AMERICAN EAGLE OUTFITTERS INC [AEO] Filings

10-Q 1 aeo-20231028.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-33338

American Eagle Outfitters, Inc.

(Exact name of registrant as specified in its charter)


Delaware		No. 13-2721761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

77 Hot Metal Street, Pittsburgh, PA		15203-2329
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (412) 432-3300

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	AEO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 197,538,350 shares of Common Stock were outstanding at November 17, 2023.

AMERICAN EAGLE OUTFITTERS, INC.

TABLE OF CONTENTS


		Page Number
	PART I - FINANCIAL INFORMATION

	Forward Looking Statements	4

Item 1.	Financial Statements	7
	Consolidated Balance Sheets: October 28, 2023, January 28, 2023 and October 29, 2022	7
	Consolidated Statements of Operations: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	8
	Consolidated Statements of Comprehensive Income: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	9
	Consolidated Statements of Stockholders' Equity: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	10
	Consolidated Statements of Cash Flows: 39 weeks ended October 28, 2023 and October 29, 2022	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	N/A
Item 4.	Mine Safety Disclosures	N/A
Item 5.	Other Information	N/A
Item 6.	Exhibits	43

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those contained in this Quarterly Report and in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 filed with the Securities and Exchange Commission (the "SEC") on March 13, 2023 (the "Fiscal 2022 Form 10-K") that may not be in the control of management. As used herein, “Fiscal 2023” refers to the 53-week period that will end on February 3, 2024. “Fiscal 2022” refers to the 52-week period ended January 28, 2023.

All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:

•

the planned opening of approximately five to 15 American Eagle stores and approximately 20 to 30 Aerie locations, including approximately 15 OFFLINETM stores, which will be a mix of stand-alone and Aerie side-by-side locations, during Fiscal 2023;

•

the anticipated selection of approximately 15 to 30 American Eagle and Aerie stores in the U.S. and Canada for remodeling during Fiscal 2023;

•

the potential closure of approximately 20 to 40 American Eagle stores at the expiration of their lease terms, primarily in North America, during Fiscal 2023;

•

the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally;

•

our plans for Quiet Platforms;

•

the success of our business priorities and strategies;

•

the continued validity of our trademarks;

•

our performance during the back-to-school and holiday selling seasons;

•

the reduction of operating expenses and capital expenditures;

•

the accuracy of the estimates and assumptions we make pursuant to our critical accounting policies and estimates;

•

the payment of a dividend in future periods;

•

our ability to fund our current and long-term cash requirements through current cash holdings and available liquidity, including under our revolving credit facility;

•

the possibility that product costs are adversely affected by foreign trade issues (including import tariffs and other trade restrictions with China and other countries), currency exchange rate fluctuations, increasing prices for raw materials, supply chain issues, political instability or other reasons;

•

the possibility of changes in global economic and financial conditions, and resulting impacts on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits;

•

the effect of inflation on our business;

•

the possibility that we may be required to take additional impairment or other restructuring charges;

•

the impact of any global pandemic on general economic conditions; and

•

the ability of our distribution centers and stores to maintain adequate staffing to meet increased customer demand.

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:

•

the risk that global economic conditions, such as a slowing economy, inflation, rising interest rates, and the effect of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences could have a material adverse effect on our business, results of operations and financial condition;

•

the risk that our inability to anticipate and respond to changing consumer preferences and fashion trends and fluctuations in consumer demand in a timely manner could adversely impact our business and results of operations;

•

the risk that our interest expense may be negatively impacted by rising interest rates;

•

the risk that recent inflationary pressures could have a material adverse effect on demand based on pricing actions and operating measures taken to mitigate the impact of inflation;

•

the risk that seasonality may cause sales to fluctuate in a manner inconsistent with our expectations and negatively impact our results of operations;

•

the risks associated with operating in a highly competitive industry, as we face significant pricing pressures from existing and new competitors;

•

the risk that our results could be adversely affected by events beyond our control, such as natural disasters, public health crises, political crises, negative global climate patterns, armed conflicts, including the ongoing war in Ukraine and the Israel-Hamas war, or other geopolitical or catastrophic events;

•

the risk that adverse public health developments have had, and may continue to have, an adverse effect on our business and results of operations;

•

the risks associated with climate change and other corporate responsibility issues, and legislative and regulatory responses to climate change, which may adversely impact our business;

•

the risk that impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability;

•

the risk that our inability to grow our digital channels and leverage omni-channel capabilities could adversely impact our business;

•

the risk that failure to define, launch and communicate a brand-relevant customer experience or otherwise achieve the desired results of our advertising initiatives could have a negative impact on our growth and profitability;

