AMERICAN EAGLE OUTFITTERS INC - FORM 8-K - EX-99.1

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8-K - FORM 8-K - AMERICAN EAGLE OUTFITTERS INC	l42127e8vk.htm
EX-99.2 - EX-99.2 - AMERICAN EAGLE OUTFITTERS INC	l42127exv99w2.htm

EXHIBIT 99.1

American Eagle Outfitters
Reports Fourth Quarter 2010 EPS Increase of 16%

Pittsburgh, March 9, 2011 — American Eagle Outfitters, Inc. (NYSE:AEO) today announced income from continuing operations for the fourth quarter ended January 29, 2011 of $0.44 per diluted share, an increase of 16% from $0.38 per diluted share last year.

The company also announced an 11% increase in adjusted earnings per diluted share from continuing operations for the fiscal year ended January 29, 2011. Fiscal 2010 income from continuing operations was $1.02 per diluted share, which excludes a realized loss from the sale of investment securities of $0.12 per diluted share. This compares to adjusted income from continuing operations of $0.92 per diluted share last year. Please see the table below for a complete reconciliation of GAAP to non-GAAP earnings per diluted share from continuing operations for both periods.

“For the quarter and year, the company achieved higher operating income, despite lower sales, as we managed the business effectively through a number of challenges,” said Jim O’Donnell, chief executive officer. “We have maintained a healthy balance sheet and strong cash position, while returning approximately $400 million to shareholders through a combination of share buybacks and dividend payments in fiscal 2010. As we look to 2011, we are moving forward with growth initiatives across our brands. Although we face external headwinds, including rising product costs, we expect to make further progress in positioning American Eagle Outfitters for long-term profitable growth.”

Fourth Quarter Results — Continuing Operations

Total sales for the quarter decreased 4% to $916 million, compared to $956 million last year. Fourth quarter comparable store sales decreased 7%, compared to a 5% increase last year.

Gross profit was $361 million, or 39.4% as a rate to sales, compared to $392 million, or 41.0% as a rate to sales, last year. The merchandise margin decreased 60 basis points. As a rate to sales, buying, occupancy and warehousing costs increased 100 basis points. This was due primarily to the impact of new store openings and negative comparable store sales.

Selling, general and administrative expense decreased 15% to $194 million, compared to $228 million last year. The $194 million of SG&A this year included $5 million of severance and related charges. The decrease in SG&A was due to a combination of lower levels of incentive compensation and expense reductions stemming from the company’s corporate profit initiative. Building on the momentum established in the third quarter, the company experienced cost improvements in virtually all operating areas.

Operating income for the quarter increased 5% to $134 million, compared to $127 million last year. The operating margin expanded 130 basis points to 14.6% from 13.3% last year.

Fiscal 2010 Results — Continuing Operations

Total sales for the year increased 1% to $2.97 billion, compared to $2.94 billion last year. Comparable store sales decreased 1%, compared to a 4% decrease last year.

Gross profit for the year was flat at $1.17 billion, or 39.5% as a rate to sales this year, compared to 39.9% last year. As a rate to sales, buying, occupancy and warehousing costs increased 50 basis points and was due primarily to new store openings and the deleveraging of rent on negative comparable store sales for the year. This was offset by a 10 basis point increase in merchandise margin.

Selling, general and administrative expense decreased $12 million to $713 million this year, compared to $725 million last year. The $713 million of SG&A this year included $10 million of severance and related charges. As noted in the fourth quarter discussion, the decrease in SG&A was due to lower incentive compensation expense recorded in the year, as well as savings resulting from the company’s corporate profit initiative.

Operating income for the year increased 2% to $317 million, compared to $310 million last year. The operating margin expanded 10 basis points to 10.7% from 10.6% last year.

AEO Direct

The company’s direct-to-consumer business includes ae.com, aerie.com and 77kids.com. In the fourth quarter, sales increased 4% driven by increased traffic and conversion rate in the month of December. Fourth quarter results compare to a 5% increase last year. For the year, sales were flat to last year at $334 million.

Inventory

Total merchandise inventory at the end of the fourth quarter was $301 million, a decrease of $25 million, or 8%, compared to last year. Fourth quarter ending inventory per foot decreased 7%.

Looking ahead to the first quarter of 2011, average weekly inventory per foot is planned to decrease in the high single-digits, against a mid single-digit increase last year.

