PITTSBURGH–(BUSINESS WIRE)– American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.30 for the fourth quarter and $1.16 for the year ended January 28, 2017. Excluding asset impairment, restructuring and related charges of $0.09 per diluted share, the company’s adjusted EPS were $0.39 and $1.25 for the fourth quarter and full year, respectively.
Last year, the company reported EPS of $0.42 for the fourth quarter and EPS from continuing operations of $1.09 for the year ended January 30, 2016, which included 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 adjusted fourth quarter EPS was $0.35 and annual EPS from continuing operations was $1.01. The EPS figures refer to diluted earnings per share.
Jay Schottenstein, Chief Executive Officer commented, “I’m extremely proud that our strategic priorities centered on product innovation and customer focus have delivered results and greater consistency throughout 2016, despite a highly competitive and challenging retail landscape. The American Eagle brand continued its strong leadership in jeans and bottoms and has experienced accelerated growth in women’s apparel. Aerie posted double-digit sales growth throughout 2016, fueled by superior merchandise, a strengthening customer base and growing brand awareness. We’ve made great progress, yet we have much more opportunity across the marketplace. I’m confident that the strength of our brands and focused priorities will enable us to deliver long-term returns to our shareholders.”
Fourth Quarter 2016 Results
The following discussion is based on Non-GAAP results, as presented in the accompanying GAAP to Non-GAAP reconciliation.
- Total net revenue decreased 1% to $1.10 billion from $1.11 billion last year.
- Consolidated comparable sales were up slightly, following a 4% increase last year.
- Gross profit increased slightly to $389 million from $388 million. The gross margin rate increased 30 basis points to 35.4% of revenue compared to 35.1% last year. A favorable merchandise margin reflecting improved IMU was partially offset by higher delivery costs related to growth in the direct business.
- Selling, general and administrative expense of $242 million was flat compared to last year, with higher advertising expense offset by lower incentive compensation. As a rate to revenue, SG&A deleveraged 20 basis points to 22.1%.
- Operating income of $107 million compared to $106 million last year, improving 20 basis points to 9.8% as a rate to revenue.
- Adjusted EPS of $0.39 increased 11% compared to adjusted EPS of $0.35 last year.
Fiscal Year 2016 Results
The following discussion is based on Non-GAAP results from continuing operations, as presented in the accompanying GAAP to Non-GAAP reconciliation.
- Total net revenue increased 2% to $3.61 billion from $3.52 billion last year.
- Consolidated comparable sales increased 3%, following a 7% increase last year.
- Gross profit increased 5% to $1.37 billion and leveraged 90 basis points to 37.9% as a rate to revenue. The improvement in the gross margin reflected an increase in the merchandise margin based on improved IMU.
- Selling, general and administrative expense of $858 million was up 2% compared to $844 million last year, due to higher advertising expense offset by lower incentive compensation. As a rate to revenue, SG&A leveraged 20 basis points to 23.8%.
- Operating income increased 14% to $353 million. The operating margin increased 100 basis points to 9.8%.
- Adjusted EPS from continuing operations of $1.25 increased 24% compared to adjusted EPS of $1.01 last year.
Asset Impairment and Restructuring Charges
In the fourth quarter, the company had asset impairment and restructuring charges totaling $21 million related to its owned and operated stores in the UK, China and Hong Kong. The company is exploring an initiative to convert those markets to licensed partnerships. Related to these initiatives, the company expects to incur additional restructuring charges in fiscal 2017. The timing and magnitude of charges is dependent on a number of factors, including negotiating third-party agreements, adherence to notification requirements and local laws.
Inventory
Total ending inventories at cost increased 17% to $358 million. The average unit cost was up 13% and units increased 4% compared to last year. In-transit inventory was significantly higher due to acceleration of receipts. On-hand inventories were up 6% to last year. The inventory composition reflected an investment in AE bottoms to support better in-stocks and an increase in aerie inventory to support strong demand and new store growth.
Capital Expenditures
In 2016, capital expenditures totaled $161 million. For fiscal 2017, the company expects capital expenditures to be in the range of $160 to $170 million, with roughly half related to store remodeling projects and new openings, and the balance to support the digital business, omni-channel tools and general corporate maintenance.
Cash
The company ended the year with total cash of $379 million. As a result of strong free cash flow, cash increased $119 million compared to the end of 2015. During 2016, we returned $91 million in cash dividends to our shareholders.
Store Information
In the quarter, the company opened 2 AE stores and closed 11 AE stores. There were 6 Aerie stand alone stores opened and 1 Aerie stand alone store closed. Additionally, the company opened 1 Tailgate store and 1 Todd Snyder store. Internationally, the company opened 15 licensed stores and closed 2 licensed stores during the quarter. The company ended the year with 943 AE stores, which included 88 Aerie side-by-side locations. Additionally, the company had 102 Aerie stand alone stores and 176 licensed stores at year end. For additional fourth quarter 2016 actual and fiscal 2017 projected store information, see the accompanying table.
First Quarter Outlook
Based on anticipated comparable store sales in the range of flat to a low single digit decline, management expects first quarter 2017 EPS to be approximately $0.15 to $0.17. This guidance excludes potential asset impairment and restructuring charges, and compares to EPS of $0.22 last year.
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 http://investors.ae.com to access the webcast and audio replay. Also, 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. 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 170 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 first quarter 2017 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.
