Business Wire | Nov 24, 2020 04:01PM EST

American Eagle Outfitters Reports Third Quarter Results

Nov. 24, 2020

PITTSBURGH--(BUSINESS WIRE)--Nov. 24, 2020--American Eagle Outfitters, Inc. (NYSE: AEO) today reported operating income of $96 million for the 13 weeks ended October 31, 2020, compared to $103 million for the 13 weeks ended November 2, 2019. Adjusted operating income of $103 million this year excluded $7 million of expenses primarily related to COVID-19 protocols.

Reported EPS of $0.32 compared to $0.48 last year. Adjusted EPS of $0.35 this year excluded $0.02 of expenses primarily related to COVID-19 protocols and $0.01 of non-cash interest expense on the company's convertible notes. The adjusted EPS decline to last year reflected a higher tax rate and the impact from higher interest expense and diluted shares outstanding related to convertible debt.

Jay Schottenstein, AEO's Executive Chairman of the Board and Chief Executive Officer commented, "The third quarter exceeded our expectations thanks to the exceptional execution, numerous accomplishments and dedication of our teams and the support of our global partners. Once again, Aerie delivered outstanding results, demonstrating the power of this incredible brand and the massive opportunity ahead. Across AE and Aerie, higher full-price selling led to strong margins, reflecting merchandise quality, inventory optimization and our enduring brands."

"We are very pleased with early holiday trends in November and the strong response to our assortments. We have significant business ahead of us and are well-positioned and ready to serve our customers. I'm also very encouraged by our overall performance this year, especially in the midst of an unprecedented crisis. Our teams really stepped up to accelerate initiatives that will enable us to emerge from 2020 as a stronger organization with momentum and tremendous growth potential."

Adjusted amounts represent Non-GAAP results, as described in the accompanying GAAP to Non-GAAP reconciliations.

Third Quarter 2020 Results

* Total net revenue for the 13 weeks ended October 31, 2020 decreased $35 million, or 3% to $1.03 billion, compared to $1.07 billion for the 13 weeks ended November 2, 2019. The decline to last year largely reflected mall traffic declines related to COVID-19, offset by strong online sales. * By brand, American Eagle revenue decreased 11%, following a 2% increase last year. Aerie's revenue increased 34%, following a 26% increase last year. * AEO's digital reported revenue increased 29%. Aerie digital revenue rose 83% and AE increased 11%. * Gross profit of $415 million compared to $407 million last year. As a rate to revenue, gross margin of 40.2% expanded from 38.2% last year. The increase in rate reflected significantly higher merchandise margins, primarily due to higher full-priced sales, lower promotions and inventory optimization initiatives. Lower product costs and improved rent expense also benefited the gross margin. This was partly offset by higher delivery and distribution center costs, due to a strong digital business and higher cost per shipment. * Selling, general and administrative expense of $273 million increased $14 million from $259 million last year, due to higher performance-based incentive compensation. * Depreciation and amortization expense of $39 million decreased $6 million from $45 million last year, due to asset impairments taken in recent quarters, as well as lower capital spending. * Operating income of $96 million compared to $103 million last year. Adjusted operating income of $103 million this year excluded $7 million of expenses primarily related to COVID-19 protocols. * Net interest expense of $8 million compared to net interest income of $1 million last year. Adjusted interest expense of $4 million excluded $4 million of non-cash interest expense on the company's convertible notes. The increase in adjusted net interest expense reflected cash interest expense associated with convertible notes and lower interest income this year. * The effective tax rate of 35% compared to 24% last year, primarily due to a change to our expected full year tax rate and the impact of the CARES Act. * Average shares outstanding of 184 million compared to 169 million last year. The increase reflected 16 million shares of unrealized dilution associated with the company's convertible notes. * EPS of $0.32 compared to EPS of $0.48 last year. Adjusted EPS of $0.35 excluded $0.02 of expenses primarily related to COVID-19 protocols and $0.01 of non-cash interest on the company's convertible notes. The adjusted EPS decline to last year reflected a higher tax rate and the impact from higher interest expense and diluted shares outstanding related to convertible debt.

