American Eagle Outfitters Inc.
) adjusted earnings of 21 cents per share for the second quarter of
fiscal 2012 climbed nearly 62% from the prior-year quarter's
adjusted earnings of 13 cents. The year-over-year growth in
earnings were driven by a double-digit growth in top line, coupled
with lower input and operating expenses. Moreover, quarterly
adjusted earnings were in line with the Zacks Consensus
Adjusted figures do not include income generated from 77Kids
business, since the company announced its plan to exit from
children's business in May 2012. On a reported basis, including
loss from discontinued business, the company earned 9 cents per
share compared with 10 cents in the year-ago period.
Quarter in detail
During the quarter, American Eagle's adjusted net sales went up
11% year over year to $739.7 million, while beating the Zacks
Consensus Estimate of $738 million. Growth in revenue was driven by
a 9% increase in comparable store sales compared with a rise of 1%
registered in the year-ago quarter.
The company's AE Brand, aerie and AEO Direct segments reported a
growth of 7%, 13% and 28%, respectively, in comparable store
Adjusted gross profit increased 17% to $276.6 million, while
gross margin improved 210 basis points (bps) to 37.4%. The
year-over-year increase in gross profit and margin was primarily
driven by strong top-line performance along with lower cost of
goods sold and a benefit of 90 bps rising from leveraged buying,
occupancy and warehousing expenses.
Adjusted selling, general and administrative (SG&A) expense
increased 9.1% to $178 million. However, as a percentage of sales,
it improved 40 bps to 24% compared with 24.4% in the prior-year
quarter. Adjusted figure excludes the $4 million expense incurred
during the quarter towards restructuring purpose.
Consequently, adjusted operating income surged 76% to $67
million. Moreover, adjusted operating margin expanded 340 bps to
9.1%, primarily due to increased sales, lower input costs and
leveraged SG&A expenses.
American Eagle ended the quarter with cash and short term
investments of $702 million compared with $514 million in the
year-ago period. During the first six months of fiscal 2012, the
company generated $47.7 million cash from operating activities
while it deployed $48.2 million toward capital expenditure.
The company's total inventory was $462 million at the end of
second quarter compared with $457 million in the prior-year period.
Cost per square foot was up 3% from the previous-year quarter.
Looking ahead into fiscal 2012, the company raised its earnings
guidance range to $1.33 - $1.36 per share from $1.16 - $1.22
forecasted earlier. The improved guidance range is based on the
company's expectation of mid-single-digit and low-sing-digit growth
in comparable store sales for third and fourth quarters of fiscal
2012. Moreover, the company still anticipates incurring a capital
expenditure of $100 million in fiscal 2012.
For the third quarter of fiscal 2012, American Eagle expects to
earn in the range of 37 - 38 cents per share compared with 30 cents
in the prior-year period. In addition, the company is anticipating
a decline in the range of mid-single-digit in inventory per square
American Eagle now plans to focus more on merchandise
assortments, adding more compelling brands, managing inventory
level much diligently and augmenting e-commerce business. Further,
in order to emphasize more on the core business while generating
the best possible return for shareholders, the company has decided
to exit its children's brand, 77Kids.
We remain impressed with the company's continued momentum in
denim along with improved merchandise assortments in the women's
business segment, which will likely augment its top-line
performance as well as enhance the gross margin.
Moreover, we believe that American Eagle's cost-saving
initiatives and long-term growth strategy will not only provide
financial flexibility, but will also help to drive value
proposition. In an effort to boost its bottom line, the company is
relentlessly focusing on initiatives to cut down costs through
supply chain efficiencies and updated product allocation
American Eagle, which competes with
Abercrombie & Fitch Co.
), carries a Zacks #2 Rank, translating into short-term Buy rating
for the next 1-3 months. Moreover, we maintain our long-term
'Outperform' recommendation on the stock.
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