•

the risks that our efforts to execute on our key business priorities could have a negative impact on our growth and profitability;

•

the risk that our current international operations and efforts to further expand internationally expose us to risks inherent in operating in other countries;

•

the risk that failure to protect our reputation could have a material adverse effect on the value of our brands;

•

the risk that failure to manage growth in our omni-channel operations and the resulting impact on our distribution and fulfillment networks may have an adverse effect on our results of operations;

•

the risks associated with our inability to implement and sustain adequate information technology systems;

•

the risk that the loss or disruption of information technology systems could affect our ability to implement our strategies and have a material adverse effect on our business;

•

the risks related to our electronic processing of sensitive and confidential personal and business data. If such data is lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of information technology systems or software, such events could expose us to regulatory action or investigation, liability, damage our reputation, and have a material adverse effect on our business;

•

the risk that remote working measures may negatively impact our operations or increase our risk exposures;

•

the risks that our international merchandise sourcing strategy subjects us to, which could adversely impact our business and results of operations;

•

the risk that our product costs may be adversely affected by foreign trade issues, including import tariffs and other trade restrictions with China, currency rate fluctuations, increasing prices for raw materials due to inflationary pressures or otherwise, political instability, or for other reasons, which could impact our profitability;

•

the risk that our suppliers may be impacted by economic conditions and cycles and changing laws and regulatory requirements that could impact their ability to do business with us or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing;

•

the risk that our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic or attract customers to our stores could adversely impact our profitability and our results of operations;

•

the risk that failure to properly manage and allocate our inventory could have an adverse effect on our business, sales, margins, financial condition, and results of operations;

•

the possibility that our credit facilities may not be available for future borrowings;

•

the risks that our share repurchase program may not be successfully consummated, that it may not enhance shareholder value, or that share repurchases could be negatively perceived by investors;

•

the risk that we cannot provide assurance that we will pay dividends, or if paid, that dividend payments will be consistent with historical levels;

•

the risks associated with our substantial lease obligations, including future increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations;

•

the risk that our inability to successfully integrate Quiet Logistics, Inc.'s ("Quiet Logistics") business and operations may adversely affect the combined company's future results;

•

the risk that the integration of Quiet Logistics may result in significant accounting charges that adversely affect the results of the combined company;

•

the risk associated with our reliance on key personnel, the loss of whom could have a material adverse effect on our business;

•

the risks associated with the increases in labor costs, including wages, which could adversely impact our operational results, financial condition and results of operations;

•

the risks associated with stringent and changing privacy laws, regulations, and standards as well as policies, contracts, and other obligations related to data privacy and security. Our failure to comply with privacy laws and regulations, as well as other legal obligations, could have a material adverse effect on our business;

•

the risks relating to foreign laws and regulations that our international operations subject us to;

•

the risks associated with changes in tax policy, including as a result of the Inflation Reduction Act, or trade regulations or the imposition of new tariffs on imported products that could have an adverse effect on our business and results of operations;

•

the risk that we may be unable to protect our trademarks and other intellectual property rights;

•

the risk associated with changes in the regulatory or administrative landscape, which could adversely affect our financial condition and results of operations;

•

the risk that fluctuations in our tax obligations and effective tax rate could adversely affect us; and

•

the risk that the unfavorable outcome of pending or future litigation could have an adverse impact on our business, financial condition, and results of operations.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS


	October 28,			January 28,			October 29,
(In thousands, except per share amounts)	2023			2023			2022
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	240,940		$	170,209		$	82,133
Merchandise inventory		769,315			585,083			797,731
Accounts receivable, net		239,374			242,386			250,879
Prepaid expenses and other		103,789			102,563			146,362
Total current assets		1,353,418			1,100,241			1,277,105
Operating lease right-of-use assets		995,023			1,086,999			1,148,832
Property and equipment, at cost, net of accumulated depreciation		742,793			781,514			789,809
Goodwill, net		264,825			264,945			271,209
Intangible assets, net		88,201			94,536			96,530
Non-current deferred income taxes		20,791			36,483			34,135
Other assets		55,735			56,238			54,857
Total assets	$	3,520,786		$	3,420,956		$	3,672,477
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	300,031		$	234,340		$	188,448
Current portion of operating lease liabilities		294,898			337,258			332,160
Unredeemed gift cards and gift certificates		47,676			67,618			47,531
Accrued compensation and payroll taxes		96,484			51,912			36,436
Accrued income and other taxes		19,255			10,919			13,056
Other current liabilities and accrued expenses		72,887			66,901			67,799
Total current liabilities		831,231			768,948			685,430
Non-current liabilities:
Non-current operating lease liabilities		927,019			1,021,200			1,089,710
Long-term debt, net		-			8,911			411,911
Other non-current liabilities		24,247			22,734			22,894
Total non-current liabilities		951,266			1,052,845			1,524,515
Commitments and contingencies		—			—			—
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding		—			—			—
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 197,538, 195,064, and 187,388 shares outstanding, respectively		2,496			2,496			2,496
Contributed capital		343,695			341,775			389,726
Accumulated other comprehensive loss		(32,865	)		(32,630	)		(41,267	)
Retained earnings		2,234,761			2,137,126			2,080,852
Treasury stock, at cost, 52,028, 54,502, and 62,178 shares, respectively		(809,798	)		(849,604	)		(969,275	)
Total stockholders’ equity		1,738,289			1,599,163			1,462,532
Total liabilities and stockholders’ equity	$	3,520,786		$	3,420,956		$	3,672,477

