• Second quarter results impacted by challenging consumer backdrop
  • Expanding scope of expense and capital expenditure reductions
  • Significant progress made on right-sizing inventory
  • Pausing quarterly cash dividend to provide additional financial flexibility

American Eagle Outfitters, Inc. (NYSE: AEO) today announced financial results for the second quarter ended July 30, 2022.

“This is an unprecedented time in retail. As we cycle exceptional demand from last year, a tougher macro environment is impacting consumer spending behavior. Second quarter performance reflected these challenges, constraining revenue and amplifying margin pressure as we fully cleared through excess spring and summer goods,” commented Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Officer.

“In a shifting macro environment, we are focused on controlling the controllables. We entered the second half with inventory levels in a much better position and an assortment that is current for the Fall season. Given ongoing external uncertainties, we have taken additional actions to improve financial performance. We have made more expansive expense reductions and are pulling back further on capital expenditures. As an additional cautionary move, we have paused our quarterly cash dividend to strengthen our cash position. Our brands and products remain highly relevant and sought after by our customers. I am confident we will successfully navigate current challenges, and set AEO up for a stronger future.”

Second Quarter 2022 Results:

  • Total net revenue of $1.2 billion, flat to the second quarter of 2021. Our supply chain business, Quiet Platforms, contributed approximately 2 percentage points to revenue growth. Brand revenue declined 2%.
  • Aerie revenue of $372 million rose 11% versus second quarter 2021, reflecting a 25% 3-year revenue CAGR. Comp sales declined 6% versus second quarter 2021.
  • American Eagle revenue of $778 million declined 8% versus second quarter 2021 reflecting a -3% 3-year revenue CAGR. Comp sales declined 10% versus second quarter 2021.
  • Consolidated store revenue declined 2%. Total digital revenue declined 6%. Compared to pre-pandemic first quarter 2019, store revenue increased 1% and digital revenue increased 60%.
  • Gross profit of $370 million declined 26% from $502 million in the second quarter of 2021 and reflected a gross margin rate of 30.9% compared to 42.1% last year. Higher markdowns drove 750 basis points of the rate decline with roughly a third reflecting higher end of season selloffs to fully clear excess spring and summer goods. Higher freight costs impacted the gross margin by approximately 200 basis points and Quiet Platforms had a 60 basis point impact as we integrate and ramp up the platform. Delivery, warehousing costs and rent also increased, offset slightly by lower incentive compensation accruals.
  • Selling, general and administrative expense of $308 million increased 5%. SG&A increased 110 basis points as a rate to sales versus second quarter 2021 primarily due to increased store wages, corporate compensation, professional services and advertising, partially offset by lower incentive compensation accruals.
  • Operating income of $14 million included an approximately $30 million impact from higher end-of-season selloffs, $25 million from higher freight costs and a $9 million loss from Quiet Platforms, and compared to operating income of $168 million in the second quarter of 2021.
  • GAAP EPS of ($0.24). Adjusted EPS of $0.04 excludes $60 million of debt related charges primarily linked to the convertible notes exchange transaction and includes an approximately $1 million addback to net income of interest expense associated with the company’s convertible notes.
  • GAAP average diluted shares outstanding were 180 million. Adjusted average diluted shares outstanding were 207 million, compared to 209 million in the second quarter of 2021. Unrealized dilution associated with the company’s convertible notes was 25 million shares compared to 36 million shares in the second quarter of 2021 reflecting the timing and impact of exchange transactions completed in the quarter. The company also repurchased 17 million shares in the quarter as part of its accelerated share repurchase program. Third quarter weighted average share count is expected to be 198 million shares.

Inventory

Total ending inventory at cost increased 36% to $687 million compared to $504 million last year. From a brand standpoint, AE and Aerie each drove roughly half of the increase. Total units were up 22%, reflecting better in-stocks and earlier receipts due to improved flow across the supply chain. Store openings over the past 12 months across Aerie and Offline also drove a portion of the inventory increase. Ending second quarter inventory consisted of current BTS and fall merchandise.

The company continues to make progress adjusting inventories lower to be in line with demand trends. Third quarter ending inventory is projected to be up in the mid-single digits with fourth quarter inventory expected to be down year-on-year.

Capital Expenditures

Capital expenditures totaled $69 million in the second quarter and $128 million year-to-date. For the year, management now expects to spend approximately $250 million, compared to prior guidance of $275 million.

Shareholder Returns

In the first half of the year, the company paid two quarterly cash dividends of $0.18 per share, amounting to approximately $65 million. The company also repurchased approximately 17 million shares through an accelerated share repurchase program totalling $200 million. The total cash returned to shareholders of $265 million was the highest level since 2015. To increase financial flexibility while navigating near-term macro challenges, the company is pausing its quarterly cash dividend.

