted earnings per share.

“I’m pleased that we continued to deliver strong results in a tough retail climate, with the third quarter reaching record sales and marking the 9th consecutive quarter of profit improvement,” said Chief Executive Officer, Jay Schottenstein. “We are sharply focused on delivering the best innovation, consistent quality and outstanding value to our customers day-in and day-out. The holiday season is off to a solid start and our brands are well-positioned. We will continue to leverage our leading capabilities to maintain momentum and build on the progress we’ve made over the past few years.”

Third Quarter 2016 Results

  • Total net revenue increased 2% to $941 million from $919 million last year.
  • Consolidated comparable sales increased 2%, following a 9% increase last year.
  • Total gross profit increased 3% to $378 million from $368 million last year. The gross margin rose 20 basis points to a rate of 40.2%. The increase was the result of an improved IMU, partially offset by a slight increase in markdowns. Buying, occupancy and warehousing costs were flat as a rate to sales.
  • Selling, general and administrative dollars were down slightly to $220 million and leveraged 60 basis points to a rate of 23.4%. Increased investments in advertising were offset by well-controlled expenses.
  • Operating income increased 8% to $118 million from $109 million last year, and the operating margin expanded by 70 basis points to 12.6% as a rate to revenue.
  • EPS of $0.41 increased 17% from EPS from continuing operations of $0.35 last year. Net income per share last year, which included a $0.03 EPS gain from discontinued operations, was $0.38.

Inventory

Total merchandise inventories at the end of the third quarter increased 3% to $493 million, with ending units down 5%. Fourth quarter 2016 ending inventory at cost is expected to be up in the high-single digits, with units expected to be down in the mid-single digits. Strong inventory management is driving units down, which is offset by an increase in the average unit cost due to product mix and continued investments in merchandise composition.

Capital Expenditures

For the quarter, capital expenditures totaled $47 million and $108 million for the year to date period. We continue to expect fiscal 2016 capital expenditures to be approximately $160 million, with nearly half related to store remodeling projects and new openings, and the remaining half supporting digital and omni-channel investments.

Cash and Investments

We ended the quarter with total cash of $292 million compared to $363 million last year. Lower cash was the result of $212 million in share buybacks in the fourth quarter last year. In addition, we returned $92 million in cash dividends and spent $152 million in capital expenditures over the past year.

Store Information

In the quarter, we opened 4 AE stores, 6 aerie stores and 1 Tailgate store. In the same period, 3 AE stores were closed. Additionally, we opened 8 licensed locations, while closing 3 licensed locations. For additional third quarter actual and fiscal 2016 projected store information, see the accompanying table.

Fourth Quarter Outlook

We are providing fourth quarter EPS guidance of $0.37 to $0.39 based on comparable sales in the range of flat to a low single digit increase. This guidance excludes potential asset impairment and restructuring charges. Last year’s fourth quarter reported EPS of $0.42 included approximately $0.07 of non-recurring items, including a gain on the sale of a distribution center and a lower tax rate related to income tax settlements, federal tax credits and tax strategies. Excluding these items, last year’s fourth quarter adjusted EPS was $0.35. See the accompanying table for the GAAP to Non-GAAP reconciliation.

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 our website.

Non-GAAP Measures

This press release includes information on non-GAAP financial measures (“non-GAAP” or “adjusted”), including earnings per share information and the consolidated results of operations excluding non-GAAP items. 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 more than 160 international locations 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 fourth 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)
 
 
October 29, January 30, October 31,
2016 2016 2015
(unaudited) (unaudited)
 
ASSETS
Cash and cash equivalents $ 291,667 $ 260,067 $ 363,116
Merchandise inventory 492,602 305,178 479,729
Accounts receivable 74,812 80,912 63,775
Prepaid expenses and other 77,768 77,218 78,091
Total current assets 936,849 723,375 984,711
Property and equipment, net 708,488 703,586 709,261
Intangible assets, net 49,993 51,832 46,756
Goodwill 17,315 17,186 12,978
Non-current deferred income taxes 49,627 64,927 82,688
Other assets 60,268 51,340 51,442
Total Assets $ 1,822,540 $ 1,612,246 $ 1,887,836
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 314,111 $ 182,789 $ 304,989
Accrued compensation and payroll taxes 56,939 79,302 66,466
Accrued rent 79,255 77,482 77,892
Accrued income and other taxes 29,373 22,223 43,721
Unredeemed gift cards and gift certificates 30,130 48,274 28,259
Current portion of deferred lease credits 12,783 12,711 13,055
Other current liabilities and accrued expenses 40,288 40,901 43,761
Total current liabilities 562,879 463,682 578,143
Deferred lease credits 47,677 50,104 53,877
Non-current accrued income taxes 4,573 4,566 4,876
Other non-current liabilities 35,451 42,518 41,667
Total non-current liabilities 87,701 97,188 100,420
Commitments and contingencies - - -
Preferred stock - - -
Common stock 2,496 2,496 2,496
Contributed capital 597,919 590,820 588,293
Accumulated other comprehensive income (31,160) (29,868) (19,797)
Retained earnings 1,744,227 1,659,267 1,602,550
Treasury stock (1,141,522) (1,171,339) (964,269)
Total stockholders' equity 1,171,960 1,051,376 1,209,273
Total Liabilities and Stockholders' Equity $ 1,822,540 $ 1,612,246 $ 1,887,836
 
