American Eagle Outfitters Inc.
) soared nearly 12% during yesterday's trade after the company's
second-quarter fiscal 2014 results beat estimates on the back of
successful implementation of its strategic initiatives.
Though the company's quarterly earnings of 3 cents per share
plunged 70% from 10 cents per share in the prior-year quarter
mainly due to lower sales, earnings were above the Zacks Consensus
Estimate of break-even.
Owing to a tough retail environment, American Eagle's net sales
slipped 2.3% year over year to $710.6 million in the quarter.
However, sales surpassed the Zacks Consensus Estimate of $685
Quarter in Detail
Consolidated comparable-store sales (comps) fell 7% again following
a similar decline in the year-ago quarter. Comps rose 9% at the
company's aerie stores and declined 8% at AE Total Brand stores.
Gross profit for the quarter dipped 3.2% to $237.5 million with
gross margin contracting 40 basis points (bps) to 33.4% owing to
deleverage of buying, occupancy, and warehousing costs on
unfavorable comps, majorly offset by leveraged merchandise and
design costs along with a marginal enhancement in markdowns.
Selling, general and administrative (SG&A) expenses climbed 2%
to roughly $190 million. Moreover, as a percentage of sales,
SG&A expenses expanded 110 bps to 26.7% in the quarter,
reflecting the effect of investments in advertising, factory
outlets, global expansion and omnichannel efforts. However, the
hike was partly compensated by a fall in overhead and variable
The company's operating income plunged 59.1% to $12 million,
primarily due to a fall in sales and gross profit. Consequently,
operating margin shriveled 240 bps to 1.7%.
American Eagle ended the quarter with cash and short-term
investments of nearly $262.6 million compared with $345.2 million
in the prior year.
Also, during the quarter, the company spent $74 million toward
capital expenditure. Going forward, the capital expenditure
projection for fiscal 2014 is maintained at $230 million, mainly to
be allocated to new and renovated outlets, innovations and the
Hazleton distribution center. Further, for fiscal 2015, management
anticipates capital expenditure of around $150 million.
As of Aug 2, 2014, American Eagle's total inventory was $393.3
million, down 15% from Aug 3, 2013. Inventory at cost per square
foot declined 18% from the prior-year quarter level. American Eagle
expects inventory per square foot to decrease at a low double digit
rate or a mid single digit rate in the third quarter, excluding the
change in ownership terms.
During the second quarter, American Eagle opened 20 stores,
including 10 factory outlets, 3 stores in Mexico and 2 in China.
The company shut down 5 stores, including 2 aerie stores. During
the quarter, the company inaugurated 5 new North American mainline
outlets in underpenetrated locations.
Alongside, on the global platform, the company opened 7
international licensed stores. At quarter end, the company operated
84 international licensed stores across 13 countries.
In fiscal 2014, the company targets to reduce its North American
store count by closing nearly 50 AE and 25 aerie stores.
American Eagle projects earnings per share for the third quarter of
fiscal 2014 to lie in the band of 17-19 cents a share. The guidance
is based on the company's anticipation of mid single-digit decline
in comps. The Zacks Consensus Estimate for the same is pegged at 17
cents per share.
Management remains confident on the company's future prospects
given its better-than-expected performance amid a difficult retail
environment. The company managed to clear its spring and summer
products and keep its inventory level in place. Further, the
company intends to continue enhancing its omnichannel network,
curtailing expenses and enriching customer experience. With these
efforts underway, this Zacks Rank #3 (Hold) company is likely to
achieve better operating results and drive shareholder value.
Other better-ranked stocks in the industry include Citi Trends,
), The Men's Wearhouse, Inc. (
), each carrying a Zacks Rank #1 (Strong Buy) and Abercrombie &
Fitch Co. (
), with a Zacks Rank #2 (Buy).
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