UPDATE: American Eagle Outfitters (AEO) Tops Q2 EPS by 14c, Revenues Beat

(Updated - September 9, 2020 8:04 AM EDT)

American Eagle Outfitters (NYSE: AEO) reported Q2 EPS of ($0.03), $0.14 better than the analyst estimate of ($0.17). Revenue for the quarter came in at $884 million versus the consensus estimate of $828.91 million.

• Aerie posted exceptional growth, with revenue up 32% and record margins
• AEO’s digital demand accelerated and increased 48%; Aerie grew 113% and AE rose 21%
• Improved demand and operating discipline drove $173 million in positive operating cash flow and a strengthened financial position, ending with $899 million in cash
• Ending inventory declined 21%; AEO is well positioned for the second half

Second Quarter 2020 Results

• Total net revenue for the 13 weeks ended August 1, 2020 decreased $157 million, or 15% to $884 million, compared to $1.04 billion for the 13 weeks ended August 3, 2019. The decline to last year largely reflected store closures during the second quarter. Revenue in the year-ago period also included $40 million from Japanese license royalties.
• By brand, American Eagle revenue decreased 26%, following a 1% decline last year. Aerie’s revenue increased 32%, following a 22% increase last year.
• The company’s second quarter digital demand, as measured by ordered sales, increased 48%. Aerie digital demand rose 113% and AE increased 21%. AEO’s digital reported revenue increased 74%, reflecting the strong demand and a timing benefit related to the reversal of temporary fulfillment delays from the first quarter. Aerie digital revenue rose 142% and AE increased 47%.
• Gross profit of $265 million compared to $383 million last year. The year-ago gross profit included an approximately $38 million benefit from Japanese license royalties. The decline to last year also reflected a reduction in store revenue and higher delivery and distribution center costs, primarily due to a strong digital business and higher cost per shipment. This was partly offset by lower rent expense and an increase in mark-up. As a rate to revenue, gross margin of 30.0% compared to 36.7% last year.
• Selling, general and administrative expense of $224 million decreased $29 million from $253 million last year, primarily reflecting lower operating expenses due to store closures and disciplined cost controls.
• Depreciation and amortization expense of $39 million decreased $6 million from $45 million last year, due to asset impairments taken in recent quarters, as well as lower capital spending.
• Operating loss of $12 million compared to income of $82 million last year. Adjusted operating income of $2 million this year excluded $15 million of COVID-19 related expenses and restructuring charges and compared to adjusted operating income of $85 million last year, which excluded $3 million of restructuring charges. GAAP and adjusted operating income in the year-ago period included a $34 million benefit from Japanese license royalties.
• Net interest expense of $9 million compared to net interest income of $2 million last year, reflecting interest expense associated with convertible notes and borrowings under the revolving credit facility this year.
• EPS of ($0.08) compared to EPS of $0.38 last year. Adjusted EPS of ($0.03) excluded $0.05 of COVID-19 related expenses and restructuring costs and compared to adjusted EPS of $0.39 last year, which excluded $0.01 of restructuring costs.

Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “In the midst of an unprecedented crisis, we delivered a significant improvement from the first quarter throughout our business – a true testament to the agility, talent and commitment of our team. Aerie was simply outstanding, fueled by strong demand, with revenue rising 32% and record margins, demonstrating the power of the brand and signaling the vast opportunity ahead. Across brands, digital sales accelerated and we successfully reopened stores during the quarter.”

“Throughout this event, we operated with strong disciplines, reduced expenses, cut inventories and carefully managed liquidity. We controlled what we could, and generated positive free cash flow, strengthening our balance sheet. Inventories are in good shape and I believe we are very well-positioned for the second half of the year. We will remain focused on managing through the near term and preparing for a new future as we accelerate strategies to transform our business and emerge with strength.”

For earnings history and earnings-related data on American Eagle Outfitters (AEO) click here.

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