AEO Q2 Net Revenue Jumps 12 Percent to Record $797M

American Eagle Outfitters, Inc. reported EPS of $0.17 for the second quarter ended Aug. 1, 2015, a significant increase from EPS of $0.03 for the comparable quarter last year, and above EPS guidance of $0.11 to $0.14. The EPS figures refer to diluted earnings per share.

"I'm pleased to report another strong quarter, and to see positive momentum continue," said Jay Schottenstein, Interim CEO. "The team is delivering exceptional execution, and our customers have taken notice of improvements to our merchandise and overall customer experience. Both American Eagle and Aerie delivered strong sales and earnings growth across channels. We have two of the best-positioned brands in the marketplace today, and we are well poised to capitalize on our strengths. We have vast opportunity for ongoing improvements and will strive to deliver continued growth and returns to our shareholders."

Second quarter 2015 results
  • Total net revenue increased 12 percent to a record $797 million from $711 million last year.
  • Consolidated comparable sales increased 11 percent, compared to a 7 percent decrease last year.
  • Gross profit increased 20 percent to $285 million and the gross margin rate rose 230 basis points to 35.7 percent. Buying, occupancy and warehousing costs leveraged 130 basis points, primarily due to strong sales, combined with our fleet rationalization. Reduced markdowns drove another 100 basis points of margin expansion.
  • Selling, general and administrative expense of $196 million increased 3 percent from $190 million last year. As a rate to revenue, SG&A leveraged 220 basis points to 24.5 percent compared to 26.7 percent last year. Expense reduction initiatives partially offset increases in incentive and variable selling expense, driven by strong sales performance.
  • Operating income increased to $53 million from $12 million last year, and the operating margin expanded 500 basis points to 6.7 percent as a rate to revenue.
  • Other expense of $2.2 million is primarily comprised of currency losses related to cash held in Canadian dollars.
  • The tax rate of 34.7 percent includes a benefit of approximately $2.5 million, primarily due to an income tax settlement.
  • EPS of $0.17 increased significantly from EPS of $0.03 last year.
Total merchandise inventories at the end of the second quarter increased 4 percent to $409 million compared to $393 million last year. At cost per foot, inventory increased 5 percent, consistent with our guidance and below our sales growth rate. Third quarter 2015 ending inventory at cost is expected to be approximately flat.

Capital expenditures
In the second quarter, capital expenditures totaled $37 million. For fiscal 2015, the company continues to expect capital expenditures of approximately $150 million, which includes the chain-wide roll-out of the point of sale system, supporting technologies and the completion of our new fulfillment center, as well as new and remodeled store investments.

Store information
In the quarter, the company opened six new stores, including four factory stores, and closed three locations, including two AE and one aerie store. Seven international licensed stores opened during the quarter, including the first stores in South Korea and Singapore. For additional second quarter 2015 actual and fiscal 2015 projected store information, see the accompanying table.

Cash and investments
The company ended the quarter with total cash and investments of $327 million, compared to $263 million last year.

Third quarter outlook
Based on an anticipated mid single-digit increase in comparable sales, management expects third quarter 2015 EPS to be approximately $0.28 to $0.31. This guidance excludes potential asset impairment and restructuring charges, and compares to adjusted EPS of $0.22 last year.

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