American Eagle Outfitters Inc.
) adjusted earnings of 41 cents per share for the third quarter
of fiscal 2012 (ending October 27, 2012) surged nearly 37% from
the prior-year quarter's adjusted earnings of 30 cents. The
year-over-year growth in earnings was driven by a double-digit
rise in the top line, coupled with improved margins. Moreover,
quarterly adjusted earnings were above the Zacks Consensus
Estimate of 39 cents.
Adjusted figures do not include income generated from 77Kids
business, since the company exited from children's business in
August this year. On a reported basis, including loss from
discontinued business, the company earned 39 cents per share
compared with 27 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 $910 million, beating the Zacks
Consensus Estimate of $873 million. Growth in revenue was driven
by a 10% increase in comparable store sales compared with a rise
of 7% registered in the year-ago quarter. The online sales for
the company jumped 27% year over year from 21% rise in the prior
The company's AE Brand, aerie and AEO Direct segments reported
a growth of 8%, 5% and 27%, respectively, in comparable store
Adjusted gross profit increased 21% to $379 million, while
gross margin improved 350 basis points (bps) to 41.6%. 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 60 bps, rising from leveraged buying,
occupancy and warehousing expenses.
Adjusted selling, general and administrative (SG&A)
expense increased 18% to $219 million. Moreover, as a percentage
of sales, it expanded 140 bps to 24.1% compared with 22.7% in the
prior-year quarter. The rise in expenses is primarily
attributable to higher incentive compensation along with variable
selling and advertising expenses.
Further, the company's adjusted operating income soared 39% to
$129 million. Moreover, adjusted operating margin expanded 290
bps to 14.1%, primarily due to increased sales along with
American Eagle ended the quarter with cash and short-term
investments of $545 million compared with $481 million in the
year-ago period. During the first nine months of fiscal 2012, the
company generated $210.8 million cash from operating activities,
while it deployed $71 million toward capital expenditure.
The company's total inventory was $481 million at the end of
the third quarter of 2012 compared with $555 million in the
comparable quarter last year. Cost per square foot fell 11% from
the year-ago quarter.
Looking ahead into fiscal 2012, the company once again raised
its earnings guidance range to $1.38-$1.40 per share from
$1.33-$1.36 forecasted earlier. The Zacks Consensus estimate for
the fiscal 2012 stands at $1.37 per share. Moreover, the company
still anticipates incurring a capital expenditure of $100 million
in fiscal 2012.
For the fourth quarter of fiscal 2012, American Eagle expects
to earn in the range of 54-56 cents per share compared with 39
cents in the prior-year period. The guidance for the fourth
quarter is based on the company's anticipation of mid-single
digit growth in comparable store sales. The Zacks Consensus
Estimate for the quarter is 55 cents a share.
In addition, the company is anticipating a decline in the
range of high-single-digit in inventory cost per square foot.
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 exited 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 driving 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, a peer of
) 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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