(Source: Business Wire)
American Eagle Outfitters, Inc. (NYSE: AEO) today announced that earnings for the first quarter ended May 2, 2009 were $0.11 per diluted share, which includes a tax benefit of $0.04 per diluted share and a realized loss related to the sale of investment securities of $0.01 per diluted share. First quarter EPS compares to $0.21 per diluted share for the same period last year. The company's first quarter EPS guidance was a range of $0.06 to $0.07.
"While we are never satisfied with an earnings decline, there are early indications that the business is stabilizing. For example, we are seeing improvements in the AE brand, particularly in denim and other key fashion categories such as dresses and accessories," said Jim O'Donnell, chief executive officer, American Eagle Outfitters, Inc. "There are also critical areas of our business that still need considerable work in order to drive top line sales and profitability. They include further progress in assortments across AE categories and strengthening our merchandise margin. We are aggressively focused on these issues and expect to be better positioned as we move ahead."
First Quarter Results
Total sales for the quarter ended May 2, 2009 decreased 4% to $612.0 million, compared to $640.3 million for the quarter ended May 3, 2008. Comparable store sales decreased 10% for the quarter, compared to a 6% decrease last year.
Gross profit for the first quarter was $220.9 million, or 36.1% as a rate to sales, compared to $263.7 million, or 41.2% as a rate to sales last year. The merchandise margin declined by 260 basis points, due to a lower initial markup and higher markdowns compared to the first quarter last year. As a rate to sales, buying, occupancy and warehousing costs increased by 250 basis points due to the de-leveraging of rent related to new stores and the decline in first quarter comparable store sales.
Selling, general and administrative expense of $158.7 million decreased 6% from $169.6 million last year. As a rate to sales, SG&A decreased to 25.9% from 26.5% last year, primarily due to expense controls and the timing of initiatives.
Operating income for the quarter was $27.3 million, compared to $64.5 million last year. The operating margin was 4.5% compared to 10.1% last year.
Other expense of $2.3 million compared to other income of $6.5 million last year. The decline was the result of a lower rate of return on investments. In addition, the company realized a $2.7 million loss related to the sale of investment securities.
Net income was $22.0 million compared to $43.9 million in the first quarter of last year.
AEO Direct
AEO Direct, which includes ae.com, aerie.com, 77kids.com and martinandosa.com, is an important area of growth and profitability. In the first quarter, sales increased 26%, driven by increased traffic and conversion.
Real Estate
In the first quarter, the company opened five AE stores, closed six stores and completed the renovation of nine stores. The company also opened 13 aerie stores during the quarter. For the year, the company is planning approximately 9 new and 25 to 30 remodeled AE stores, and 21 new aerie stores for total square footage growth of 3%.
International
Additionally, AEO signed an agreement with leading international retail operator, M.H. Alshaya Co. to open a series of American Eagle Outfitters stores throughout the Middle East over the next several years. The first store is slated to open in early 2010. M.H. Alshaya has significant experience and a proven track record of presenting the world's most prominent brands in this important region.
Capital Expenditures
Capital expenditures were $35 million compared to $74 million in the first quarter of last year. The company continues to expect 2009 capital expenditures to be in the range of $110 to $135 million. Of this amount, approximately one half relates to new and remodeled stores, including a flagship store in Times Square. The remaining half relates to the completion of the current distribution center and headquarters projects, as well as information technology initiatives.
Inventory
Total merchandise inventories at the end of the first quarter were $279 million, compared to $262 million last year, a 6% increase. The increase was the result of new stores and the growth in AEO Direct. On a cost per foot basis, inventory decreased 4%. Looking ahead, for the AE brand, second quarter average weekly inventory on a cost-per-square-foot basis is planned down in the high single digits, while aerie is planned to increase in the double digits, related to expanded category offerings. Consolidated second quarter total average weekly inventory is planned down in the low single digits on a cost-per-square-foot basis.
Cash and Cash Equivalents, Short-term and Long-term Investments
The company ended the first quarter with total cash and cash equivalents, short-term and long-term investments of $682 million. This included $264 million of investments in auction rate securities, net of impairment.
"AEO remains in excellent financial condition, with a healthy balance sheet and a significant cash position," said Joan Hilson, chief financial officer, American Eagle Outfitters, Inc. "We will continue our conservative approach to inventories and expense management, with the goal of achieving stronger operating margins. At the same time, we are selectively investing in long-term initiatives designed to capitalize on a future economic recovery and growth opportunities within the business."
Second Quarter 2009 Guidance
Based on management's current view of sales trends, the company expects second quarter earnings to be in a range of $0.12 to $0.15 per share, compared to earnings of $0.29 per share last year. This guidance excludes the possibility of additional impairments or losses related to investment securities.
Conference Call Information
At 9:00 a.m. Eastern Time on May 27, 2009 the company's management team will host a conference call to review the financial results. To listen to the call, please dial 877-407-0789 or internationally dial 201-689-8562. The conference call will be simultaneously broadcast over the Internet at www.ae.com. A replay will be available beginning May 27, 2009 at12:00 p.m. Eastern Time. To listen to the replay, dial 877-660-6853, or internationally dial 201-612-7415, reference account 3055 and confirmation code 320676. An audio replay of the conference call will also be available at www.ae.com.
American Eagle Outfitters, Inc., through its subsidiaries, ("AEO, Inc.") offers high-quality, on-trend clothing, accessories and personal care products at affordable prices. The American Eagle Outfitters® brand targets 15 to 25 year old girls and guys, with 953 stores in the U.S. and Canada and online at www.ae.com. aerie® by american eagle offers Dormwear® and intimates collections for the AE® girl, with 131 standalone stores in the U.S. and Canada and online at www.aerie.com. MARTIN + OSA® provides Refined Casual fashions for 28 to 40 year old men and women at its 28 stores and online at www.martinandosa.com. The latest brand, 77kids by american eagle, is available online only at www.77kids.com. 77kids offers "kid cool," durable clothing and accessories for kids ages two to 10. AE.COM®, the online home of the brands of AEO, Inc. ships to more than 60 countries worldwide.
"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, specifically regarding second quarter sales and earnings. 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 second quarter sales and earnings expectations 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.