Outlook

Quarter-to-date, demand trends remain difficult, with brand revenue down in the high-single digits following exceptional growth and a record Back-to-School season last year. Assuming current trends continue, the third quarter gross-margin rate would be in the mid-30s and fourth quarter in the low-30s. This reflects higher markdowns in anticipation of a more promotional retail environment and the company’s seasonal clearance cadence which is more weighted to the fourth quarter.

Management has expanded expense cuts with a focus on store payroll, corporate expense, professional services and advertising. These actions are now expected to drive $100 million in annualized expense reductions to plan, compared to our prior target of $60 million. This translates to SG&A dollars remaining relatively flat to last year in the second half, compared to prior guidance for low-to-mid-single digit growth.

Conference Call and Supplemental Financial Information

Management will host a conference call and real time webcast today at 4:30 p.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to www.aeo-inc.com to access the webcast and audio replay. Additionally, 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® and Aerie® brands. Our purpose is to show the world that there’s REAL power in the optimism of youth. The company operates stores in the United States, Canada, Mexico, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle and Aerie merchandise also is available at more than 270 international locations operated by licensees in 25 countries. For more information, please visit www.aeo-inc.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This release and related statements by management contain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which represent our expectations or beliefs concerning future events, including third quarter and annual fiscal 2022 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on many important factors, some of which may be beyond the company’s control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," “potential,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise and even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The following factors, in addition to the risks disclosed in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 and in any other filings that we may make with the Securities and Exchange Commission in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for fiscal 2022 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this release or otherwise made by management: the negative impacts of the COVID-19 pandemic and related operational disruptions; the risk that the company’s operating, financial and capital plans may not be achieved; our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately; seasonality of our business; our inability to achieve planned store financial performance; our inability to react to raw material cost, labor and energy cost increases; our inability to gain market share in the face of declining shopping center traffic; our inability to respond to changes in e-commerce and leverage omni-channel demands; our inability to expand internationally; difficulty with our international merchandise sourcing strategies; challenges with information technology systems, including safeguarding against security breaches; and global economic, public health, social, political and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, which could have a material adverse effect on our business, results of operations and liquidity.

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

 

 

 

 

July 30, 2022

 

January 29, 2022

 

July 31, 2021 ASSETS

 

 

 

Cash and cash equivalents

$

98,214

 

$

434,770

 

$

773,994

 

Short-term investments

 

-

 

 

-

 

 

50,000

 

Merchandise inventory

 

687,046

 

 

553,458

 

 

503,507

 

Accounts receivable, net

 

220,803

 

 

286,683

 

 

155,361

 

Prepaid expenses and other

 

171,326

 

 

122,013

 

 

118,721

 

Total current assets

 

1,177,389

 

 

1,396,924

 

 

1,601,583

 

Operating lease right-of-use assets

 

1,210,285

 

 

1,193,021

 

 

1,103,247

 

Property and equipment, at cost, net of accumulated depreciation

 

775,969

 

 

728,272

 

 

641,396

 

Goodwill, net

 

271,406

 

 

271,416

 

 

16,365

 

Intangible assets, net

 

98,651

 

 

102,701

 

 

54,255

 

Non-current deferred income taxes

 

37,017

 

 

44,167

 

 

46,600

 

Other assets

 

58,500

 

 

50,142

 

 

31,576

 

Total assets

$

3,629,217

 

$

3,786,643

 

$

3,495,022

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Accounts payable

$

198,645

 

$

231,782

 

$

221,471

 

Current portion of operating lease liabilities

 

328,348

 

 

311,005

 

 

288,534

 

Unredeemed gift cards and gift certificates

 

51,111

 

 

71,365

 

 

44,095

 

Accrued compensation and payroll taxes

 

50,788

 

 

141,817

 

 

133,185

 

Accrued income taxes and other

 

16,708

 

 

16,274

 

 

25,365

 

Other current liabilities and accrued expenses

 

72,461

 

 

70,628

 

 

56,568

 

Total current liabilities

 

718,061

 

 

842,871

 

 

769,218

 

Non-current operating lease liabilities

 

1,137,656

 

 

1,154,481

 

 

1,094,386

 

Long-term debt, net

 

376,522

 

 

341,002

 

 

331,680

 

Other non-current liabilities

 

24,055

 

 

24,617

 

 

24,207

 

Total non-current liabilities

 

1,538,233

 

 

1,520,100

 

 

1,450,273

 

Commitments and contingencies

 

-

 

 

-

 

 

-

 

Preferred stock

 

-

 

 

-

 

 

-

 

Common stock

 

2,496

 

 

2,496

 

 

