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American Eagle Outfitters (AEO)
Q1 2011 Earnings Call
May 25, 2011 9:00 am ET
Joan Hilson - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Judy Meehan - IR
James O'Donnell - Chief Executive Officer, President and Executive Director
Previous Statements by AEO
» American Eagle Outfitters' CEO Discusses Q4 2011 Results - Earnings Call Transcript
» American Eagle Outfitters CEO Discusses Q3 2010 - Earnings Call Transcript
» American Eagle Outfitters Inc. CEO Discusses Q2 2010 Results - Earnings Call Transcript
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Greetings, and welcome to the American Eagle First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Judy Meehan, Vice President of Investor Relations. Thank you, Ms. Meehan, you may begin.
Good morning, everyone. Joining me today are Jim O'Donnell, Chief Executive Officer; Roger Markfield, Vice Chairman and Executive Creative Director; and Joan Hilson, Executive Vice President, Chief Financial Officer. If you need a copy of our first quarter press release, it is available on our web site, ae.com.
Before we begin today's call, I need to remind everyone that during this conference call, members of management will make certain forward-looking statements based upon information which represent the company's current expectations or beliefs. The results actually realized may differ materially from these expectations or beliefs based on risk factors included on our quarterly and annual reports filed with the SEC. And now I'd like to turn the call over to Jim.
Thanks, Judy. Good morning, and thanks for joining us. I'll begin by providing an overview of our first quarter performance and an update on each of our businesses. Then Roger will provide his perspective and Joan will review our financials. Overall performance for the quarter was mixed. Although sales were below planned, we achieved EPS of $0.14, which was within the range of our expectations. Looking beyond the quarter, I'm pleased to report that we continue to move ahead on implementing the strategic initiatives I discussed on our last call, which will position the business for increasingly profitable long-term growth beginning in 2012.
Now providing color for the first quarter, total sales declined 6% and comps were down 8%. Our top line was affected to some degree by external factors, yet also reflected internal missteps. We pursued an assortment strategy which, in hindsight, did not provide enough depth in key items. As a result, we were not positioned to fuel promotional activities as we did during the spring season of last year. At the same time, we faced a highly competitive and promotional retail landscape. We have made the appropriate assortment adjustments for the fall season, which Roger will review shortly.
In spite of the lower sales, we were able to achieve higher merchandise margin. Additionally, our expense control initiatives continued to be successful with SG&A dollars down $10 million from last year, partially reflecting the positive impact of our corporate profit initiatives. As you recall, under this program, we are reducing overhead costs. Additionally, we are creating efficiencies across our supply chain and production operations.
Another positive is our strong financial position. We ended the quarter with more than $600 million in cash and investments. We are using this cash to prudently invest in our business and to evaluate other opportunities to enhance shareholder value. When we spoke on our last call, I outlined key initiatives to position the business for growth beginning in 2012. Let me provide an update on our plans.
Within the AE brand, our focus is on improving productivity levels. Merchandising changes are underway to strengthen our assortments. In addition, we have further strengthened the team as Roger will discuss in his remarks. We will defend our leading market position in denim and continue to grow this category as the go-to denim destination for our customer. We must also rebuild our market share in heritage categories such as tees and fleece where we're making bolder investments and underscoring a strong value proposition.
In accessories, we're achieving positive results with our expanded assortments, including more handbags, footwear and jewelry, in addition to new offerings that are right for our customer. Currently, accessories represent just 10% of our sales and we see the potential for its growth to be at 20% over the longer term. An essential part of this strategy is adding dedicated accessory shops within our stores. We now have 46 accessory shops and approximately 250 are planned for the year. We see this as a very exciting growth opportunity.
Together, these initiatives build on an incredibly strong foundation of the AE brand which remains one of the strongest in today's marketplace.
Turning to aerie. For the quarter, although sales were below expectations, operating results were similar to the first quarter last year. As I noted on the last call, we are transitioning aerie to give greater prominence to the intimate apparel categories. We are introducing new offerings to build a more complete lifestyle brand. We continue to believe in this brand for the long-term.