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American Eagle Reports Weak 1Q Earnings

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Unfavorable weather conditions led this leading teen apparel retailer, American Eagle Outfitters Inc. (AEO - Free Report) to post soft first-quarter fiscal 2013 results. The quarterly earnings fell 18.2% to 18 cents per share from the comparable year-ago quarter number of 22 cents.

The year-over-year decline in earnings per share was mainly due to lower sales and higher operating expenses. However, quarterly earnings came a penny ahead of the Zacks Consensus Estimate.

Including one-time items, this Zacks Rank #3 (Hold) company earned 14 cents per share sharply down from 20 cents delivered in the year-ago comparable quarter.

Quarter in Detail

American Eagle's net sales decreased 4.1% year over year to $679.5 million and came below the Zacks Consensus Estimate of $685.0 million. A fall in revenues was primarily due to cooler weather conditions, which consequently reduced the demand for seasonal merchandize.

Consolidated comparable-store sales (comps) including AEO Direct, fell 5% compared with a 17% rise in the year-ago quarter, primarily due to lesser number of transactions and reduced transaction value. The average retail selling price per unit inched down 1% during the quarter due to increased promotional activities.

Comps at the company's aerie stores climbed 4% while sales at its AE Brand stores fell 6%. Further, American Eagle’s AEO Direct segments reported a year-over-year comps growth of 24%.

Adjusted gross profit for the quarter decreased 3% to $266.0 million. However, gross margin improved 30 basis points (bps) to 39.1% owing to lower product cost, and sourcing and supply chain efficiencies, partially offset by increased markdown and depressing comps performance.

Adjusted selling, general and administrative (SG&A) expenses increased 1.2% to $180.7 million. Moreover, as a percentage of sales, it expanded 140 bps to 26.6% in the quarter. The rise in expenses is primarily due to higher advertising expenses, partially offset by lower incentive compensation.

The company’s adjusted operating income fell 10.8% to $57.4 million, primarily due to lower sales and higher operating expenses. Consequently, adjusted operating margin contracted 70 bps to 8.4%.

Financial Position

American Eagle ended the quarter with cash and short-term investments of $496.2 million compared with $722 million at the end of first-quarter fiscal 2012. During the quarter, the company deployed $46 million toward capital expenditure, primarily in store and e-Commerce enhancements and advancement of information technology systems. Moreover, the company repurchased 1.6 million shares for an overall sum of $33.0 million.

American Eagle’s total inventory was $340.5 million at the end of quarter, compared with $367.7 million at the end of first-quarter fiscal 2012. Cost per foot fell 6% from the year-ago comparable quarter’s level.

Store Update

During the first quarter, American Eagle opened 7 AE Brand stores, while closing 14 stores comprising 4 AE Brand and 10 aerie stores. It also remodeled 22 stores.  At the end of the quarter, the company was operating a total of 1,037 stores across the United States and 57 international franchise stores. Apart from this, the company ships its products to 81 countries through its online network.

The company expects its U.S. store counts to be between 1,049 and 1,059, while international franchise stores are expected to increase to 64 at the end of fiscal 2013. Moreover, it intends to remodel or refurbish 50–65 of its stores during fiscal 2013. Moreover, American Eagle expects increasing its total square footage in the mid single-digit range.

Fiscal 2013 Guidance

The company is projecting earnings in the range of $1.42–$1.45 per share for fiscal 2013, based on low-single-digit comps growth expectation in the second half of the fiscal. The current Zacks Consensus Estimate is pegged at $1.49 per share, which may be revised in the near term.

For the second quarter of fiscal 2013, American Eagle projects earnings from 19–21 cents per share compared with 21 cents reported in the second quarter of fiscal 2012. The guidance is based on the company’s anticipation of flat comps growth. The current Zacks Consensus Estimate is pegged at 24 cents per share, which may be revised in the near term.

Additionally, American Eagle continues to anticipate a fall in the mid-single-digit range in inventory cost per foot. Moreover, the company is planning to endow $250–$280 million toward constructing a new distribution center for supporting online sales, improving merchandise planning system, instituting a new fleet-wide point-of-sale arrangement and increasing investment in store developments.

Other Stocks to Consider

Better performing stocks in the apparel retail industry include Buckle Inc. (BKE - Free Report) , Gap Inc. (GPS - Free Report) and Zumiez Inc. , all of which carry a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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American Eagle Outfitters, Inc. (AEO) - free report >>

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Buckle, Inc. (The) (BKE) - free report >>

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