2,496

 

Contributed capital

 

380,959

 

 

636,355

 

 

630,506

 

Accumulated other comprehensive loss

 

(40,017

)

 

(40,845

)

 

(36,894

)

Retained earnings

 

2,000,021

 

 

2,203,772

 

 

2,058,448

 

Treasury stock

 

(970,536

)

 

(1,378,106

)

 

(1,379,025

)

Total stockholders' equity

 

1,372,923

 

 

1,423,672

 

 

1,275,531

 

Total liabilities and stockholders' equity

$

3,629,217

 

$

3,786,643

 

$

3,495,022

 

 

 

 

Current ratio

 

1.64

 

 

1.66

 

 

2.08

 

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

 

 

 

GAAP Basis

 

13 Weeks Ended

 

July 30, 2022 % ofRevenue

 

July 31, 2021 % ofRevenue Total net revenue

$

1,198,124

 

100.0

%

$

1,194,156

 

100.0

%

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

 

828,107

 

69.1

%

 

691,765

 

57.9

%

Gross profit

 

370,017

 

30.9

%

 

502,391

 

42.1

%

Selling, general and administrative expenses

 

307,832

 

25.7

%

 

293,939

 

24.6

%

Depreciation and amortization expense

 

48,171

 

4.0

%

 

40,456

 

3.4

%

Operating income

 

14,014

 

1.2

%

 

167,996

 

14.1

%

Debt related charges

 

60,066

 

5.1

%

 

-

 

0.0

%

Interest expense, net

 

3,421

 

0.3

%

 

8,921

 

0.8

%

Other income, net

 

(1,839

)

-0.2

%

 

(1,363

)

-0.1

%

(Loss) income before income taxes

 

(47,634

)

-4.0

%

 

160,438

 

13.4

%

(Benefit) provision for income taxes

 

(5,168

)

-0.5

%

 

38,927

 

3.2

%

Net (loss) income

$

(42,466

)

-3.5

%

$

121,511

 

10.2

%

 

 

Net (loss) income per basic share

$

(0.24

)

$

0.73

 

Net (loss) income per diluted share

$

(0.24

)

$

0.58

 

 

 

Weighted average common shares outstanding - basic

 

180,189

 

 

167,491

 

Weighted average common shares outstanding - diluted

 

180,189

 

 

208,933

 

 

 

 

GAAP Basis

 

26 Weeks Ended

 

July 30, 2022 % ofRevenue

 

July 31, 2021 % ofRevenue Total net revenue

$

2,253,161

 

100.0

%

$

2,228,769

 

100.0

%

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

 

1,495,118

 

66.4

%

 

1,290,188

 

57.9

%

Gross profit

 

758,043

 

33.6

%

 

938,581

 

42.1

%

Selling, general and administrative expenses

 

606,587

 

26.9

%

 

558,430

 

25.1

%

Depreciation and amortization expense

 

95,540

 

4.2

%

 

78,727

 

3.5

%

Operating income

 

55,916

 

2.5

%

 

301,424

 

13.5

%

Debt related charges

 

60,066

 

2.7

%

 

-

 

0.0

%

Interest expense, net

 

8,009

 

0.4

%

 

17,426

 

0.7

%

Other income, net

 

(6,283

)

-0.3

%

 

(3,223

)

-0.1

%

(Loss) income before income taxes

 

(5,876

)

-0.3

%

 

287,221

 

13.0

%

Provision for income taxes

 

4,850

 

0.2

%

 

70,244

 

3.2

%

Net (loss) income

$

(10,726

)

-0.5

%

$

216,977

 

9.7

%

 

 

Net (loss) income per basic share

$

(0.06

)

$

1.29

 

Net (loss) income per diluted share

$

(0.06

)

$

1.04

 

 

 

Weighted average common shares outstanding - basic

 

174,544

 

 

168,036

 

Weighted average common shares outstanding - diluted

 

174,544

 

 

208,400

 

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

 

13 Weeks Ended

July 30, 2022  Debt relatedcharges Net (loss) income Diluted earningsper common share Effective tax rate Weighted averagecommon sharesoutstanding-diluted GAAP Basis

$

60,066

 

$

(42,466

)

$

(0.24

)

10.9

%

180,189

% of Revenue

 

5.1

%

 

-3.5

%

  Less: Debt related charges (1)

 

60,066

 

 

49,126

 

 

0.28

 

Dilution(2)

26,512

Non-GAAP Basis

$

-

 

$

6,660

 

$

0.04

 

46.4

%

206,701

% of Revenue

 

0.0

%

 

