AEO Inc. Reports Second Quarter Revenue and Operating Profit Above Expectations; Raises Annual Outlook Reflecting Strengthened Demand and Profit Initiatives

Rhea-AI Summary

American Eagle Outfitters reports record Q2 revenue of $1.2 billion and operating profit of $65 million, both up from last year. Aerie sees all-time high Q2 revenue. Digital revenue declined 7%. Gross profit increased 22% with a gross margin rate of 37.7%. Inventory declined 7% to $637 million. Management expects revenue to be up low single digits for the year and operating income in the range of $325 to $350 million, up from prior guidance. SG&A is expected to be up in the low double digits for the year.

Positive

• Record Q2 revenue and operating profit
• Aerie's all-time high Q2 revenue
• Gross profit increased 22%

Negative

• Digital revenue declined 7%
• Inventory declined 7%

• Record second quarter revenue of $1.2 billion, up slightly to last year
• Operating profit of $65 million, up significantly, with growth across brands
• Aerie posted all-time high second quarter revenue
• American Eagle continued to see a sequential improvement in revenue trends
• Realizing initial benefits from profit improvement initiatives

PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE: AEO) today announced financial results for the second quarter ended July 29, 2023.

“I am pleased to report second quarter revenue and operating profit that exceeded our expectations. Demand picked up in June and July reflecting brand strength and on trend collections that are resonating well with customers, supported by exciting new marketing campaigns. It’s encouraging to see positive momentum continue into the third quarter, across brands and channels,” commented Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Officer.

“Looking to the second half, we are excited about future product arrivals, leveraging the positive response to early fall goods and delivering innovative customer connections. At the same time, we are keeping a sharp eye on the consumer environment and planning appropriately. We are taking action to position the business for improved profit, with preliminary initiatives included in our increased 2023 outlook. As we continue to optimize our operations, I am confident in our ability to strengthen profitability longer-term.”

Second Quarter 2023 Results:

• Total net revenue of $1.2 billion was up slightly to the second quarter of 2022. Store revenue was up 4%. Digital revenue declined 7%.
• Aerie revenue of $380 million rose 2% versus second quarter 2022. Comp sales were flat. American Eagle revenue of $767 million declined 1% versus second quarter 2022. Comp sales declined 2%.
• Gross profit of $453 million increased approximately 22% compared to $370 million in the second quarter of 2022 and reflected a gross margin rate of 37.7% compared to 30.9% last year. Merchandise margin expansion was driven by lower markdowns reflecting inventory control and lower transportation and product costs. Gross profit also benefited from early profit improvement initiatives as well as lower delivery, distribution and warehousing costs.
• Selling, general and administrative expense of $332 million was up 8% to last year. Higher corporate compensation, incentives and other corporate expense were partially offset by cost efficiencies. SG&A increased 190 basis points as a rate to sales versus second quarter 2022.
• Operating income was $65 million, reflecting a 5.4% margin.
• Diluted EPS was $0.25. Average diluted shares outstanding were 196 million.

Inventory

Total ending inventory declined 7% to $637 million compared to $687 million last year, with units down 11%. The company continues to maintain inventory discipline.

Capital Expenditures

Capital expenditures totaled $46 million in the second quarter. For 2023, management continues to expect capital expenditures to approximate $150 to $175 million.

Profit Improvement Focus

This year, the company launched a comprehensive review of its cost structure, with near-term opportunities identified primarily within the gross margin, which represents approximately 70% of the company’s expense base. In the second quarter, initial benefits were realized, contributing to the year-over-year improvement in the gross margin. The increased outlook for fiscal 2023, incorporates additional back half benefits in addition to stronger business trends. The profit improvement project is ongoing with initiatives being launched across the company’s expense base, which are expected to yield results over the next 12 to 24 months.

Outlook

For the year, management expects revenue to be up low single digits to last year, compared to prior guidance for revenue in the range of flat to down low single digits. Operating income is expected to be in the range of $325 to $350 million, up from prior guidance of $250 to $270 million. This reflects better than expected business performance in the second quarter, in addition to strengthened demand and continued profit improvement in the back half of the year. The outlook includes approximately $25 million in benefits from the company’s profit improvement initiatives. With better business trends, the company is accruing incentives and expects SG&A to be up in the low double digits for the year.

For the third quarter, management’s outlook reflects revenue up low single digits with operating income in the range of $115 to $125 million. With incentive accruals skewed to the back half of the year, SG&A is expected to increase in the mid-teens. Depreciation is expected to be similar to the second quarter.

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.

