AEO Reports Record Fourth Quarter and Annual Revenue; Fourth Quarter EPS of $0.43; Annual EPS of $1.47 +30%

Fourth Quarter Comparable Sales Rose 6%, Marking 16 Straight Quarters of
Positive Comp Growth

American Eagle Fourth Quarter Comps Rose 3%, Aerie Increased 23%

PITTSBURGH–(BUSINESS WIRE)–American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS of $0.43
for the 13 weeks ended February 2, 2019. This compares to $0.52 for the
14 weeks ended February 3, 2018, which included the benefit of an extra
week of sales due to the retail calendar. Adjusted EPS of $0.44 last
year excluded $0.08 of tax benefit discussed below. No adjustments were
recorded in Q4 of fiscal 2018.

For the 52 weeks ended February 2, 2019, the company reported EPS of
$1.47. This compares to $1.13 for the 53 weeks ended February 3, 2018,
which included the benefit of an extra week of sales due to the retail
calendar. Adjusted EPS of $1.48 excludes $0.01 of restructuring charges
and compares to adjusted EPS of $1.16 last year, which excluded $0.08 of
tax benefit related to the U.S. tax legislation as discussed below and
$0.11 of restructuring and related charges. The EPS figures refer to
diluted earnings per share.

“Strong execution by the teams drove a record fourth quarter and fiscal
2018, as we reached a milestone of $4 billion in annual revenue with
increased operating profit,” commented Jay Schottenstein, AEO’s Chairman
and Chief Executive Officer. “American Eagle and Aerie continued to
deliver consistent performance by combining product innovation and great
merchandise with an improved customer experience across channels. As we
head into 2019, we will continue to leverage the strength of our brands,
selling channels and the team’s commitment to continually raising the
bar for our customers. I’m extremely proud of our results over the past
several years. The strength of our balance sheet and free cash flow
enables us to make important investments in our business to fuel market
share gains, future growth and returns to our shareholders.”

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

Fourth Quarter 2018 Results

  • Total net revenue for the 13 weeks ended February 2, 2019 increased
    $15 million, or 1% to $1.24 billion compared to $1.23 billion for the
    14 weeks ended February 3, 2018. Total revenue was adversely affected
    by approximately $60 million of lost revenue due to operating one less
    week in 2018, which is consistent with the retail calendar.
    Consolidated comparable sales increased 6% over the comparable period
    ending February 3, 2018, following an 8% increase last year. This
    marked the 16th consecutive quarter of positive comparable
    sales.
  • By brand, American Eagle comparable sales increased 3%, building on a
    5% increase last year. Aerie’s comparable sales increased 23%,
    following a 34% increase last year, marking the 17th
    consecutive quarter of double-digit comp growth.
  • Gross profit increased $5 million or 1% to $431 million from gross
    profit of $425 million last year. The gross margin rate was flat at a
    rate of 34.6%. Lower markdowns were offset by higher distribution and
    compensation expense.
  • Selling, general and administrative expense of $288 million increased
    9% from $264 million last year. As a rate to revenue, SG&A rose 160
    basis points to 23.1%. The dollar increase primarily supported key
    investments in our brands, the customer experience and our associates
    with increases in store payroll, higher wages and incentives, and
    incremental advertising expense.
  • Depreciation and amortization expense decreased 5% to $41 million,
    improving 30 basis points to 3.3% as a rate to revenue.
  • Operating income of $101 million compared to $116 million last year.
    As a rate to revenue, operating income decreased to 8.2% from 9.4%
    last year. One less week in the fourth quarter adversely affected
    operating income by approximately $18 million.
  • Other income of $2.3 million consisted primarily of interest income.
  • The effective tax rate of 26.5% compared to 21.7% (34.2% on an
    adjusted basis) last year.
  • EPS of $0.43 compared to EPS of $0.52 last year, or adjusted EPS of
    $0.44, which included $0.08 of tax benefits last year related to U.S.
    tax legislation enacted in December 2017.