Capital Expenditures

For the fourth quarter, capital expenditures were $19 million, compared to $21 million last year. Reflecting the company’s reduced spending plan, fiscal 2010 capital expenditures totaled $84 million, compared to $127 million last year. Of the 2010 capital expenditures, approximately $56 million related to new and remodeled stores. The balance of the 2010 capital spend related to distribution center, information technology and other home office projects.

Looking forward to 2011, capital expenditures are expected to be in the range of $90 million to $100 million, with slightly more than half related to new and remodeled stores.

Real Estate

In the fourth quarter, the company opened three AE, two 77kids and one aerie store. In addition, the company remodeled nine stores. Store closings in the fourth quarter consisted of nine AE stores. Looking ahead to fiscal

2011, total square footage is expected to increase in the low single-digits. For additional year-to-date 2010 and fiscal 2011 guidance information, please refer to the accompanying real estate table.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments

The company ended the fourth quarter with total cash and cash equivalents of $668 million, as well as $73 million of short and long-term investments, after returning approximately $400 million to shareholders in fiscal 2010 through stock repurchases and dividend payments.

In addition to a regular quarterly cash dividend of $0.11 per share, the company’s board of directors declared and paid a $0.50 per share special cash dividend during the fourth quarter. The company also repurchased 1.5 million shares in the quarter, bringing the year-to-date total to 15.5 million shares for $216 million.

Future Outlook

For fiscal 2011, management expects results to be similar to last year’s adjusted earnings from continuing operations of $1.02 per diluted share. The company is targeting comparable store sales growth in the low single-digits. SG&A expense is planned to increase in the low single-digits, reflecting anticipated continued expense savings, coupled with planned investments in advertising and costs associated with new store growth. Depreciation is expected to increase in the low single-digits for the year, and the effective tax rate is currently projected at 38%.

Regarding the first quarter, the company expects earnings to be in the range of $0.13 to $0.17 per diluted share, based on comparable store sales of negative 3% to flat. This compares to earnings from continuing operations of $0.17 per diluted share last year. First quarter SG&A expense is planned to decline in the low single-digits, and depreciation is expected to be about flat to last year.

Conference Call Information

At 9:00 a.m. Eastern Time on March 9, 2011, the company’s management team will host a conference call to review the financial results. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 five to seven minutes prior to the scheduled start time. The conference call will also be simultaneously broadcast over the Internet at www.ae.com. Anyone unable to listen to the call can access a replay beginning March 9, 2011 at 12:00 p.m. Eastern Time through March 30, 2011. To listen to the replay, dial 1-877-660-6853, or internationally dial 1-201-612-7415, and reference account 3055 and confirmation code 348838. An audio replay of the conference call will also be available at www.ae.com.

Non-GAAP Measures

This press release includes information on non-GAAP earnings per diluted share (“non-GAAP” or “adjusted”). This measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and is 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. This amount is not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the company’s business and operations.

* * * *

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 929 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 148 standalone stores in the U.S. and Canada and online at www.aerie.com. The latest brand, 77kids^® by american eagle^®, is available online at www.77kids.com, as well as at nine stores across the nation. The 77kids brand offers “kid cool,” durable clothing and accessories for kids ages zero to 14. AE.COM^®, the online home of the brands of AEO, Inc. ships to 76 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 fiscal 2011 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 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.

CONTACT:

American Eagle Outfitters Inc.
Judy Meehan, 412-432-3300

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


	January 29,			January 30,
	2011			2010
	(unaudited)
ASSETS
Cash and cash equivalents	$	667,593		$	693,960
Short-term investments		67,102			4,675
Merchandise inventory		301,208			326,454
Accounts receivable		36,721			34,746
Prepaid expenses and other		53,727			47,039
Deferred income taxes		48,059			60,156

Total current assets		1,174,410			1,167,030

Property and equipment, net		643,120			713,142
Goodwill		11,472			11,210
Long-term investments		5,915			197,773
Non-current deferred income taxes		19,616			27,305
Other assets, net		25,465			21,688

Total Assets	$	1,879,998		$	2,138,148


LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	167,723		$	158,526
Notes payable		—			30,000
Accrued compensation and payroll taxes		34,954			55,144
Accrued rent		70,390			68,866
Accrued income and other taxes		32,468			20,585
Unredeemed gift cards and gift certificates		41,001			39,389
Current portion of deferred lease credits		16,203			17,388
Other current liabilities and accrued expenses		25,098			19,057

