American Eagle Outfitters (AEO, Financial) is a global speciality retailer that offers high quality trendy clothing, accessories and personal care products at an affordable price to its customers under its American Eagle Outfitters and Aerie brands. The company has more than 1,000 stores and is spread across U.S., Canada, Mexico, China and Hong Kong. It ships its products to around 80 countries through its websites.
Strong First Quarter Results
Revenue
Revenue during the quarter increased by 8% and was $700 million (which was $646 million last year).
Sales
Consolidated comparable sales increased by 7% during this quarter, (which was a 10% decrease in the last year).
GP
Gross profit increased by 16% and was 262 million during the first quarter of this year (rose 260 basis points to 37.5% as a rate to revenue).
Selling, General and Administrative expense
Selling, general and administrative expense stood at $185 million (which was flat to last year). It was 26.5% as a rate to revenue.
Operating income
Operating income increased and was $42 million (which was $8 million last year). The operating margin was 6.0% as a rate to revenue (it expanded 470 bps).
Other Income
Other income resulted in $6 million, which was mainly comprised of currency gains related to cash held in Canadian dollars.
EPS
EPS increased during the first quarter and was $0.15 (which was a significant increase from the prior year period $0.02.
Capex
Capex during the first quarter totalled at $42 million.
Cash and Investments
Cash and Investments during the quarter was $327 million (which was $328 million last year). The company has an excellent financial position with zero debt as of this quarter.
Number of Stores
During the quarter the company opened four new factory stores, including one in Mexico, and closed six locations, including three AE and three aerie stores. Ten international licensed stores opened during the quarter, including five stores in Japan, four stores in Israel and the first store in Qatar.
Stock
Total merchandise inventories at the end of the first quarter increased by 1% and totalled at $333 million (which was $329 million last year).
(Source: Company’s Website)
Projections for 2015
The company expects the following:
During the second quarter of this year, inventory was flat. Second quarter 2015 ending inventory at cost per foot is expected to be up in the mid single-digits due to merchandise investments and positive sales trends.
For fiscal 2015, the company continues to expect capital expenditures of approximately $150 million.
The company expects second quarter EPS to be around $0.11-$0.14.
On an Expanding Spree
AEO is currently concentrating on global expansion with addition of Singapore, South Korea, and Greece as its key markets. It entered into agreements in n South Korea with SK Networks Co., Ltd.; in Singapore with Trendz 360, Pte. Ltd.; and in Greece with Notos Com Holdings, S.A. Stores will begin opening in mid-2015. The addition of these key markets strengthens the company’s position across the EMEA and APAC regions and extends its reach to 28 countries worldwide, through a combination of international licensed and company owned and operated stores.
It also announced plans to further expand its global retail presence with a series of licensed stores throughout Chile and Peru, building on existing growth markets throughout the region, including Colombia, Panama and the Caribbean, as well as company owned stores in Mexico. The company has signed a multi-year license agreement with Eurofashion Limitada, a leading Chilean company and division of the Cencosud SA Group (CNCO, Financial) specialized in developing national and international fashion brands. The first stores are expected to open in Chile in the third quarter of 2015 and in Peru in early 2016.
The company is constantly working to adapt to the changing fashion trends. It (Aerie) recently partnered with Tween lingerie start-up Yellowberry for limited-edition collection. Yellowberry is a start-up intimates brand created by 19-year-old entrepreneur, Megan Grassell for preteen girls.
To End
Both American Eagle and Aerie performed well during the quarter and achieved higher sales. The company offers great product quality, innovation, style and value to its customers. It is focused on tapping the market opportunities, new technologies and capabilities to gain further market share and deliver earnings growth. It has been acquiring market share from its competitors.
American Eagle Outfitters and Aerie merchandise also is available at 111 international stores operated by licensees in 17 countries. Clearly everything about this company at the moment is going right and is showing bullish behavior. Its current results are a clear reflection of the efforts undertaken by the company. I would recommend this company as a buy.
