Business Wire | Sep 9, 2020 08:01AM EDT

American Eagle Outfitters Reports Second Quarter Results

Sep. 09, 2020

PITTSBURGH--(BUSINESS WIRE)--Sep. 09, 2020--American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS of ($0.08) for the 13 weeks ended August 1, 2020. This compared to $0.38 for the 13 weeks ended August 3, 2019. Adjusted EPS of ($0.03) this year excluded $0.05 of COVID-19 related expenses and restructuring charges and compared to adjusted EPS of $0.39 last year, which excluded $0.01 of restructuring costs.

Jay Schottenstein, AEO's Chairman and Chief Executive Officer commented, "In the midst of an unprecedented crisis, we delivered a significant improvement from the first quarter throughout our business - a true testament to the agility, talent and commitment of our team. Aerie was simply outstanding, fueled by strong demand, with revenue rising 32% and record margins, demonstrating the power of the brand and signaling the vast opportunity ahead. Across brands, digital sales accelerated and we successfully reopened stores during the quarter."

"Throughout this event, we operated with strong disciplines, reduced expenses, cut inventories and carefully managed liquidity. We controlled what we could, and generated positive free cash flow, strengthening our balance sheet. Inventories are in good shape and I believe we are very well-positioned for the second half of the year. We will remain focused on managing through the near term and preparing for a new future as we accelerate strategies to transform our business and emerge with strength."

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

Second Quarter 2020 Results

* Total net revenue for the 13 weeks ended August 1, 2020 decreased $157 million, or 15% to $884 million, compared to $1.04 billion for the 13 weeks ended August 3, 2019. The decline to last year largely reflected store closures during the second quarter. Revenue in the year-ago period also included $40 million from Japanese license royalties. * By brand, American Eagle revenue decreased 26%, following a 1% decline last year. Aerie's revenue increased 32%, following a 22% increase last year. * The company's second quarter digital demand, as measured by ordered sales, increased 48%. Aerie digital demand rose 113% and AE increased 21%. AEO's digital reported revenue increased 74%, reflecting the strong demand and a timing benefit related to the reversal of temporary fulfillment delays from the first quarter. Aerie digital revenue rose 142% and AE increased 47%. * Gross profit of $265 million compared to $383 million last year. The year-ago gross profit included an approximately $38 million benefit from Japanese license royalties. The decline to last year also reflected a reduction in store revenue and higher delivery and distribution center costs, primarily due to a strong digital business and higher cost per shipment. This was partly offset by lower rent expense and an increase in mark-up. As a rate to revenue, gross margin of 30.0% compared to 36.7% last year. * Selling, general and administrative expense of $224 million decreased $29 million from $253 million last year, primarily reflecting lower operating expenses due to store closures and disciplined cost controls. * 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 loss of $12 million compared to income of $82 million last year. Adjusted operating income of $2 million this year excluded $15 million of COVID-19 related expenses and restructuring charges and compared to adjusted operating income of $85 million last year, which excluded $3 million of restructuring charges. GAAP and adjusted operating income in the year-ago period included a $34 million benefit from Japanese license royalties. * Net interest expense of $9 million compared to net interest income of $2 million last year, reflecting interest expense associated with convertible notes and borrowings under the revolving credit facility this year. * EPS of ($0.08) compared to EPS of $0.38 last year. Adjusted EPS of ($0.03) excluded $0.05 of COVID-19 related expenses and restructuring costs and compared to adjusted EPS of $0.39 last year, which excluded $0.01 of restructuring costs.

Restructuring and COVID-19 Related Charges

In the second quarter of 2020, the company incurred incremental COVID-19 expenses and restructuring charges of approximately $15 million pre-tax, or $0.05 per share after-tax. In the second quarter of 2019, the company incurred restructuring charges of $3 million pre-tax, or $0.01 per share after-tax.

Inventory

Total ending inventory at cost decreased $114 million or 21% to $421 million. AE brand inventory was significantly lower, as inventories were cut due to COVID-19-related store closures and inventory optimization strategies. Aerie inventory increased to support strong demand. In the fall, the company plans to continue inventory optimization initiatives to streamline assortments, provide greater alignment of inventory to sales plans and better utilize supply chain strengths to chase product demand.

Capital Expenditures

In the second quarter of 2020, capital expenditures totaled $27 million. On a year-to-date basis, capital expenditures were $61 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 $173 million in operating cash flow during the second quarter and ended the period with total cash and short-term investments of $899 million, an increase from $317 million last year. The quarter-end cash balance included $406 million in proceeds from the April 2020 convertible notes offering and $200 million in outstanding borrowings from the company's revolving credit facility. Due to the strong cash flow, the company repaid $130 million in outstanding borrowings from its revolving credit facility during the second quarter. Subsequent to quarter-end, the company repaid the facility's remaining $200 million outstanding balance.