Fiscal Year 2018 Results

  • Total net revenue for the 52 weeks ended February 2, 2019, increased
    $240 million, or 6% to a record $4.0 billion compared to $3.8 billion
    for the 53 weeks ended February 3, 2018. Total revenue was adversely
    affected by approximately $40 million of lost revenue due to operating
    one less week in 2018, which is consistent with the retail calendar.
  • Consolidated comparable sales increased 8% over the comparable period
    ending February 3, 2018, following a 4% increase last year.
  • By brand, American Eagle comparable sales increased 5%, building on a
    2% increase last year. Aerie’s comparable sales increased 29%,
    following a 27% increase in 2017.
  • Gross profit increased $117 million, or 8% to $1.5 billion. The gross
    margin rate increased 80 basis points to 36.9% of revenue compared to
    36.1% last year. An improved markdown rate and rent leverage were
    partially offset by increased delivery costs due to a strong digital
    business and higher compensation.
  • Selling, general and administrative expense of $981 million increased
    11% from $880 million last year. As a rate to revenue, SG&A rose 110
    basis points to 24.3%. The dollar increase primarily supported key
    investments in the customer experience and our associates with
    increases in store payroll, higher wages and incentives, and
    incremental advertising expense.
  • Depreciation and amortization expense increased slightly to $168
    million to $167 million last year, improving 20 basis points to 4.2%
    as a rate to revenue.
  • Operating income of $337 million increased from $303 million last
    year. Adjusted operating income of $339 million increased 4% from $325
    million last year. As a rate to revenue, adjusted operating income
    decreased to 8.4% from 8.6%. Adjusted figures exclude restructuring
    and related charges of approximately $2 million and $22 million in
    fiscal 2018 and 2017, respectively. One less week in the year
    adversely affected operating profit by approximately $12 million.
  • The effective tax rate decreased to 24.1% compared to 28.9% (34.4% on
    an adjusted basis) last year.
  • EPS of $1.47 compared to EPS of $1.13 last year. Adjusted EPS of $1.48
    excludes $0.01 of restructuring charges and increased 28% compared to
    adjusted EPS of $1.16 last year, which excluded $0.08 of tax benefit
    related to the U.S. tax legislation and $0.11 of restructuring and
    related charges.

Inventory

Total ending inventory at cost increased 7% to $424 million, consistent
with our expectations.

Capital Expenditures

In 2018 capital expenditures totaled $189 million. For fiscal 2019, the
company expects capital expenditures to be in the range of $200 to $215
million, with more than half related to store remodeling projects and
new openings, and the balance to support the digital business,
omni-channel tools and general corporate maintenance.

Shareholder Returns, Cash and Investments

During 2018, the company returned $242 million to shareholders through
cash dividends and share repurchases. We paid dividends of $97 million
and repurchased 7.3 million shares for $144 million. The company ended
the year with total cash and short-term investments of $425 million, an
increase of $12 million compared to the end of 2017.

Store Information

We ended the year with a total of 1,055 stores. During the year, the
company opened 16 AE stores and closed 15, ending the year with 934 AE
stores. Included in the AE store count are 147 Aerie side-by-side
locations, of which 29 opened in 2018. Additionally, the company opened
12 Aerie stand alone stores and closed 6, ending the year with 115 Aerie
stand alone locations and 262 total Aerie stores. . Internationally, the
company ended the year with 231 licensed stores. For additional
information, see accompanying table.

Income Taxes

U.S. tax legislation was enacted on December 22, 2017, referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The legislation contained
several key tax provisions and, as required, the company included
reasonable estimates of the income tax effects of the changes in tax law
in its fourth quarter and fiscal 2017 financial results. As a result,
the company realized $0.08 per share of tax benefit, which is excluded
from adjusted results. Specifically, these one-time items relate to:

  • Benefit from a lower blended U.S. corporate tax rate in fiscal 2017.
  • A net benefit from the re-measurement of deferred tax balances and the
    one-time transition tax on undistributed earnings of foreign
    subsidiaries.
  • A benefit from the acceleration of certain deductions into fiscal 2017.

During the fourth quarter of 2018, the company finalized its accounting
for the one-time mandatory transition tax on undistributed foreign
earnings and the re-measuring of deferred tax balances due to the Tax
Act in accordance within the one-year measurement period allowed by the
SEC.

First Quarter 2019 Outlook

Based on an anticipated comparable sales increase in the low single
digits, management expects first quarter 2019 EPS to be approximately
$0.19 to $0.21. This guidance excludes potential asset impairment and
restructuring charges. Last year’s first quarter reported EPS of $0.22
included $0.01 of restructuring charges. Excluding these items last
year’s adjusted EPS was $0.23. See the accompanying table for the GAAP
to Non-GAAP reconciliation.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at
4:00 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.

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® and Aerie® brands. The company operates more than 1,000 stores in
the United States, Canada, Mexico, China and Hong Kong, and ships to 81
countries worldwide through its websites. American Eagle Outfitters and
Aerie merchandise also is available at more than 200 international
locations operated by licensees in 24 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 2019 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 2, 2019 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 first quarter 2019 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 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)
 