Total current liabilities		387,837			408,955

Deferred lease credits		78,606			89,591
Non-current accrued income taxes		38,671			38,618
Other non-current liabilities		23,813			22,467

Total non-current liabilities		141,090			150,676

Commitments and contingencies		—			—
Preferred stock		—			—
Common stock		2,496			2,486
Contributed capital		546,597			554,399
Accumulated other comprehensive income		28,072			16,838
Retained earnings		1,711,929			1,764,049
Treasury stock		(938,023	)		(759,255	)

Total stockholders’ equity		1,351,071			1,578,517

Total Liabilities and Stockholders’ Equity	$	1,879,998		$	2,138,148


Current Ratio		3.03			2.85

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)


	13 Weeks Ended
	January 29,		% of			January 30,			% of
	2011		Sales			2010			Sales

Net sales	$	916,088		100.0	%	$	955,781			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		554,842		60.6	%		564,027			59.0	%

Gross profit		361,246		39.4	%		391,754			41.0	%
Selling, general and administrative expenses		194,009		21.2	%		227,684			23.8	%
Depreciation and amortization		33,123		3.6	%		36,688			3.9	%

Operating income		134,114		14.6	%		127,382			13.3	%
Other income (expense)		1,027		0.1	%		1,611			0.2	%
Other-than-temporary impairment charge		—		0.0	%		(715	)		-0.1	%

Income before income taxes		135,141		14.7	%		128,278			13.4	%
Provision for income taxes		48,103		5.2	%		48,661			5.1	%

Income from continuing operations		87,038		9.5	%		79,617			8.3	%
Loss from discontinued operations, net of tax		—		0.0	%		(20,293	)		-2.1	%

Net income	$	87,038		9.5	%	$	59,324			6.2	%


Basic income per common share:
Income from continuing operations	$	0.45				$	0.39
Loss from discontinued operations		0.00					(0.10	)

Net income per basic share	$	0.45				$	0.29


Diluted income per common share:
Income from continuing operations	$	0.44				$	0.38
Loss from discontinued operations		0.00					(0.10	)

Net income per diluted share	$	0.44				$	0.28


Weighted average common shares outstanding — basic		194,878					206,826
Weighted average common shares outstanding — diluted		196,789					210,690


	52 Weeks Ended
	January 29,			% of			January 30,			% of
	2011			Sales			2010			Sales

Net sales	$	2,967,559			100.0	%	$	2,940,269			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		1,796,600			60.5	%		1,766,839			60.1	%

Gross profit		1,170,959			39.5	%		1,173,430			39.9	%
Selling, general and administrative expenses		713,197			24.0	%		725,278			24.6	%
Depreciation and amortization		140,501			4.8	%		137,760			4.7	%

Operating income		317,261			10.7	%		310,392			10.6	%
Other income (expense)		3,497			0.1	%		(2,328	)		-0.1	%
Realized loss on sale of investment securities		(24,426	)		-0.8	%		(2,749	)		-0.1	%
Other-than-temporary impairment charge		(1,248	)		-0.1	%		(940	)		0.0	%

Income before income taxes		295,084			9.9	%		304,375			10.4	%
Provision for income taxes		113,150			3.8	%		90,977			3.1	%

Income from continuing operations		181,934			6.1	%		213,398			7.3	%
Loss from discontinued operations, net of tax		(41,287	)		-1.4	%		(44,376	)		-1.5	%

Net income	$	140,647			4.7	%	$	169,022			5.8	%


Basic income per common share:
Income from continuing operations	$	0.91					$	1.04
Loss from discontinued operations		(0.21	)					(0.22	)

Net income per basic share	$	0.70					$	0.82


Diluted income per common share:
Income from continuing operations	$	0.90					$	1.02
Loss from discontinued operations		(0.20	)					(0.21	)

Net income per diluted share	$	0.70					$	0.81


Weighted average common shares outstanding — basic		199,979						206,171
Weighted average common shares outstanding — diluted		201,818						209,512

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP EPS RECONCILIATION
(unaudited)


	52 Weeks Ended
	January 29, 2011
GAAP Diluted EPS from Continuing Operations	$	0.90
Add back: Realized loss on sale of investment securities		0.12

Non-GAAP Diluted EPS from Continuing Operations	$	1.02


	52 Weeks Ended
	January 30, 2010
GAAP Diluted EPS from Continuing Operations	$	1.02
Deduct: Tax benefit		(0.11	)
Add back: Realized loss on sale of investment securities		0.01