COVID-19 Expenses and Restructuring Charges

In the third quarter of 2020, the company incurred incremental expenses primarily related to COVID-19 protocols of approximately $7 million pre-tax, or $0.02 per share after-tax.

Inventory

Total ending inventory at cost decreased $87 million or 13% to $560 million. The decline reflected AE's inventory optimization initiatives aimed at streamlining assortments and better aligning to sales plans, partly offset by higher inventory at Aerie to support strong demand.

Capital Expenditures

In the third quarter of 2020, capital expenditures totaled $31 million. On a year-to-date basis, capital expenditures were $93 million. For fiscal 2020, the company continues to expect capital expenditures to be in the range of $100 to $125 million, prioritizing strategic customer-facing and supply chain investments. This compares to $210 million for the full-year fiscal 2019.

Cash Flow and Balance Sheet

The company generated positive operating cash flow during the third quarter and ended the period with total cash and short-term investments of $692 million, an increase from $265 million last year. The quarter-end cash balance included $406 million in proceeds from the April 2020 convertible notes offering. During the third quarter, the company repaid the remaining $200 million balance on its revolving credit facility.

Shareholder Returns

As previously announced, the company suspended its dividend in June 2020 and at this point does not anticipate declaring a dividend for the rest of this year. The company's first quarter cash dividend was deferred until 2021 and will be payable on April 23, 2021, to stockholders of record at the close of business on April 9, 2021.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at 4:15 p.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8563 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.

Investor Meeting

The company will host a virtual Investor Meeting on Thursday, January 21, 2021. Additional details about the event will be included in a subsequent announcement.

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. Management believes that this non-GAAP information is useful for an alternate presentation of the company's 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(r) and Aerie(r) 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 200 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 fourth quarter 2020 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 the company's Annual Report on Form 10-K for the fiscal year ended February 1, 2020 and in any subsequently-filed Quarterly Reports on Form 10-Q filed 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 the fourth quarter 2020 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 impact that the COVID-19 pandemic, the 2020 U.S. Presidential election and disruption related to social unrest will have on our operations and financial results, which is difficult to accurately predict; 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 changes in global economic 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) October 31, February 1, November 2,

2020 2020 2019

ASSETSCash and cash equivalents $ 692,356 $ 361,930 $ 214,514

Short-term investments - 55,000 50,000

Merchandise inventory 559,961 446,278 647,329

Accounts receivable 124,560 119,064 112,304

Prepaid expenses and other 130,909 65,658 54,427

Total current assets 1,507,786 1,047,930 1,078,574

Property and equipment, net 650,397 735,120 764,350

Operating lease right-of-use 1,243,311 1,418,916 1,486,133 assetsIntangible assets, including 50,864 53,004 55,466 goodwillNon-current deferred income 12,774 22,724 16,833 taxesOther assets 33,083 50,985 50,896

Total Assets $ 3,498,215 $ 3,328,679 $ 3,452,252

LIABILITIES AND STOCKHOLDERS'EQUITYAccounts payable $ 304,552 $ 285,746 $ 366,676

Current portion of operating 346,321 299,161 292,312 lease liabilitiesAccrued income and other 15,503 9,514 18,421 taxesAccrued compensation and 117,736 43,537 43,473 payroll taxesDividends payable 22,843 - -

Unredeemed gift cards and 39,794 56,974 32,411 gift certificatesOther current liabilities and 47,587 56,824 56,859 accrued expensesTotal current liabilities 894,336 751,756 810,152

Long-term debt, net 321,081 - -

Non-current operating lease 1,196,755 1,301,735 1,353,819 liabilitiesOther non-current liabilities 17,846 27,335 27,896