February 2, February 3,
2019 2018
 
ASSETS
Cash and cash equivalents $ 333,330 $ 413,613
Short-term investments 92,135
Merchandise inventory 424,404 398,213
Accounts receivable, net 93,477 78,304
Prepaid expenses and other 102,907   78,400  
Total current assets 1,046,253   968,530  
Property and equipment, net 742,149 724,239
Intangible assets, net 43,268 46,666
Goodwill 14,899 15,070
Non-current deferred income taxes 14,062 9,344
Other assets 42,747   52,464  
Total Assets $ 1,903,378   $ 1,816,313  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 240,671 $ 236,703
Accrued compensation and payroll taxes 82,173 54,324
Accrued rent 89,076 83,312
Accrued income and other taxes 20,064 12,781
Unredeemed gift cards and gift certificates 53,997 52,347
Current portion of deferred lease credits 9,974 11,203
Other current liabilities and accrued expenses 46,690   34,551  
Total current liabilities 542,645   485,221  
Deferred lease credits 47,377 47,977
Non-current accrued income taxes 3,547 7,269
Other non-current liabilities 22,254   29,055  
Total non-current liabilities 73,178   84,301  
Commitments and contingencies
Preferred stock
Common stock 2,496 2,496
Contributed capital 574,929 593,770
Accumulated other comprehensive income (loss) (34,832 ) (30,795 )
Retained earnings 2,054,654 1,883,592
Treasury stock, at cost (1,309,692 ) (1,202,272 )
Total stockholders’ equity 1,287,555   1,246,791  

Total Liabilities and Stockholders’ Equity

$ 1,903,378   $ 1,816,313  
 
Current Ratio 1.93 2.00
 
 
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
         
GAAP Basis
13 Weeks Ended 14 Weeks Ended
February 2, % of February 3, % of
2019   Revenue 2018   Revenue
 
Total net revenue $ 1,244,199 100.0 % $ 1,228,723 100.0 %

Cost of sales, including certain buying, occupancy and warehousing
expenses

813,592   65.4 % 803,603     65.4 %
Gross profit 430,607 34.6 % 425,120 34.6 %
Selling, general and administrative expenses 287,966 23.1 % 263,843 21.5 %
Restructuring charges 0.0 % 1,723 0.1 %
Depreciation and amortization 41,241   3.3 % 43,543     3.6 %
Operating income 101,400 8.2 % 116,011 9.4 %
Other income (expense), net 2,279   0.1 % 3,959     0.3 %
Income before income taxes 103,679 8.3 % 119,970 9.7 %
Provision for income taxes 27,511   2.2 % 26,013     2.1 %
Net income $ 76,168   6.1 % $ 93,957     7.6 %
 
Net income per basic share $ 0.44 $ 0.53
Net income per diluted share $ 0.43 $ 0.52
 

Weighted average common shares outstanding – basic

174,742 177,492

Weighted average common shares outstanding – diluted

176,254 180,189
 
GAAP Basis
52 Weeks Ended 53 Weeks Ended
February 2, % of February 3, % of
2019   Revenue 2018   Revenue
 
Total net revenue $ 4,035,720 100.0 % $ 3,795,549 100.0 %

Cost of sales, including certain buying, occupancy and warehousing
expenses

2,548,082   63.1 % 2,425,044     63.9 %
Gross profit 1,487,638 36.9 % 1,370,505 36.1 %
Selling, general and administrative expenses 980,610 24.3 % 879,685 23.2 %
Restructuring charges 1,568 0.0 % 20,611 0.5 %
Depreciation and amortization 168,331   4.2 % 167,421     4.4 %
Operating income 337,129 8.4 % 302,788 8.0 %
Other income (expense), net 7,971   0.2 % (15,615 )   -0.4 %
Income before income taxes 345,100 8.6 % 287,173 7.6 %
Provision for income taxes 83,198   2.1 % 83,010     2.2 %
Net income $ 261,902   6.5 % $ 204,163     5.4 %
 
Net income per basic share $ 1.48 $ 1.15
Net income per diluted share $ 1.47 $ 1.13
 

Weighted average common shares outstanding – basic

176,476 177,938

Weighted average common shares outstanding – diluted

178,035 180,156
 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
     

 

14 Weeks Ended

 

February 3, 2018

 

 

Diluted Earnings

Operating Income

Net Income

per Common
    Share
GAAP Basis $ 116,011 $ 93,957 $ 0.52
% of Revenue 9.4 % 7.6 %
 
Add: Restructuring Related Charges(1): 1,723 1,073 0.00
Less: Joint Business Venture Charges(2): (839 ) (0.00 )
Less: U.S. Tax Reform Impact (3):       (14,948 )   (0.08 )
1,723 (14,714 ) (0.08 )
 
Non-GAAP Basis $ 117,734 $ 79,243 $ 0.44
% of Revenue 9.6 % 6.4 %

(1)

 

 

$1.7 million pre-tax charges, for corporate and international
restructuring.

 

(2)

$1.3 million pre-tax benefit related to the exit of a joint
business venture, recorded within Other income, net.