Current Ratio 1.66 1.56 1.70
 
                   
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
October 29, % of October 31, % of
2016       Revenue       2015       Revenue
 
Total net revenue $ 940,609 100.0% $ 919,072 100.0%

Cost of sales, including certain buying, occupancy and warehousing expenses

562,793   59.8% 551,540   60.0%
Gross profit 377,816 40.2% 367,532 40.0%
Selling, general and administrative expenses 219,912 23.4% 220,798 24.0%
Depreciation and amortization 39,636   4.2% 37,623   4.1%
Operating income 118,268 12.6% 109,111 11.9%
Other expense, net 603   0.0% 521   0.0%
Income before income taxes 118,871 12.6% 109,632 11.9%
Provision for income taxes 43,111   4.6% 40,367   4.4%
Income from continuing operations 75,760   8.0% 69,265   7.5%
Gain from discontinued operations, net of tax -   0.0% 4,847   0.5%
Net income $ 75,760   8.0% $ 74,112   8.0%
 
Basic income per common share:
Income from continuing operations $ 0.42 $ 0.35
Gain from discontinued operations - 0.03
Net income per basic share $ 0.42 $ 0.38
 
Diluted income per common share:
Income from continuing operations $ 0.41 $ 0.35
Gain from discontinued operations - 0.03
Net income per diluted share $ 0.41 $ 0.38
 

Weighted average common shares outstanding - basic

181,819 195,215

Weighted average common shares outstanding - diluted

184,615 197,478
 
 
39 Weeks Ended
October 29, % of October 31, % of
2016       Revenue       2015       Revenue
 
Total net revenue $ 2,512,619 100.0% $ 2,416,020 100.0%

Cost of sales, including certain buying, occupancy and warehousing expenses

1,534,194   61.1% 1,501,237   62.1%
Gross profit 978,425 38.9% 914,783 37.9%
Selling, general and administrative expenses 615,503 24.5% 601,680 24.9%
Depreciation and amortization 117,319   4.6% 108,861   4.5%
Operating income 245,603 9.8% 204,242 8.5%
Other income, net 2,403   0.1% 4,254   0.1%
Income before income taxes 248,006 9.9% 208,496 8.6%
Provision for income taxes 90,179   3.6% 76,915   3.2%
Net income 157,827   6.3% 131,581   5.4%
Gain (loss) from discontinued operations, net of tax -   0.0% 4,847   0.2%
Net income $ 157,827   6.3% $ 136,428   5.6%
 
Basic income per common share:
Income from continuing operations $ 0.87 $ 0.67
Gain from discontinued operations - 0.02
Net income per basic share $ 0.87 $ 0.69
 
Diluted income per common share:
Income from continuing operations $ 0.86 $ 0.67
Gain from discontinued operations - 0.02
Net income per diluted share $ 0.86 $ 0.69
 

Weighted average common shares outstanding - basic

181,196 195,308

Weighted average common shares outstanding - diluted

183,651 197,017
 
           
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 

13 Weeks Ended

January 30, 2016

Selling, general
& administrative
expenses

  

Operating
income (loss)

Net income

Diluted
income per
common
share

GAAP Basis $ 233,020 $ 115,636 $ 81,706 $ 0.42
% of Revenue 21.1 % 10.5 % 7.4 %
Gain on Sale of Warrendale DC (1): 9,422 (9,422 ) (6,793 ) (0.03 )
Tax (2):   -     -     (7,443 )   (0.04 )
 
Non-GAAP Basis $ 242,442 $ 106,214 $ 67,470 $ 0.35
% of Revenue 21.9 % 9.6 % 6.1 %
 
(1) - $9.4 million pre-tax gain on sale of previously closed Warrendale Distribution center.
(2) - GAAP tax rate included income tax settlements, higher federal tax credits, and tax strategies. Excluding the impact of these items would have resulted in a 35.1% tax rate versus reported rate of 27.9%.
 
         
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
 
Third Quarter
Comparable Sales
2016 2015
American Eagle Outfitters, Inc. (1) 2% 9%
 
AE Total Brand (1) 0.4% 8%
aerie Total Brand (1) 21% 21%
 
YTD Third Quarter
Comparable Sales
2016 2015
American Eagle Outfitters, Inc. (1) 4% 9%
 
AE Total Brand (1) 2% 9%
aerie Total Brand (1) 25% 17%
 
(1) AEO Direct is included in consolidated and total brand comparable sales.
 
                 
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
   
Third Quarter YTD Third Quarter Fiscal 2016
2016 2016 Guidance
Consolidated stores at beginning of period 1,044 1,047 1,047
Consolidated stores opened during the period
AE Brand 4 10 10 - 15
aerie 6 7 10 - 15
Tailgate Clothing Co. 1 2 3
Consolidated stores closed during the period
AE Brand (3) (7) (15) - (20)
aerie   0       (7)       (8) - (10)
Total consolidated stores at end of period 1,052 1,052 1,047 - 1,050
 
Stores remodeled and refurbished during the period 21 58 55 - 65
Total gross square footage at end of period 6,638,008 6,638,008 Not Provided
 
International license locations at end of period (1) 163 163 178
 
(1) International license locations are not included in the consolidated store data or the total gross square footage calculation.