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	13 Weeks Ended					39 Weeks Ended
	October 28,			October 29,		October 28,			October 29,
(In thousands, except per share amounts)	2023			2022		2023			2022
Total net revenue	$	1,301,055		$	1,240,583	$	3,582,859		$	3,493,745
Cost of sales, including certain buying, occupancy and warehousing expenses		757,258			760,810		2,172,867			2,255,929
Gross profit		543,797			479,773		1,409,992			1,237,816
Selling, general and administrative expenses		361,992			311,101		1,006,210			917,687
Impairment, restructuring and other charges		—			—		21,275			—
Depreciation and amortization expense		56,444			51,124		169,026			146,664
Operating income		125,361			117,548		213,481			173,465
Debt related charges		—			—		—			60,066
Interest (income) expense, net		(2,871	)		3,878		(1,229	)		11,887
Other (income) expense, net		(3,984	)		782		(9,446	)		(5,501	)
Income before income taxes		132,216			112,888		224,156			107,013
Provision for income taxes		35,516			31,616		60,434			36,466
Net income	$	96,700		$	81,272	$	163,722		$	70,547


Basic net income per common share	$	0.50		$	0.44	$	0.84		$	0.39
Diluted net income per common share	$	0.49		$	0.42	$	0.83		$	0.36

Weighted average common shares outstanding - basic		195,343			186,305		195,467			178,637
Weighted average common shares outstanding - diluted		198,367			195,776		197,969			207,499

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	13 Weeks Ended						39 Weeks Ended
	October 28,			October 29,			October 28,			October 29,
(In thousands)	2023			2022			2023			2022
Net income	$	96,700		$	81,272		$	163,722		$	70,547
Other comprehensive loss:
Foreign currency translation adjustments		(21,299	)		(1,250	)		(235	)		(422	)
Other comprehensive loss:		(21,299	)		(1,250	)		(235	)		(422	)
Comprehensive income	$	75,401		$	80,022		$	163,487		$	70,125

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

13 Weeks Ended October 28, 2023 and October 29, 2022


(In thousands, except per share amounts)	Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Stockholders' Equity
Balance at July 30, 2022		187,312		$	2,496	$	380,959		$	2,000,021		$	(970,536	)	$	(40,017	)	$	1,372,923
Stock awards		—			—		6,591			—			—			—			6,591
Repurchase of common stock from employees		(18	)		—		—			—			(193	)		—			(193	)
Reissuance of treasury stock		94			—		(660	)		(441	)		1,454			—			353
Net income		—			—		—			81,272			—			—			81,272
Other comprehensive loss		—			—		—			—			—			(1,250	)		(1,250	)
Contributions from noncontrolling interests		—			—		2,836			—			—			—			2,836
Balance at October 29, 2022		187,388		$	2,496	$	389,726		$	2,080,852		$	(969,275	)	$	(41,267	)	$	1,462,532

Balance at July 29, 2023		197,481		$	2,496	$	334,447		$	2,158,294		$	(810,672	)	$	(11,566	)	$	1,672,999
Stock awards		—			—		9,794			—			—			—			9,794
Repurchase of common stock from employees		(17	)		—		—			—			(270	)		—			(270	)
Reissuance of treasury stock		74			—		(557	)		—			1,144			—			587
Net income		—			—		—			96,700			—			—			96,700
Other comprehensive loss		—			—		—			—			—			(21,299	)		(21,299	)
Cash dividends declared and dividend equivalents ($0.10 per share)		—			—		483			(20,233	)		—			—			(19,750	)
Contributions from noncontrolling interests		—			—		(472	)		—			—			—			(472	)
Balance at October 28, 2023		197,538		$	2,496	$	343,695		$	2,234,761		$	(809,798	)	$	(32,865	)	$	1,738,289

