AEO Inc. Reports Strong Fourth Quarter and Fiscal 2021 Results; Achieves Fiscal 2023 Goals for Structural Transformation Two Years Ahead of Schedule; Real Power. Real Growth. Plan Positions Company for Long-Term Revenue and Profit Growth
- Record Fiscal 2021 Revenue of $5 Billion; Up 33% versus Fiscal 2020 and up 16% versus Pre-Pandemic Fiscal 2019
- Adjusted Operating Profit Nearly Doubled versus Pre-Pandemic Fiscal 2019
- American Eagle and Aerie Expanded Customer Base, Fueling Record Revenue and Strong Profit Flow Through
March 2, 2022
PITTSBURGH — (BUSINESS WIRE) – American Eagle Outﬁtters, Inc. (NYSE: AEO) today announced ﬁnancial results for the fourth quarter and ﬁscal year ended January 29, 2022.
Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Ofﬁcer, commented, “2021 was a milestone year for AEO. We crossed $5 billion in revenue for the ﬁrst time in company history, grew our active customer ﬁle to record highs and achieved our strongest proﬁt result in well over a decade. We leveraged our healthy cash position to fuel Aerie’s growth and made key acquisitions, creating an
industry-leading supply chain platform with signiﬁcant long-term growth and proﬁt potential. I’m incredibly proud of our associates and their outstanding performance in 2021, especially amidst ongoing macro challenges.”
“We entered 2022 a stronger company, supported by our powerful brands, a proven strategy, improved discipline and strategically advantaged operations. While the macro environment remains challenging and we are taking this into account in our plans for the year, we expect our results to still reﬂect meaningful progress versus prior years, setting a new base-line for proﬁtability. As I look further out, I couldn’t be more excited as we build on our success and deliver returns to shareholders,” Mr. Schottenstein continued.
Fourth Quarter 2021 Results:
- Total net revenue increased $216 million, or 17% to $1.51 billion, compared to $1.29 billion in the fourth quarter of 2020.
- Aerie revenue of $428 million rose 27% from fourth quarter 2020 building on 25% growth last year. American Eagle revenue of $1.04 billion rose 11% versus fourth quarter 2020 following a 9% decline last year.
- Consolidated store revenue increased 32%. Total digital revenue declined -3%. Compared to the pre-pandemic fourth quarter 2019 base, store revenue increased 4% and digital revenue increased 31%.
- Gross proﬁt of $489 million rose 11% from $440 million in the fourth quarter of 2020 and reﬂected a gross margin rate of 32.4% compared to 34.0% last year. Elevated freight costs amounted to a $80 million headwind in the quarter. Approximately $60 million was air freight speciﬁc to Vietnam factory closings, which was an approximately 400 basis point headwind to the gross margin rate. This was partially offset by strong product demand, customer delivery efﬁciencies, higher full-priced sales, lower promotions and inventory optimization initiatives.
- Selling, general and administrative expense increased 60 basis points as a rate to sales versus fourth quarter 2020 primarily due to higher wages for store associates and variable selling expenses.
- Operating income of $80 million included $80 million of elevated freight costs of which approximately $60 million was air freight speciﬁc to Vietnam factory closings.. Approximately half of the freight costs related to Aerie and the balance to the American Eagle brand.
- Adjusted operating income of $92 million, also including $80 million of elevated freight costs, excluded $12 million in impairment charges and compared to adjusted operating income of $106 million in the fourth quarter of 2020.
- Average diluted shares outstanding were 203 million, compared to 197 million in the fourth quarter of 2020. The increase primarily reﬂected 32 million shares of unrealized dilution associated with the company’s convertible notes this year, compared to 26 million shares in the fourth quarter of 2020.
- EPS of $0.25. Adjusted EPS of $0.35 this quarter excludes $0.04 of store impairment, $0.04 of reorganization costs related to our EU license operation, within other non-operating expense, and $0.02 of non-cash interest expense on the company’s convertible notes.
Fiscal Year 2021 Results
- Total net revenue increased $1.3 billion, or 33% to $5.0 billion, compared to $3.8 billion in ﬁscal year 2020. Compared to the pre-pandemic ﬁscal year 2019 base, total net revenue increased 16%.