* * * *

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, Hong Kong and Japan, and ships to approximately 80 countries worldwide through its websites. American Eagle and Aerie merchandise also is available at more than 260 international locations operated by licensees in approximately 30 countries. In 2022, AEO released its first annual Building a Better World report, which outlines two decades of ESG achievements through the company’s Planet, People and Practices initiatives. 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 third quarter and annual fiscal 2023 and annual fiscal 2024 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 28, 2023 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 2023 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.

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
				July 29, 2023			July 30, 2022
Assets
Current assets:
Cash and cash equivalents			$	175,315		$	98,214
Merchandise inventory				636,972			687,046
Accounts receivable, net				271,333			220,803
Prepaid expenses and other				117,871			171,326
Total current assets				1,201,491			1,177,389
Operating lease right-of-use assets				1,038,505			1,210,285
Property and equipment, at cost, net of accumulated depreciation				758,736			775,969
Goodwill				264,964			271,406
Intangible assets, net				90,312			98,651
Non-current deferred income taxes				21,990			37,017
Other assets				55,909			58,500
Total assets			$	3,431,907		$	3,629,217
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable			$	238,660		$	198,645
Current portion of operating lease liabilities				309,517			328,348
Unredeemed gift cards and gift certificates				51,156			51,111
Accrued compensation and payroll taxes				74,509			50,788
Accrued income taxes and other				17,372			16,708
Other current liabilities and accrued expenses				71,262			72,461
Total current liabilities				762,476			718,061
Non-current liabilities:
Non-current operating lease liabilities				970,862			1,137,656
Long-term debt, net				3,225			376,522
Other non-current liabilities				22,345			24,055
Total non-current liabilities				996,432			1,538,233
Commitments and contingencies				-			-
Stockholders' equity:
Preferred stock				-			-
Common stock				2,496			2,496
Contributed capital				334,447			380,959
Accumulated other comprehensive loss				(11,566	)		(40,017	)
Retained earnings				2,158,294			2,000,021
Treasury stock				(810,672	)		(970,536	)
Total stockholders' equity				1,672,999			1,372,923
Total Liabilities and Stockholders' Equity			$	3,431,907		$	3,629,217
Current ratio				1.58			1.64

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
		GAAP Basis
		13 Weeks Ended
		July 29, 2023			% of Revenue			July 30, 2022			% of Revenue
Total net revenue	$	1,200,879			100.0	%	$	1,198,124			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		747,863			62.3	%		828,107			69.1	%
Gross profit		453,016			37.7	%		370,017			30.9	%
Selling, general and administrative expenses		331,872			27.6	%		307,832			25.7	%
Depreciation and amortization expense		55,854			4.7	%		48,171			4.0	%
Operating income		65,290			5.4	%		14,014			1.2	%
Debt related charges		-			0.0	%		60,066			5.1	%
Interest expense, net		951			0.1	%		3,421			0.3	%
Other income, net		(2,150	)		-0.2	%		(1,839	)		-0.2	%
Income (loss) before income taxes		66,489			5.5	%		(47,634	)		-4.0	%
Provision (benefit) for income taxes		17,919			1.5	%		(5,168	)		-0.5	%
Net income (loss)	$	48,570			4.0	%	$	(42,466	)		-3.5	%
Net income per basic share	$	0.25					$	(0.24	)
Net income per diluted share	$	0.25					$	(0.24	)
Weighted average common shares outstanding - basic		195,329						180,189
Weighted average common shares outstanding - diluted		196,103						180,189
		GAAP Basis
		26 Weeks Ended
		July 29, 2023			% of Revenue			July 30, 2022			% of Revenue
Total net revenue	$	2,281,805			100.0	%	$	2,253,161			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		1,415,610			62.0	%		1,495,118			66.4	%
Gross profit		866,195			38.0	%		758,043			33.6	%
Selling, general and administrative expenses		644,217			28.2	%		606,587			26.9	%
Impairment, restructuring and other charges		21,275			1.0	%		-			0.0	%
Depreciation and amortization expense		112,582			4.9	%		95,540			4.2	%
Operating income		88,121			3.9	%		55,916			2.5	%
Debt related charges		-			0.0	%		60,066			2.7	%
Interest expense, net		1,642			0.1	%		8,009			0.4	%
Other (income), net		(5,461	)		-0.2	%		(6,283	)		-0.3	%
Income (loss) before income taxes		91,940			4.0	%		(5,876	)		-0.3	%
Provision (benefit) for income taxes		24,918			1.1	%		4,850			0.2	%
Net income (loss)	$	67,022			2.9	%	$	(10,726	)		-0.5	%
Net income (loss) per basic share	$	0.34					$	(0.06	)
Net income (loss) per diluted share	$	0.34					$	(0.06	)
Weighted average common shares outstanding - basic		195,214						174,544
Weighted average common shares outstanding - diluted		196,822						174,544