Total non-current liabilities 1,535,682 1,329,070 1,381,715

Commitments and contingencies - - -

Preferred stock - - -

Common stock 2,496 2,496 2,496

Contributed capital 655,891 577,856 574,391

Accumulated other (44,673 ) (33,168 ) (35,861 )comprehensive lossRetained earnings 1,865,370 2,108,292 2,127,312

Treasury stock (1,410,887 ) (1,407,623 ) (1,407,953 )

Total stockholders' equity 1,068,197 1,247,853 1,260,385

Total Liabilities and $ 3,498,215 $ 3,328,679 $ 3,452,252 Stockholders' Equity Current Ratio 1.69 1.39 1.33

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

13 Weeks Ended

October 31,

% of

November 2,

% of

2020

Revenue

2019

Revenue

Total net revenue$1,031,617

100.0

%

$1,066,412

100.0

%

Cost of sales, including certain buying,occupancy and warehousing expenses616,840

59.8

%

659,350

61.8

%

Gross profit414,777

40.2

%

407,062

38.2

%

Selling, general and administrative expenses273,297

26.5

%

258,973

24.3

%

Impairment, restructuring, and COVID-19 related charges6,955

0.6

%

-

0.0

%

Depreciation and amortization expense38,974

3.8

%

44,987

4.2

%

Operating income95,551

9.3

%

103,102

9.7

%

Interest expense (income), net7,924

0.8

%

(1,238

)

-0.1

%

Other income, net(2,223

)

-0.2

%

(1,339

)

-0.1

%

Income before income taxes89,850

8.7

%

105,679

9.9

%

Provision for income taxes31,742

3.1

%

24,918

2.3

%

Net income$58,108

5.6

%

$80,761

7.6

%

Net income per basic share$0.35

$0.48

Net income per diluted share$0.32

$0.48

Weighted average common sharesoutstanding - basic166,185

167,912

Weighted average common sharesoutstanding - diluted184,397

168,693

GAAP Basis

39 Weeks Ended

October 31,

% of

November 2,

% of

2020

Revenue

2019

Revenue

Total net revenue$2,466,819

100.0

%

$2,993,581

100.0

%

Cost of sales, including certain buying,occupancy and warehousing expenses1,758,537

71.3

%

1,879,027

62.8

%

Gross profit708,282

28.7

%

1,114,554

37.2

%

Selling, general and administrative expenses685,206

27.8

%

742,764

24.8

%

Impairment, restructuring, and COVID-19 related charges177,186

7.1

%

4,272

0.1

%

Depreciation and amortization120,818

4.9

%

134,648

4.5

%

Operating (loss) income(274,928

)

-11.1

%

232,870

7.8

%

Interest expense (income), net16,617

0.7

%

(4,797

)

-0.2

%

Other income, net(793

)

0.0

%

(5,952

)

-0.1

%

(Loss) income before income taxes(290,752

)

-11.8

%

243,619

8.1

%

(Benefit) provision for income taxes(77,943

)

-3.2

%

57,125

1.9

%

Net (loss) income$(212,809

)

-8.6

%

$186,494

6.2

%

Net (loss) income per basic share$(1.28

)

$1.09

Net (loss) income per diluted share$(1.28

)

$1.09

Weighted average common sharesoutstanding - basic166,385

170,463

Weighted average common sharesoutstanding - diluted166,385

171,697

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

13 Weeks Ended

October 31, % of November 2, % of

2020 Revenue 2019 Revenue

Total net revenue $ 1,031,617 100.0 % $ 1,066,412 100.0 %

Cost of sales, includingcertain buying,occupancy and warehousing 616,840 59.8 % 659,350 61.8 %expensesGross profit 414,777 40.2 % 407,062 38.2 %

Selling, general and 273,297 26.5 % 258,973 24.3 %administrative expensesImpairment, restructuring, 6,955 0.6 % - 0.0 %and COVID-19 relatedchargesDepreciation and 38,974 3.8 % 44,987 4.2 %amortization expenseOperating income 95,551 9.3 % 103,102 9.7 %