Non-GAAP Diluted EPS from Continuing Operations	$	0.92

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)


	For the Years Ended
	January 29,			January 30,			January 31,
	2011			2010			2009
Operating activities:
Net income	$	140,647		$	169,022		$	179,061
Loss from discontinued operations		41,287			44,376			50,923

Income from continuing operations		181,934			213,398			229,984
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		145,548			139,832			126,362
Share-based compensation		25,457			34,615			18,731
Provision for deferred income taxes		11,885			(36,027	)		24,473
Tax benefit from share-based payments		15,648			7,995			1,121
Excess tax benefit from share-based payments		(12,499	)		(2,812	)		(693	)
Foreign currency transaction loss (gain)		117			6,477			(1,141	)
Net impairment loss recognized in earnings		1,248			940			22,889
Realized loss on sale of investment securities		24,426			2,749			1,117
Changes in assets and liabilities:
Merchandise inventory		18,713			(33,699	)		(5,634	)
Accounts receivable		(3,790	)		6,656			(10,019	)
Prepaid expenses and other		(9,045	)		12,916			(23,184	)
Other assets, net		(1,380	)		1,146			390
Accounts payable		5,232			8,358			(3,467	)
Unredeemed gift cards and gift certificates		1,713			(3,591	)		(11,495	)
Deferred lease credits		(7,451	)		4,667			16,622
Accrued compensation and payroll taxes		(19,618	)		25,841			(18,223	)
Accrued income and other taxes		11,999			12,858			(20,791	)
Accrued liabilities		12,457			(1,993	)		(1,930	)

Total adjustments		220,660			186,928			115,128

Net cash provided by operating activities from continuing operations	$	402,594		$	400,326		$	345,112
Investing activities:
Capital expenditures		(84,259	)		(127,080	)		(243,564	)
Purchase of investments		(62,797	)		—			(48,655	)
Sale of investments		177,472			80,353			393,559
Other investing activities		(2,801	)		(2,003	)		(2,297	)

Net cash provided by (used for) investing activities from continuing operations	$	27,615		$	(48,730	)	$	99,043
Financing activities:
Payments on capital leases		(2,590	)		(2,015	)		(2,177	)
Proceeds from issuance of note payable		—			—			75,000
Repayment of note payable		(30,000	)		(45,000	)		—
Repurchase of common stock as part of publicly announced programs		(216,070	)		—			—
Repurchase of common stock from employees		(18,041	)		(247	)		(3,432	)
Net proceeds from stock options exercised		7,272			9,044			3,799
Excess tax benefit from share-based payments		12,499			2,812			693
Cash used to net settle equity awards		(6,434	)		(1,414	)		—
Cash dividends paid		(183,166	)		(82,985	)		(82,394	)

Net cash used for financing activities from continuing operations	$	(436,530	)	$	(119,805	)	$	(8,511	)

Effect of exchange rates on cash		1,394			3,030			(14,790	)


Cash flows of discontinued operations
Net cash used for operating activities		(21,434	)		(13,864	)		(41,802	)
Net cash used for investing activities		(6	)		(339	)		(21,771	)
Net cash used for financing activities		—			—			—
Effect of exchange rate on cash		—			—			—

Net cash used for discontinued operations	$	(21,440	)		(14,203	)		(63,573	)


Net (decrease) increase in cash and cash equivalents	$	(26,367	)	$	220,618		$	357,281
Cash and cash equivalents – beginning of period		693,960			473,342			116,061

Cash and cash equivalents – end of period	$	667,593		$	693,960		$	473,342

AMERICAN EAGLE OUTFITTERS, INC.
REAL ESTATE INFORMATION
(unaudited)


	Fourth Quarter		Year-to-date		Fiscal 2011
	Fiscal 2010		Fiscal 2010		Guidance
Consolidated stores at beginning of period		1,089		1,103		1,086
Consolidated stores opened during the period
AE Brand		3		14		14
aerie		1		11		10
77kids		2		9		12
Consolidated stores closed during the period
AE Brand		(9)		(23)		(15)-(25)
MARTIN+OSA		—		(28)		—

Total consolidated stores at end of period		1,086		1,086		1,097 - 1,107

Stores remodeled during the period		9		29		55-75
Total gross square footage at end of period		6,339,469		6,339,469	Not Provided

AMERICAN EAGLE OUTFITTERS INC - FORM 8-K - EX-99.1 - March 11, 2011

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AMERICAN EAGLE OUTFITTERS INC Reports