AMERICAN EAGLE OUTFITTERS, INC.
RESULTS BY SEGMENT
(Dollars in thousands)
(unaudited)
	For the 13 weeks ended								For the 26 weeks ended
	July 29, 2023				July 30, 2022				July 29, 2023				July 30, 2022
Net Revenue:
American Eagle	$	767,018			$	777,828			$	1,438,110			$	1,463,407
Aerie	$	380,413			$	371,683			$	739,495			$	693,395
Total Segment Net Revenue	$	1,147,431			$	1,149,511			$	2,177,605			$	2,156,802
Other (1)	$	108,318			$	110,393			$	217,675			$	200,077
Intersegment Elimination	$	(54,870	)		$	(61,780	)		$	(113,475	)		$	(103,718	)
Total Net Revenue	$	1,200,879			$	1,198,124			$	2,281,805			$	2,253,161
Adjusted Operating Income:
American Eagle	$	128,664			$	109,110			$	234,203			$	213,015
Aerie	$	57,253			$	11,830			$	112,922			$	54,903
Total Segment Adjusted Operating Income	$	185,917			$	120,940			$	347,125			$	267,918
Other (1) (3)	$	(10,341	)		$	(11,507	)		$	(26,648	)		$	(27,732	)
Intersegment Elimination	$	-			$	-			$	-			$	-
General corporate expenses (2)	$	(110,286	)		$	(95,419	)		$	(211,081	)		$	(184,270	)
Total Adjusted Operating Income	$	65,290			$	14,014			$	109,396			$	55,916
Less: Impairment, restructuring and other charges(3)	$	-			$	-			$	(21,275	)		$	-
Total Operating Income	$	65,290			$	14,014			$	88,121			$	55,916
Debt related charges	$	-			$	60,066			$	-			$	60,066
Interest expense, net	$	951			$	3,421			$	1,642			$	8,009
Other income, net	$	(2,150	)		$	(1,839	)		$	(5,461	)		$	(6,283	)
Income before income taxes	$	66,489			$	(47,634	)		$	91,940			$	(5,876	)
Capital Expenditures
American Eagle	$	16,249			$	18,754			$	31,192			$	34,524
Aerie	$	10,889			$	30,244			$	22,077			$	61,259
Other (1)	$	6,154			$	4,107			$	11,730			$	5,132
General corporate expenditures (2)	$	12,810			$	16,359			$	26,960			$	26,943
Total Capital Expenditures	$	46,102			$	69,464			$	91,959			$	127,858
(1) The Todd Snyder brand, Unsubscribed brand, and Quiet Platforms have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure, they are presented under the Other caption.
(2) General corporate expenses are comprised of general and administrative costs that management does not attribute to any of our operating segments. These costs primarily relate to corporate administration, information and technology resources, finance and human resources functional and organizational costs, depreciation and amortization of corporate assets, and other general and administrative expenses resulting from corporate-level activities and projects.
(3) $21.3 million of pre-tax impairment, restructuring and other charges related to Quiet Platforms, including $10.8 million of long-lived asset impairment charges, $5.6 million of severance costs, and $4.9 million of contract related charges for the 26 weeks ended July 29, 2023.

AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
				Second Quarter			YTD Second Quarter
				2023			2023
Consolidated stores at beginning of period				1,180			1,175
Consolidated stores opened during the period
AE Brand (1)				2			6
Aerie (incl. OFFL/NE) (2)				3			5
Todd Snyder				2			3
Consolidated stores closed during the period
AE Brand (1)				(3	)		(5	)
Total consolidated stores at end of period				1,184			1,184
AE Brand (1)				866
Aerie (incl. OFFL/NE) (2)				300
Todd Snyder				13
Unsubscribed				5
Total gross square footage at end of period (in '000)				7,293			7,293
International license locations at end of period (3)				279			279
(1) AE Brand includes AE stand alone locations, AE/Aerie side-by side locations, AE/OFFL/NE side-by-side locations, and AE/Aerie/OFFL/NE side-by-side locations.
(2) Aerie (incl. OFFL/NE) includes Aerie stand alone locations, OFFL/NE stand alone locations, and Aerie/OFFL/NE side-by-side locations.
(3) International license locations (retail stores and concessions) are not included in the consolidated store data or the total gross square footage calculation.

 

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Source: American Eagle Outfitters, Inc.