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

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 16^th 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 17^th 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190306005748/en/