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 9:00 a.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.

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 third 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 third 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)

August 1, February 1, August 3,

2020 2020 2019

ASSETSCash and cash equivalents $ 898,787 $ 361,930 $ 267,166

Short-term investments - 55,000 50,000

Merchandise inventory 421,196 446,278 534,762

Accounts receivable 107,243 119,064 98,604

Prepaid expenses and other 155,141 65,658 69,541

Total current assets 1,582,367 1,047,930 1,020,073

Property and equipment, net 659,351 735,120 754,031

Operating lease right-of-use 1,271,491 1,418,916 1,462,544 assetsIntangible assets, including 51,432 53,004 56,326 goodwillNon-current deferred income 30,224 22,724 16,759 taxesOther assets 33,111 50,985 49,426

Total Assets $ 3,627,976 $ 3,328,679 $ 3,359,159

LIABILITIES AND STOCKHOLDERS'EQUITYAccounts payable $ 295,296 $ 285,746 $ 316,995

Current portion of operating 348,921 299,161 279,207 lease liabilitiesAccrued income and other 12,783 9,514 17,754 taxesAccrued compensation and 66,131 43,537 54,683 payroll taxesDividends payable 22,837 - -

Unredeemed gift cards and 43,165 56,974 34,742 gift certificatesOther current liabilities and 51,281 56,824 60,265 accrued expensesTotal current liabilities 840,414 751,756 763,646

Long-term debt, net 516,953 - -

Non-current operating lease 1,253,105 1,301,735 1,338,634 liabilitiesOther non-current liabilities 19,604 27,335 28,302

Total non-current liabilities 1,789,662 1,329,070 1,366,936

Commitments and contingencies - - -

Preferred stock - - -

Common stock 2,496 2,496 2,496

Contributed capital 647,284 577,856 568,413

Accumulated other (47,991 ) (33,168 ) (36,630 )comprehensive incomeRetained earnings 1,807,687 2,108,292 2,070,077

Treasury stock (1,411,576 ) (1,407,623 ) (1,375,779 )

Total stockholders' equity 997,900 1,247,853 1,228,577

Total Liabilities and $ 3,627,976 $ 3,328,679 $ 3,359,159 Stockholders' Equity Current Ratio 1.88 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

August 1, % of August 3, % of

2020 Revenue 2019 Revenue

Total net revenue $ 883,510 100.0 % $ 1,040,879 100.0 %

Cost of sales, including 618,311 70.0 % 658,308 63.3 %certain buying, occupancy andwarehousing expensesGross profit 265,199 30.0 % 382,571 36.7 %

Selling, general and 223,711 25.3 % 253,051 24.3 %administrative expensesImpairment, restructuring, and 14,611 1.7 % 2,728 0.3 %COVID-19 related chargesDepreciation and amortization 39,114 4.4 % 44,870 4.3 %expenseOperating (loss) income (12,237 ) -1.4 % 81,922 7.8 %

Other (expense) income, net (6,993 ) -0.8 % 3,990 0.4 %

(Loss) income before income (19,230 ) -2.2 % 85,912 8.2 %taxes(Benefit) provision for income (5,478 ) -0.6 % 20,931 2.0 %taxesNet (loss) income $ (13,752 ) -1.6 % $ 64,981 6.2 %

Net (loss) income per basic $ (0.08 ) $ 0.38shareNet (loss) income per diluted $ (0.08 ) $ 0.38share Weighted average common sharesoutstanding - basic 166,315 170,756

Weighted average common sharesoutstanding - diluted 166,315 171,781

GAAP Basis

26 Weeks Ended

August 1, % of August 3, % of

2020 Revenue 2019 Revenue

Total net revenue $ 1,435,202 100.0 % $ 1,927,169 100.0 %

Cost of sales, including 1,141,697 79.5 % 1,219,677 63.3 %certain buying, occupancy andwarehousing expensesGross profit 293,505 20.5 % 707,492 36.7 %

Selling, general and 411,908 28.7 % 483,791 25.1 %administrative expensesImpairment, restructuring, and 170,231 11.9 % 4,272 0.2 %COVID-19 related chargesDepreciation and amortization 81,844 5.7 % 89,661 4.7 %

Operating (loss) income (370,478 ) -25.8 % 129,768 6.7 %

Other (expense) income, net (10,122 ) -0.7 % 8,172 0.4 %

(Loss) income before income (380,600 ) -26.5 % 137,940 7.1 %taxes(Benefit) provision for income (109,685 ) -7.6 % 32,206 1.7 %taxesNet (loss) income $ (270,915 ) -18.9 % $ 105,734 5.4 %

Net (loss) income per basic $ (1.63 ) $ 0.61shareNet (loss) income per diluted $ (1.63 ) $ 0.61share Weighted average common sharesoutstanding - basic 166,461 172,291

Weighted average common sharesoutstanding - diluted 166,461 173,701

AMERICAN EAGLE OUTFITTERS, INC.

