Leading teen apparel retailer,
American Eagle Outfitters Inc
) reported outstanding financial results for the fourth quarter
and fiscal 2012. The company's sales touched record-high numbers
and earnings per share remained in line with its guidance range
for both periods.
American Eagle's adjusted earnings of 55 cents per share for
the fourth quarter (ending Feb 2, 2013) came in line with the
Zacks Consensus Estimate, while surging over 41% from the
prior-year comparable quarter's adjusted earnings of 39 cents.
The year-over-year growth in earnings of this Zacks Rank #3
(Hold) company was driven by a high single-digit rise in the top
line, coupled with lower input cost and favorable markdown.
Adjusted figures do not include any restructuring or store
impairment expenses and tax benefits. Including one-time items,
American Eagle earned 47 cents per share compared with 26 cents
in the year-ago comparable quarter.
We believe that American Eagle's cost-saving initiatives and
long-term growth strategy has not only provided financial
flexibility, but also helped in driving value proposition. The
company is relentlessly focusing on initiatives to cut down costs
through supply chain efficiencies and is updating product
allocation systems to boost its bottom line.
Quarter in Detail
During the quarter, American Eagle's adjusted net sales went
up 9% year over year to $1,117.1 million, but remained slightly
below the Zacks Consensus Estimate of $1,118.0 million. Growth in
revenue was driven by a 4% increase in comparable-store sales
compared with a rise of 11% in the year-ago quarter.
The company's AE Brand and AEO Direct segments reported a
growth of 1% and 24%, respectively, in comparable store sales.
However, comparable store sales at American Eagle's aerie stores
Adjusted gross profit increased 27% to $460.6 million, while
gross margin improved 600 basis points (bps) to 41.2%. The
year-over-year increase in gross profit and margin was primarily
driven by strong top-line performance along with better markdown,
lower input and rent costs.
Adjusted selling, general and administrative (SG&A)
expense increased 21.4% to $253.1 million. Moreover, as a
percentage of sales, it expanded 230 bps to 22.6% compared with
20.3% in the prior-year quarter. The rise in expenses is
primarily attributable to higher incentive compensation along
with increased advertising expenses.
The company's adjusted operating income soared 48% to $177.4
million primarily driven by increased sales and gross profit,
partially offset by higher operating expenses. Consequently,
adjusted operating margin expanded 430 bps to 15.9%.
Fiscal 2012, in Brief
For fiscal 2012, American Eagle's adjusted earnings soared 43%
year over year to $1.39 per share, but fell short of the Zacks
Consensus Estimate by a penny. Sales for the period surged 11%
year over year and touched a record high of $3,475.8 million.
Moreover, it came nearly in line with the Zacks Consensus
Estimate of $3,476.0 million. Operating margin expanded 320 bps
to 12.6%, primarily driven by an improvement of 330 bps in gross
profit margin, partially offset by an increase of 90 bps in
SG&A expenses as a percentage of sales.
American Eagle ended the fiscal with cash and short-term
investments of $509.1 million compared with $719.5 million in
fiscal 2011. During the fiscal, the company generated $499.7
million of cash from operational activities, while it deployed
$94 million toward capital expenditure, primarily in store and
e-commerce enhancements and advancement of information technology
The company's total inventory was $332.5 million at the end of
fiscal 2012 compared with $367.5 million in fiscal 2011. Cost per
foot fell 8% from fiscal 2011 level.
During fiscal 2012, American Eagle opened 16 AE Brand stores,
while shut down 41 stores comprising of 34 AE Brand and 7 aerie
stores. Moreover, it remodeled 48 stores during the period. At
the end of the fiscal, American Eagle was operating a total of
1,044 stores across the United States and 49 international
franchise stores. Apart from this, the company ships its product
in 81 countries through online channel.
The company expects its U.S. store counts to be between 1,044
and 1,059, while international franchise stores are expected to
increase to 63 at the end of fiscal 2013. Moreover, it intends to
remodel or refurbish 45-55 of its stores during fiscal 2013.
Fiscal 2013 Guidance
Despite the strong fourth quarter and fiscal 2012 results,
American Eagle is expecting a decline in its fiscal 2013
first-quarter earnings per share due to adverse weather
conditions in February and some macro-economic challenges. The
company projects earnings for the quarter to come between 16
cents and 19 cents per share compared with 22 cents reported in
the first quarter of fiscal 2012.
The guidance for the quarter is based on the company's
anticipation of mid-single digit decline in comparable store
sales. The current Zacks Consensus Estimate is pegged at 25 cents
per share, which may see revision in near term.
In addition, the company is anticipating a decline in the
range of mid-single-digit in inventory cost per foot. Moreover,
American Eagle is planning to make a capital expenditure of
$250-$280 million toward constructing a new distribution center
for supporting online sales, improving merchandise planning
system, setting up a new fleet-wide point-of-sale arrangement and
increasing investment in store developments.
Other Stocks to Consider
Other stocks worth considering in the apparel retail industry
New York & Company Inc.
Urban outfitters Inc.
). All these stocks hold a Zacks Rank #2 (Buy).
AMER EAGLE OUTF (AEO): Free Stock Analysis
NEW YORK & CO (NWY): Free Stock Analysis
URBAN OUTFITTER (URBN): Free Stock Analysis
ZUMIEZ INC (ZUMZ): Free Stock Analysis Report
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