American Eagle Outfitters Inc.
) plunged 7.8% during yesterday's trade after the company
reported disappointing fourth quarter and fiscal 2013 earnings
results, which came substantially below the prior-year numbers.
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The company posted fourth-quarter fiscal 2013 adjusted earnings
of 27 cents per share, plunging 50.9% from 55 cents in the
prior-year quarter. Fiscal 2013 adjusted earnings came in at 74
cents per share, reflecting a 46.8% decline from $1.39 earned in
fiscal 2012. However, the company's earnings for both periods
beat the Zacks Consensus Estimate by a penny.
The year-over-year decline in earnings per share was mainly due
to lower sales and weak merchandise margins, partially offset by
effective cost management.
American Eagle's net sales declined 6.7% year over year to
$1,041.7 million in the fourth quarter and came below the Zacks
Consensus Estimate of $1,065.0 million. Full year sales totaled
$3,305.8 million, down 4.9 year over year, while it came
marginally ahead of the Zacks Consensus Estimate of $3,302.0
Quarter in Detail
Consolidated comparable-store sales (comps) including AEO Direct,
fell 7% compared with a 4% rise in the year-ago quarter. Comps
decreased 4% at the company's aerie stores and 7% at AE Total
Brand stores. However, American Eagle's AEO Direct segment
reported year-over-year comps growth of 8%.
Adjusted gross profit for the quarter fell 27.9% to $332.2
million. Moreover, gross margin contracted 930 basis points (bps)
to 31.9% owing to increased promotion activity and deleverage of
rent on negative comps.
Adjusted selling, general and administrative (SG&A) expenses
decreased 14.7% to $215.9 million. Moreover, as a percentage of
sales, SG&A expenses contracted 190 bps to 20.7% in the
quarter. The year-over-year improvement in expenses was primarily
due to a fall in incentive costs and a planned reduction in
The company's adjusted operating income fell 51.6% to $85.8
million, primarily due to fall in sales and gross profit.
Consequently, adjusted operating margin contracted 770 bps to
American Eagle ended the year with cash and short-term
investments of nearly $418.9 million compared with $509.1 million
at the end of fiscal 2012. During fiscal 2013, the company spent
$278.0 million toward capital expenditure, which was above
expectations, driven by the timing of investments in the new
distribution center and related systems to support omni-channel
As of Feb 1, 2014, American Eagle's total inventory was $291.5
million, down 12.3% from $332.5 million as of Feb 2, 2013.
Inventory at cost per square foot declined 16% from the
prior-year quarter level, primarily due to change in ownership
During fiscal 2013, American Eagle opened 64 stores, including 39
factory outlets, 6 stores in Mexico and 7 in China and Hong Kong.
Moreover, it shut down 42 stores including 29 aerie stores. The
company's square footage increased 5% on a year-over-year basis.
At fiscal-year end, the company operated a total of 1,066 stores
across the United States and 66 international franchise stores.
Noticing challenging business conditions as the harsh winter
weather disrupts product demand, American Eagle projects earnings
per share for the first quarter of fiscal 2014 to break even
against about 18 cents earned in the first quarter of fiscal
2013. The guidance is based on the company's anticipation of high
single-digit decline in comparable sales. The current Zacks
Consensus Estimate is pegged at 14 cents per share, which is
substantially higher than the company's guidance.
Moreover, the company expects inventory at cost per foot at the
end of first quarter 2014 to decline in the mid single-digits.
Capital expenditure for fiscal 2014 is projected to be $230
million, with nearly half of the spending slated for new and
upgraded systems, the completion of the distribution center and
omni-channel projects. The remaining half of the capital spending
will be directed towards store upgrades as well as factory and
international store expansions.
Other Stocks to Consider
Currently, American Eagle has a Zacks Rank #5 (Strong Sell). Some
better performing stocks in the apparel retail industry include
Iconix Brand Group Inc.
Foot Locker Inc.
Skechers USA Inc.
). Iconix sports a Zacks Rank #1 (Strong Buy), while Foot Locker
and Skechers carry a Zacks Rank #2 (Buy).