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share amounts)

(unaudited)

13 Weeks Ended

August 1, 2020

Operating Diluted (Loss) (Loss) per Income Common Share

GAAP Basis $ (12,237 ) $ (0.08 )

% of Revenue -1.4 %

Add: Incremental COVID-19 related expenses and 14,611 0.05 restructuring^(1):

Non-GAAP Basis $ 2,374 $ (0.03 )

% of Revenue 0.3 %

(1) $14.6 million Incremental COVID-19 related expenses and restructuringcharges:- $13.9 million of incremental COVID-19 related expenses consisting ofpersonal protective equipment and supplies for our associates and customers- $0.7 million of corporate severance charges

AMERICAN EAGLE OUTFITTERS, INC.GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share amounts)

(unaudited)

13 Weeks Ended

August 3, 2019

Operating Income Diluted Earnings per Common Share

GAAP Basis $ 81,922 $ 0.38

% of Revenue 7.8 %

Add: Restructuring charges^(1): 2,728 0.01

Non-GAAP Basis $ 84,650 $ 0.39

% of Revenue 8.1 %

(1) - $2.7 million for pre-tax corporate restructuring charges, primarilyseverance

AMERICAN EAGLE OUTFITTERS, INC.Earnings Before Interest and Taxes

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands)

(unaudited)

13 Weeks Ended

August 1, August 3,

2020 2019

Net (Loss) Income $ (13,752 ) $ 64,981

Add: (Benefit) provision for income taxes (5,478 ) 20,931

Add: Depreciation and amortization 39,114 44,870

Add: Interest expense (income), net 8,547 (1,605 )

EBITDA $ 28,431 $ 129,177

Add: Incremental COVID-19 related expenses and 14,611 2,728 restructuring^(1) (2)

Adjusted EBITDA $ 43,042 $ 131,905

(1) $14.6 million Incremental COVID-19 related expenses and restructuringcharges:

- $13.9 million of incremental COVID-19 related expenses consisting of personalprotective equipment and supplies for our associates and customers

- $0.7 million of corporate severance charges

(2) - $2.7 million for pre-tax corporate restructuring charges, primarilyseverance

AMERICAN EAGLE OUTFITTERS, INC.STORE INFORMATION

(unaudited)

Second YTD Second Quarter Quarter

2020 2020

Consolidated stores at beginning of period 1,093 1,095

Consolidated stores opened during the period

AE Brand 1 3

Aerie stand-alone 14 15

Todd Snyder 1 1

Consolidated stores closed during the period

AE Brand (8) (12)

Aerie stand-alone (2) (3)

Tailgate Clothing Co. (1) (1)

Total consolidated stores at end of period 1,098 1,098

AE Brand 931

Aerie stand-alone 160

Aerie side-by-side^(2) 175

Tailgate Clothing Co. 4

Todd Snyder 3



Stores remodeled and refurbished during the 3 4periodTotal gross square footage at end of period 6,828 6,828(in '000)

International license locations at end of 220 220period ^(1)

Aerie Openings

Aerie stand-alone 14 15

Total Aerie side-by-side stores ^(2) 2 3

Total Aerie Openings 16 18

(1) International license locations are not included in the consolidated storedata or the total gross square footage calculation.(2) Aerie side-by-side stores are included in the AE Brand store count as theyare considered part of the AE Brand store to which they are attached.

AMERICAN EAGLE OUTFITTERS, INC.

GAAP TO NON-GAAP RECONCILIATION

DEMAND SALES & TOTAL REVENUE BY BRAND

Q2 2020 vs. Q2 2019

(unaudited)

Aerie Brand AE Brand Total^(4)

% Change % Change % Change

Digital:Digital Demand (Ordered sales)^(1) 113% 21% 48%

Total Net Revenue^(1) 142% 47% 74%

Total^(2):Total Demand^(3) 25% -29% -19%

Total Net Revenue 32% -26% -15%



(1) Digital Demand Sales represent sales orders placed through our e-commercechannels during the period. Total Net Revenue represents revenue recognized in accordance with theCompany's revenue recognition policies, which reflect revenue upon the customerreceipt date of the merchandise. (2) Total includes Direct, Stores, and International (3) Total Demand represents Digital demand sales plus total store revenue (4) Total includes Aerie Brand, AE Brand, and Todd Snyder

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