39 Weeks Ended October 28, 2023 and October 29, 2022


(In thousands, except per share amounts)	Shares Outstanding			Common Stock			Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Stockholders' Equity
Balance at January 29, 2022		168,699		$	2,496		$	636,355		$	2,203,772		$	(1,378,106	)	$	(40,845	)	$	1,423,672
Stock awards		—			—			29,249			—			—			—			29,249
Repurchase of common stock from employees		(584	)		—			—			—			(9,772	)		—			(9,772	)
Reissuance of treasury stock		1,617			—			(24,618	)		(1,539	)		27,425			—			1,268
Adoption of Accounting Standards Update 2020-06, net of tax		—			—			(67,686	)		18,830			—			—			(48,856	)
Accelerated share repurchase		(17,023	)		—			—			—			(200,000	)		—			(200,000	)
Exchange of Convertible Senior Notes		34,679			—			(187,894	)		(144,507	)		591,178			—			258,777
Net income		—			—			—			70,547			—			—			70,547
Other comprehensive loss		—			—			—			—			—			(422	)		(422	)
Contributions from noncontrolling interests		—			—			2,836			—			—			—			2,836
Cash dividends declared and dividend equivalents ($0.36 per share)		—			—			1,484			(66,251	)		—			—			(64,767	)
Balance at October 29, 2022		187,388		$	2,496		$	389,726		$	2,080,852		$	(969,275	)	$	(41,267	)	$	1,462,532

Balance at January 28, 2023		195,064		$	2,496		$	341,775		$	2,137,126		$	(849,604	)	$	(32,630	)	$	1,599,163
Stock awards		—			—			34,777			—			—			—			34,777
Repurchase of common stock from employees		(766	)		—			—			—			(10,666	)		—			(10,666	)
Reissuance of treasury stock		2,141			—			(28,038	)		(3,330	)		33,364			—			1,996
Redemption of Convertible Senior Notes		1,099			—			(6,281	)		(2,137	)		17,108			—			8,690
Net income		—			—			—			163,722			—			—			163,722
Other comprehensive loss		—			—			—			—			—			(235	)		(235	)
Cash dividends declared and dividend equivalents ($0.30 per share)		—			—			1,499			(60,620	)		—			—			(59,121	)
Contributions from non-controlling interests		—			—	—		(37	)		—			—			—			(37	)
Balance at October 28, 2023		197,538		$	2,496		$	343,695		$	2,234,761		$	(809,798	)	$	(32,865	)	$	1,738,289

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	39 Weeks Ended
	October 28,			October 29,
(In thousands)	2023			2022
Operating activities:
Net income	$	163,722		$	70,547
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		174,559			150,462
Share-based compensation		35,289			29,962
Deferred income taxes		15,691			25,416
Loss on impairment of assets		10,759			-
Loss on exchange of Convertible Senior Notes		-			55,687
Changes in assets and liabilities:
Accounts receivable		3,906			36,662
Merchandise inventory		(186,546	)		(244,864	)
Operating lease assets		201,810			256,523
Operating lease liabilities		(241,760	)		(248,721	)
Other assets		793			(41,066	)
Accounts payable		65,630			(43,378	)
Accrued compensation and payroll taxes		44,584			(105,466	)
Accrued and other liabilities		(4,094	)		(28,466	)
Net cash provided by (used for) operating activities		284,343			(86,702	)
Investing activities:
Capital expenditures for property and equipment		(134,915	)		(199,364	)
Other investing activities		(9,346	)		(700	)
Net cash used for investing activities		(144,261	)		(200,064	)
Financing activities:
Proceeds from revolving line of credit and convertible notes		30,000			343,000
Principal payments on revolving line of credit		(30,000	)		—
Net proceeds from stock options exercised		1,561			1,799
Repurchase of common stock from employees		(10,666	)		(9,772	)
Cash dividends paid		(59,121	)		(64,767	)
Principal paid in connection with exchange of Convertible Senior Notes due 2025		—			(136,077	)
Accelerated share repurchase		—			(200,000	)
Other financing activities		(762	)		1,670
Net cash used for financing activities		(68,988	)		(64,147	)
Effect of exchange rates changes on cash		(363	)		(1,724	)
Net change in cash and cash equivalents		70,731			(352,637	)
Cash and cash equivalents - beginning of period		170,209			434,770
Cash and cash equivalents - end of period	$	240,940		$	82,133

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)