Interest expense (income), 7,924 0.8 % (1,238 ) -0.1 %netOther income, net (2,223 ) -0.2 % (1,339 ) -0.1 %

Income before income taxes 89,850 8.7 % 105,679 9.9 %

Provision for income taxes 31,742 3.1 % 24,918 2.3 %

Net income $ 58,108 5.6 % $ 80,761 7.6 %

Net income per basic share $ 0.35 $ 0.48

Net income per diluted $ 0.32 $ 0.48 share Weighted average commonsharesoutstanding - basic 166,185 167,912

Weighted average commonsharesoutstanding - diluted 184,397 168,693

GAAP Basis

39 Weeks Ended

October 31, % of November 2, % of

2020 Revenue 2019 Revenue

Total net revenue $ 2,466,819 100.0 % $ 2,993,581 100.0 %

Cost of sales, includingcertain buying,occupancy and warehousing 1,758,537 71.3 % 1,879,027 62.8 %expensesGross profit 708,282 28.7 % 1,114,554 37.2 %

Selling, general and 685,206 27.8 % 742,764 24.8 %administrative expensesImpairment, restructuring, 177,186 7.1 % 4,272 0.1 %and COVID-19 relatedchargesDepreciation and 120,818 4.9 % 134,648 4.5 %amortizationOperating (loss) income (274,928 ) -11.1 % 232,870 7.8 %

Interest expense (income), 16,617 0.7 % (4,797 ) -0.2 %netOther income, net (793 ) 0.0 % (5,952 ) -0.1 %

(Loss) income before income (290,752 ) -11.8 % 243,619 8.1 %taxes(Benefit) provision for (77,943 ) -3.2 % 57,125 1.9 %income taxesNet (loss) income $ (212,809 ) -8.6 % $ 186,494 6.2 %

Net (loss) income per basic $ (1.28 ) $ 1.09 shareNet (loss) income per $ (1.28 ) $ 1.09 diluted share Weighted average commonsharesoutstanding - basic 166,385 170,463

Weighted average commonsharesoutstanding - diluted 166,385 171,697

AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATION(Dollars in thousands, except per share amounts)(unaudited)13 Weeks Ended

October 31, 2020

Operating

Income

Interest

Expense, net

Diluted

Earnings per

Common Share

GAAP Basis$ 95,551

$ 7,924.00

$ 0.32

% of Revenue9.3

%

0.8

%

Incremental COVID-19 related expenses and restructuring(1):6,955

-

$ 0.02

Convertible debt(2):-

(4,113

)

$ 0.01

Non-GAAP Basis$ 102,506

$ 3,811

$ 0.35

% of Revenue9.9

%

0.4

%

AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATION(Dollars in thousands, except per share amounts)(unaudited) 13 Weeks Ended

October 31, 2020

Diluted Interest Operating Earnings Expense, per Income net Common Share

$ $ $ 0.32GAAP Basis 95,551 7,924.00

% of Revenue 9.3 % 0.8 %

Incremental COVID-19 related expenses and 6,955 - $ 0.02restructuring^(1): Convertible debt^(2): - (4,113 ) $ 0.01

$ $ 3,811 $ 0.35Non-GAAP Basis 102,506

% of Revenue 9.9 % 0.4 %

(1)

$7.0 million Incremental COVID-19 related expenses and restructuring charges:

- $6.0 million of incremental COVID-19 related expenses consisting of personal protective equipment and supplies for our associates and customers

- $1.0 million of corporate severance charges

(2)

Amortization of the non-cash discount on the Company's convertible notes

(1) $7.0 million Incremental COVID-19 related expenses and restructuring charges:

- $6.0 million of incremental COVID-19 related expenses consisting of personal protective equipment and supplies for our associates and customers

- $1.0 million of corporate severance charges

(2) Amortization of the non-cash discount on the Company's convertible notes

AMERICAN EAGLE OUTFITTERS, INC.Earnings Before Interest, Taxes, Depreciation and AmortizationGAAP TO NON-GAAP RECONCILIATION(Dollars in thousands)(unaudited)13 Weeks Ended