- Aerie revenue of $1.4 billion rose 39% from ﬁscal year 2020 on top of 24% growth last year. American Eagle revenue of $3.6 billion rose 30% versus ﬁscal year 2020 following a -21% decline last year. Compared to the pre-pandemic ﬁscal year 2019 base, Aerie revenue increased 72% and AE revenue increased 2%.
- Reﬂecting migration back to stores, consolidated store revenue increased 53%. Total digital revenue increased 7%. Compared to the pre-pandemic ﬁscal year 2019 base, store revenue increased 3% and digital revenue increased 46%.
- Gross proﬁt of $2.0 billion rose 73% from $1.1 billion in ﬁscal 2020 and reﬂected a gross margin rate of 39.7% compared to 30.5% last year. Gross margin expansion was driven by strong product demand, higher full-priced sales, lower promotions, rent savings, customer delivery efﬁciencies and inventory optimization initiatives. This was partially offset by elevated freight costs of approximately $90 million in the year, of which $70 million was air freight speciﬁc to Vietnam factory closings.
- Selling, general and administrative expense decreased 160 basis points as a rate to sales versus ﬁscal year 2020 due to strong revenue growth.
- Operating income of $591 million included approximately $90 million of elevated freight costs of which approximately $70 million was air freight speciﬁc to Vietnam factory closings.. Approximately half of the freight costs related to Aerie and the balance to the American Eagle brand.
- Adjusted operating income of $603 million, also including $90 million of elevated freight costs, excluded $12 million in impairment and compared to adjusted operating income of $8 million in ﬁscal year 2020.
- Average diluted shares outstanding were 207 million compared to 167 million in the fourth quarter of 2020. The increase primarily reﬂected 34 million shares of unrealized dilution associated with the company’s convertible notes this year.
- EPS of $2.03. Adjusted EPS of $2.19 this year excludes $0.04 of store impairment, $0.04 of reorganization costs related to our EU license operation, within other non-operating expense, and $0.07 of non-cash interest expense on the company’s convertible notes.
Total ending inventory at cost increased 37% to $553 million compared to $405 million last year. The increase was partially driven by elevated freight costs and product mix. Total inventory units were up 14%. Additionally, ending inventory reﬂects earlier deliveries of Spring shipments to ensure product availability during ongoing supply chain disruptions.
In the fourth quarter of 2021, capital expenditures totaled $90 million, and for the full-year totaled $234 million.
The company ended the period with total cash of $435 million following the purchase of Quiet Logistics and strategic investments in December 2021 for approximately $360 million.
The company’s fourth quarter cash dividend of $30 million was paid during the quarter.
We are extremely conﬁdent in the strength of our brands and pleased with early performance of spring collections. Based on a number of macro uncertainties, however, we are taking a cautious view of 2022. For the year, we expect operating proﬁt to be in the range of $550 to $600 million, compared to adjusted operating proﬁt of $603 million in 2021. Our 2022 guidance reﬂects structural improvements to our business and signiﬁcant growth from pre pandemic 2019, which posted adjusted operating proﬁt of $314 million.
Due largely to stimulus in the ﬁrst half of 2021, which contributed to an extraordinary Spring season, combined with continued freight pressures, we are forecasting an earnings decline in the ﬁrst half, followed by a recovery in the second half as we lap elevated air freight due to factory closures and inventory ﬂow challenges last year.
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.
This press release includes information on non-GAAP ﬁnancial measures (“non-GAAP” or “adjusted”), including consolidated adjusted operating income and earnings per share, 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. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of ﬁnancial performance prepared in accordance with GAAP. 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 consolidated ﬁnancial statements, as it helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude in such non-GAAP measures. Accordingly, we believe that adjusted operating income provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to the key ﬁnancial metrics used by our management in our ﬁnancial and operational decision-making.
These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company’s business and operations. We encourage investors and others to review our ﬁnancial information in its entirety, not to rely on any single ﬁnancial measure and to view these non-GAAP ﬁnancial measures in conjunction with the related GAAP ﬁnancial measures.
* * * *
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 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 ﬁrst 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 30, 2021 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.