0.6

%

(1) Pre-tax debt related charges of $60.1 million related primarily to the induced conversion expense on the exchange of our convertible notes, along with certain other costs related to actions we took to strengthen our capital structure. A portion of the induced conversion expense was not deductible for income tax purposes which resulted in the difference in the effective tax rate. (2) Dilution of 26.5 million shares consists of 25.3 million shares from the Company's 2025 notes and 1.2 million shares of equity awards. As GAAP results were a net (loss), these shares were not included in the diluted earnings per share denominator. AMERICAN EAGLE OUTFITTERS, INC. GAAP TO NON-GAAP RECONCILIATION (Dollars in thousands, except per share amounts) (unaudited)   13 Weeks Ended July 31, 2021 Interest expense,net Net income Diluted earningsper common share GAAP Basis

$

8,921

 

$

121,511

 

$

0.58

% of Revenue

 

0.8

%

 

10.2

%

  Less: Convertible debt (1)

 

4,956

 

 

3,754

 

 

0.02

Non-GAAP Basis

$

3,965

 

$

125,265

 

$

0.60

% of Revenue

 

0.3

%

 

10.5

%

(1) Amortization of the non-cash discount on the Company's convertible notes AMERICAN EAGLE OUTFITTERS, INC. RESULTS BY SEGMENT (Dollars in thousands) (unaudited)   American Eagle Aerie Corporate andOther(1) Total 13 weeks ended July 30, 2022 Total net revenue

$

777,828

 

$

371,683

 

$

48,613

 

$

1,198,124

 

Operating income (loss)

$

109,110

 

$

11,830

 

$

(106,926

)

$

14,014

 

% of revenue

 

14.0

%

 

3.2

%

 

1.2

%

Capital expenditures

$

18,754

 

$

30,244

 

$

20,466

 

$

69,464

 

  13 weeks ended July 31, 2021 Total net revenue

$

845,882

 

$

335,795

 

$

12,479

 

$

1,194,156

 

Operating income (loss)

$

198,896

 

$

70,646

 

$

(101,546

)

$

167,996

 

% of revenue

 

23.5

%

 

21.0

%

 

14.1

%

Capital expenditures

$

17,189

 

$

16,641

 

$

15,569

 

$

49,399

 

  American Eagle Aerie Corporate andOther(1) Total 26 Weeks Ended July 30, 2022 Total net revenue

$

1,463,407

 

$

693,395

 

$

96,359

 

$

2,253,161

 

Operating income (loss)

$

213,015

 

$

54,903

 

$

(212,002

)

$

55,916

 

% of revenue

 

14.6

%

 

7.9

%

 

2.5

%

Capital expenditures

$

34,524

 

$

61,259

 

$

32,075

 

$

127,858

 

  26 Weeks Ended July 31, 2021 Total net revenue

$

1,573,584

 

$

633,282

 

$

21,903

 

$

2,228,769

 

Operating income (loss)

$

350,128

 

$

140,624

 

$

(189,328

)

$

301,424

 

% of revenue

 

22.3

%

 

22.2

%

 

13.5

%

Capital expenditures

$

30,628

 

$

27,460

 

$

28,117

 

$

86,205

 

(1) Corporate and Other includes revenue and operating results of the Todd Snyder and Unsubscribed brands, and Quiet Platforms (net of intersegment eliminations), which have been identified as operating segments but are not material to disclose as separate reportable segments. Corporate operating costs represents certain costs that are not directly attributable to another reportable segment. AMERICAN EAGLE OUTFITTERS, INC. STORE INFORMATION (unaudited)  

Second Quarter

YTD Second Quarter

2022

2022

Consolidated stores at beginning of period

1,141

1,133

Consolidated stores opened during the period AE Brand (2)

4

11

Aerie (incl. OFFL/NE) (3)

23

35

Todd Snyder

1

1

Unsubscribed

1

1

Consolidated stores closed during the period AE Brand (2)

(9)

(18)

Aerie (incl. OFFL/NE) (3)

(1)

(3)

Total consolidated stores at end of period

1,160

1,160

  AE Brand (2)

873

Aerie (incl. OFFL/NE) (3)

276

Todd Snyder

6

Unsubscribed

5

  Total gross square footage at end of period (in '000)

7,205

7,205

  International license locations at end of period (1)

260

260

(1) International license locations (retail stores and concessions) are not included in the consolidated store data or the total gross square footage calculation. (2) AE Brand includes AE stand alone locations, AE/Aerie side-by side locations, AE/OFFL/NE side-by-side locations, and AE/Aerie/OFFL/NE side-by-side locations. (3) Aerie (incl. OFFL/NE) includes Aerie stand alone locations, OFFL/NE stand alone locations, and Aerie/OFFL/NE side-by-side locations.

 

Olivia Messina 412-432-3300 LineMedia@ae.com

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