American Eagle Outfitters Inc.
) fell 6.44% during yesterday's trade after the company reported
dismal first-quarter fiscal 2014 results, because of weak top line
during the quarter.
The company posted first-quarter fiscal 2014 earnings of 2 cents
per share, plunging 88.9% from 18 cents per share in the prior-year
quarter. The year-over-year decline in earnings per share was
mainly due to lower sales and increased markdowns. However, the
company's earnings for the quarter were above the Zacks Consensus
Estimate of break-even earnings.
American Eagle's net sales declined 4.9% year over year to
$646.1 million in the quarter and came below the Zacks Consensus
Estimate of $657 million.
Quarter in Detail
Consolidated comparable-store sales (comps) including AEO
Direct, fell 10% compared with a 5% decline in the year-ago
quarter. Comps decreased 4% at the company's aerie stores and 11%
at AE Total Brand stores.
Adjusted gross profit for the quarter fell 15.1% to $225.8
million. Moreover, gross margin contracted 420 basis points (bps)
to 34.9% owing to increased markdowns and deleverage of buying,
occupancy, and warehousing costs on negative comps, offset by
leveraged merchandise and design costs.
Adjusted selling, general and administrative (SG&A) expenses
increased 2.4% to $185.1 million. Moreover, as a percentage of
sales, SG&A expenses expanded 200 bps to 28.6% in the
The company's adjusted operating income fell 85.4% to $8.4
million, primarily due to fall in sales and gross profit.
Consequently, adjusted operating margin contracted 710 bps to
American Eagle ended the quarter with cash and short-term
investments of nearly $327.7 million compared with $496.2 million
in the prior year. During the quarter, the company spent $72
million toward capital expenditure.
As of May 3, 2014, American Eagle's total inventory was $329.2
million, down 3.3% from $340.5 million as of May 4, 2013. Inventory
at cost per square foot declined 7% from the prior-year quarter
During the first quarter, American Eagle opened 11 stores,
including 5 factory outlets, 2 stores in Mexico and 1 in China. The
company shut down 20 stores, including 14 aerie stores. During the
quarter, the company inaugurated three new North American mainline
stores in prime market locations. Additionally, on the
international platform, the company opened 11 international
licensed stores in the quarter, comprising its first store in
At quarter-end, the company operated a total of 1,057 stores
across the United States and 77 international franchise stores.
American Eagle projects earnings per share for the second
quarter of fiscal 2014 to break even against about 10 cents earned
in the second quarter of fiscal 2013. The guidance is based on the
company's anticipation of high single-digit decline in comparable
Moreover, the company expects inventory at cost per foot to
decline in the mid teens or mid single-digits range at the end of
second quarter 2014, excluding the change in ownership terms.
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.
After deliberate review of its store fleet, the company plans to
shutter another 150 stores over the next three years, including
about 100 AE stores. In fiscal 2014, the company targets to reduce
its North American store count by closing nearly 50 AE and 20 aerie
stores. Moreover, with the start of fiscal 2015, the company
expects to register annual after-tax savings of nearly $10-$15
million resulting from these store closures.
Other Stocks to Consider
Currently, American Eagle has a Zacks Rank #4 (Sell).
Better-ranked stocks in the retail space include
Foot Locker Inc.
American Apparel Inc.
). All of these have a Zacks Rank #2 (Buy).
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