October 31,

November 2,

2020

2019

Net Income$ 58,108

$ 80,761

Add: Provision for income taxes31,742

24,918

Add: Depreciation and amortization38,974

44,987

Add: Interest expense (income), net7,924

(1,238

)

EBITDA$ 136,748

$ 149,428

Add: Incremental COVID-19 related expenses and restructuring(1)6,955

-

Adjusted EBITDA$ 143,703

$ 149,428

AMERICAN EAGLE OUTFITTERS, INC.Earnings Before Interest, Taxes, Depreciation and AmortizationGAAP TO NON-GAAP RECONCILIATION(Dollars in thousands)(unaudited) 13 Weeks Ended

October November 31, 2,

2020 2019

$ 58,108 $ Net Income 80,761

Add: Provision for income taxes 31,742 24,918

Add: Depreciation and amortization 38,974 44,987

Add: Interest expense (income), net 7,924 (1,238 )

$ 136,748 $ EBITDA 149,428

Add: Incremental COVID-19 related expenses and 6,955 - restructuring^(1) $ 143,703 $ Adjusted EBITDA 149,428

(1)

$7.0 million Incremental COVID-19 related expenses and restructuring charges:

- $6.0 million of incremental COVID-19 related expenses consisting of personal protective equipment and supplies for our associates and customers

- $1.0 million of corporate severance charges

(1) $7.0 million Incremental COVID-19 related expenses and restructuring charges:

- $6.0 million of incremental COVID-19 related expenses consisting of personal protective equipment and supplies for our associates and customers

- $1.0 million of corporate severance charges

AMERICAN EAGLE OUTFITTERS, INC.STORE INFORMATION(unaudited)Third Quarter

YTD Third Quarter

2020

2020

Consolidated stores at beginning of period1,098

1,095

Consolidated stores opened during the periodAE Brand3

6

Aerie stand-alone(3)7

22

Todd Snyder0

1

Consolidated stores closed during the periodAE Brand(3)

(15)

Aerie stand-alone0

(3)

Tailgate Clothing Co.0

(1)

Total consolidated stores at end of period1,105

1,105

AE Brand931

Aerie stand-alone(3)167

Aerie side-by-side(2)177

Tailgate Clothing Co.4

Todd Snyder3

Stores remodeled and refurbished during the period8

12

Total gross square footage at end of period (in '000)6,858

6,858

International license locations at end of period (1)225

225

Aerie OpeningsAerie stand-alone(3)7

22

Total Aerie side-by-side stores (2)2

5

Total Aerie Openings9

27

AMERICAN EAGLE OUTFITTERS, INC.STORE INFORMATION(unaudited) Third YTD Third Quarter Quarter

2020 2020

Consolidated stores at beginning of period 1,098 1,095

Consolidated stores opened during the period

AE Brand 3 6

Aerie stand-alone^(3) 7 22

Todd Snyder 0 1

Consolidated stores closed during the period

AE Brand (3) (15)

Aerie stand-alone 0 (3)

Tailgate Clothing Co. 0 (1)

Total consolidated stores at end of period 1,105 1,105

AE Brand 931

Aerie stand-alone^(3) 167

Aerie side-by-side^(2) 177

Tailgate Clothing Co. 4

Todd Snyder 3



Stores remodeled and refurbished during the 8 12periodTotal gross square footage at end of period (in 6,858 6,858'000)

International license locations at end of 225 225period ^(1)

Aerie Openings

Aerie stand-alone^(3) 7 22

Total Aerie side-by-side stores ^(2) 2 5

Total Aerie Openings 9 27

(1)

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

(2)

Aerie side-by-side stores are included in the AE Brand store count as they are considered part of the AE Brand store to which they are attached.

(3)

Aerie stand alone stores include an Offline store opening in Q3 and an Unsubscribed store opening in Q2.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201124005895/en/

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