 
(3)

$14.9 million of after-tax benefit resulting from the estimated
impact of U.S. tax legislation enacted on December 22, 2017,
referred to as the Tax Cuts and Jobs Act and related actions,
specifically:

The benefit of a lower blended U.S. corporate tax rate in fiscal
2017

The net benefit from the re-measurement of deferred tax balances
and the one-time transition tax on undistributed earnings of
foreign subsidiaries

The acceleration of certain deductions into fiscal 2017

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

 

52 Weeks Ended

 

February 2, 2019

 

 

 

  Diluted Earnings

Operating Income

Net Income

per Common
    Share
GAAP Basis $ 337,129 $ 261,902 $ 1.47
% of Revenue 8.4 % 6.5 %
 
Add: Restructuring Related Charges(1):   1,568     1,188     0.01
 
Non-GAAP Basis $ 338,698 $ 263,090 $ 1.48
% of Revenue 8.4 % 6.5 %

(1) – $1.6 million for pre-tax corporate charges, primarily
consisting of corporate severance charges

 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
         
53 Weeks Ended
February 3, 2018
Diluted Earnings
Gross Profit Operating Income Other (Expense) Net Income per Common
    Income   Share
GAAP Basis $ 1,370,505 $ 302,788 $ (15,615 ) $ 204,163 $ 1.13
% of Revenue 36.1 % 8.0 % -0.4 % 5.4 %
 
Add: Restructuring Related Charges(1): 1,669 22,280 14,034 0.08
Add: Joint Business Venture Charges(2): 7,964 5,031 0.03
Less: U.S. Tax Reform Impact (3):               (14,948 )   (0.08 )
1,669 22,280 7,964 4,117 0.03
 
Non-GAAP Basis $ 1,372,174 $ 325,068 $ (7,651 ) $ 208,280 $ 1.16
% of Revenue 36.2 % 8.6 % -0.2 % 5.5 %
(1)     $22.3 million pre-tax restructuring charges, consisting of:

Inventory charges related to the restructuring of the United
Kingdom, Hong Kong, and China ($1.7 million), recorded as a
reduction of Gross Profit

Lease buyouts, store closure charges and severance and related
charges ($20.6 million), which includes charges for the United
Kingdom, Hong Kong, and China and corporate overhead reductions,
recorded within Restructuring Charges.

 

(2)

$8.0 million of net pre-tax charges related to the exit of a joint
business venture, recorded within Other (expense) income, net.

 
(3) $14.9 million of after-tax benefit resulting from the estimated
impact of U.S. tax legislation enacted on December 22, 2017,
referred to as the Tax Cuts and Jobs Act and related actions,
specifically:

The benefit of a lower blended U.S. corporate tax rate in fiscal
2017

The net benefit from the re-measurement of deferred tax balances
and the one-time transition tax on undistributed earnings of
foreign subsidiaries

The acceleration of certain deductions into fiscal 2017

 
 
AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
May 5, 2018
 
Diluted
Earnings per
Common Share
GAAP Basis $ 0.22
% of Revenue
 
Add:Restructuring Charges(1):   0.01
 
Non-GAAP Basis $ 0.23
% of Revenue
(1) – $1.6 million for pre-tax corporate restructuring charges,
primarily consisting of corporate severance charges
 
 
AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
   
Fourth Quarter
Comparable Sales
2018 2017
American Eagle Outfitters, Inc. (1) 6% 8%
 
AE Total Brand (1) 3% 5%
aerie Total Brand (1) 23% 34%
 
(1) AEO Direct is included in consolidated and total brand
comparable sales.
 

YTD Fourth Quarter

2018 2017
American Eagle Outfitters, Inc. (1) 8% 4%
 
AE Total Brand (1) 5% 2%
aerie Total Brand (1) 29% 27%
 

(1) AEO Direct is included in consolidated and total brand
comparable sales.

 
 
AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
       
Fourth Quarter YTD Fourth Quarter Fiscal 2019
2018 2018 Guidance
Consolidated stores at beginning of period 1,057 1,047 1,047
Consolidated stores opened during the period
AE Brand 3 16 15 – 20
Aerie stand-alone 8 12 35 – 40
Tailgate Clothing Co. 0 1 0
Todd Snyder 0 0 0
Consolidated stores closed during the period
AE Brand (10) (15) (10) – (15)
Aerie stand-alone   (3)   (6)   (5) – (10)
Total consolidated stores at end of period   1,055   1,055   1072-1092
AE Brand 934
Aerie stand-alone 115
Aerie side-by-side (2) 147
Tailgate Clothing Co. 5
Todd Snyder 1
 
Stores remodeled and refurbished during the period 8 65 40 – 50
Total gross square footage at end of period   6,647   6,647   Not Provided
 
International license locations at end of period (1) 231 231 261
 
Aerie Openings
Aerie stand-alone 8 12 35 – 40
Aerie side-by-side stores (2)
New AE store 1 5 10 – 15
Remodeled AE store 5   24   15 – 20
Total side-by-side 6   29   25 – 35
Total Aerie Openings 14   41   60 – 75

(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.

Contacts

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

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