- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220907006065/en/
Olivia Messina 412-432-3300 LineMedia@ae.com
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