American Eagle Outfitters Inc. AEO reported robust third-quarter fiscal 2015 results, wherein earnings of 35 cents per share increased 59% from 22 cents recorded in the prior-year quarter, and also beat the Zacks Consensus Estimate of 34 cents. Earnings were also within the company’s guided range of 28–37 cents per share.
Results benefited from solid sales and earnings growth delivered by both the American Eagle and Aerie brands, across all networks.
Shares of this specialty retailer of casual apparel, accessories and footwear jumped nearly 2.2% in the after-hours trading yesterday, mainly on the back of the impressive third-quarter performance coupled with a favorable guidance for the fourth quarter.
Total revenue of this Zacks Rank #2 (Buy) company increased nearly 8% to $919 million, but fell short of the Zacks Consensus Estimate of $930 million. Comparable-store sales (comps) improved 9% as against a 5% decrease recorded last year, as the company witnessed an improvement in store traffic. Brand-wise, comps increased 21% at the company's aerie stores and 8% at AE Total Brand outlets.
Quarter in Detail
Gross profit in the quarter surged 17% to $368 million and gross margin expanded 310 basis points (bps) to 40% owing to lower markdowns coupled with buying, occupancy and warehousing leverage.
Selling, general and administrative (SG&A) expenses were up 8% year over year to $221 million, reflecting higher incentive compensation expenses owing to strong sales and margin performance, along with planned investments in digital marketing. However, as a percentage of sales, SG&A expenses were flat at 24%.
The company’s operating income came in at $109 million, marking a significant rise from $74 million recorded in the prior-year quarter. Operating margin expanded 320 bps to 11.9%.
Financial Position
American Eagle ended the quarter with cash and cash equivalents of nearly $363 million compared with $280 million in the prior-year quarter.
During the quarter, the company incurred $30 million of capital expenditures. For fiscal 2015, the company maintained its capital expenditure guidance at $150 million, mainly to be allocated toward new and renovated outlets, the rollout of the point of sale system across all stores, supporting technologies, and completion of its new fulfillment center. Further, the company projects capital expenditures in the $150–$175 million range for 2016.
As of Oct 31, 2015, American Eagle’s total inventory was $480 million, up 2% from the comparable year-ago period. Inventory at cost per foot jumped 5% year over year. American Eagle expects inventory at cost to increase in the high single-digits range in the fourth quarter.
Store Update
During the third quarter, American Eagle inaugurated 12 new stores, including six mainline, five factory and one stand-alone aerie outlet. Meanwhile, the company shut down one AE store. Alongside, on the global platform, the company opened 13 international licensed stores, which also marks the company’s foray into Chile and Greece.
As of the quarter-end, American Eagle operated 1,068 company stores and 126 international licensed outlets across 20 countries.
By the end of fiscal 2015, the company expects to operate 143 international licensed stores across 22 countries. The company’s total store count at the fiscal year-end is expected to be in the range of 1,037 – 1,044.
Other Developments
Concurrent with the earnings release, American Eagle announced the appointment of Jay L. Schottenstein as its new Chief Executive Officer (CEO), effective immediately. Schottenstein has been serving as the company’s interim CEO Since Jan 2014. Additionally, Schottenstein will continue to retain his position as the Executive Chairman at the company’s board.
Guidance
American Eagle anticipates comps growth at a mid single-digit rate in the fourth quarter of fiscal 2015. Further, the company projects earnings per share in the band of 40–42 cents compared with 36 cents earned in the prior-year quarter.
Other Stocks to Consider
Other favorably placed stocks in the same industry include Abercrombie & Fitch Co. ANF, with a Zacks Rank #1 (Strong Buy), and Genesco Inc. GCO and Foot Locker Inc. FL, each carrying a Zacks Rank #2.
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