10-Q 1 aeo-20220730.htm 10-Q 10-Q
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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 July 30, 2022

OR

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: 187,333,861 shares of common stock were outstanding at September 2, 2022.

 

 

 


 

AMERICAN EAGLE OUTFITTERS, INC.

TABLE OF CONTENTS

 

 

 

Page Number

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Forward Looking Statements

3

 

 

 

Item 1.

Financial Statements

6

 

Consolidated Balance Sheets: July 30, 2022, January 29, 2022 and July 31, 2021

6

 

Consolidated Statements of Operations: 13 and 26 weeks ended July 30, 2022 and July 31, 2021

7

 

Consolidated Statements of Comprehensive Income: 13 and 26 weeks ended July 30, 2022 and July 31, 2021

8

 

Consolidated Statements of Stockholders' Equity: 13 and 26 weeks ended July 30, 2022 and July 31, 2021

9

 

Consolidated Statements of Cash Flows: 26 weeks ended July 30, 2022 and July 31, 2021

11

 

Notes to Consolidated Financial Statements

12

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

Item 4.

Controls and Procedures

36

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

N/A

Item 4.

Mine Safety Disclosures

N/A

Item 5.

Other Information

N/A

Item 6.

Exhibits

38

 

2


 

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. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. 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 10 to 20 American Eagle stores and approximately 40 Aerie locations and over 40 OFFLINETM stores, which will be a mix of stand-alone and Aerie side-by-side locations, during Fiscal 2022;
the anticipated selection of approximately 15 to 30 American Eagle and Aerie stores in the U.S. and Canada for remodeling during Fiscal 2022;
the potential closure of approximately 30 to 50 American Eagle stores at the expiration of their lease terms, primarily in North America, during Fiscal 2022;
the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally;
our plans to transform our supply chain platform;
our acquisitions' ability to achieve expected results;
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 for 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; and
the possibility that we may be required to take additional impairment or other restructuring charges.

Our forward-looking statements surrounding the novel strain of coronavirus ("COVID-19") include, but are not limited to, statements about:

the ongoing impact of the COVID-19 pandemic on global economic conditions, our customers’ discretionary income, and freedom of movement;
the currently unknown duration of the COVID-19 pandemic, including a potential resurgence in the third quarter of Fiscal 2022 or beyond;
the impact of governmental regulations that have been, and may in the future be, imposed in response to the COVID-19 pandemic, including regulations that could adversely affect our business or cause us to cease our digital business if we are required to close our distribution and fulfillment centers or are otherwise unable to acquire or deliver merchandise, or to close our retail stores;
the impact of the COVID-19 pandemic on the operations of our partners, suppliers and vendors;
the potential for the impacts of the COVID-19 pandemic to cause or exacerbate supply chain disruptions, shipping delays, and freight costs;

3


 

the ability of our distribution centers and stores to maintain adequate staffing to meet increased customer demand;
the possibility of temporary furloughs of store, field, and corporate associates surrounded by store closures; and
our potential actions in response to the COVID-19 pandemic.

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 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 the ongoing COVID-19 pandemic and any other adverse public health development have had, and may continue to have, an adverse effect on our business and results of operations;
the risk that governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, financial conditions and results of operations;
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 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 inflation's impact;
the risk that seasonality may cause sales to fluctuate 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 war in Ukraine, or other catastrophic events;
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 risk that our efforts to execute on our key business priorities could have a negative impact on our growth and profitability;
the risks that our efforts to expand operations in new countries inherently expose us to;
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;
the risk that the loss or disruption of information technology services 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 liability, damage our reputation, and have a material adverse effect on our business;
the risk that telework measures intended to prevent the spread of COVID-19 may negatively impact our operations or increase our risk exposures;

4


 

the risks that our international merchandise sourcing strategy subject 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 exchange 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 which 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 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 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 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 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 our results;
the risk that the integration of Quiet Logistics may result in significant accounting charges that adversely affect our results;
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 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 risk that we may be unable to protect our trademarks and other intellectual property rights;
the risks 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.

5


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

July 30,

 

 

January 29,

 

 

July 31,

 

(In thousands, except per share amounts)

 

2022

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,214

 

 

$

434,770

 

 

$

773,994

 

Short-term investments

 

 

 

 

 

 

 

 

50,000

 

Merchandise inventory

 

 

687,046

 

 

 

553,458

 

 

 

503,507

 

Accounts receivable, net

 

 

220,803

 

 

 

286,683

 

 

 

155,361

 

Prepaid expenses and other

 

 

171,326

 

 

 

122,013

 

 

 

118,721

 

Total current assets

 

 

1,177,389

 

 

 

1,396,924

 

 

 

1,601,583

 

Operating lease right-of-use assets

 

 

1,210,285

 

 

 

1,193,021

 

 

 

1,103,247

 

Property and equipment, at cost, net of accumulated depreciation

 

 

775,969

 

 

 

728,272

 

 

 

641,396

 

Goodwill, net

 

 

271,406

 

 

 

271,416

 

 

 

16,365

 

Intangible assets, net

 

 

98,651

 

 

 

102,701

 

 

 

54,255

 

Non-current deferred income taxes

 

 

37,017

 

 

 

44,167

 

 

 

46,600

 

Other assets

 

 

58,500

 

 

 

50,142

 

 

 

31,576

 

Total assets

 

$

3,629,217

 

 

$

3,786,643

 

 

$

3,495,022

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

198,645

 

 

$

231,782

 

 

$

221,471

 

Current portion of operating lease liabilities

 

 

328,348

 

 

 

311,005

 

 

 

288,534

 

Unredeemed gift cards and gift certificates

 

 

51,111

 

 

 

71,365

 

 

 

44,095

 

Accrued compensation and payroll taxes

 

 

50,788

 

 

 

141,817

 

 

 

133,185

 

Accrued income and other taxes

 

 

16,708

 

 

 

16,274

 

 

 

25,365

 

Other current liabilities and accrued expenses

 

 

72,461

 

 

 

70,628

 

 

 

56,568

 

Total current liabilities

 

 

718,061

 

 

 

842,871

 

 

 

769,218

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

Non-current operating lease liabilities

 

 

1,137,656

 

 

 

1,154,481

 

 

 

1,094,386

 

Long-term debt, net

 

 

376,522

 

 

 

341,002

 

 

 

331,680

 

Other non-current liabilities

 

 

24,055

 

 

 

24,617

 

 

 

24,207

 

Total non-current liabilities

 

 

1,538,233

 

 

 

1,520,100

 

 

 

1,450,273

 

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; 187,312, 168,699, and 168,454 shares
   outstanding, respectively

 

 

2,496

 

 

 

2,496

 

 

 

2,496

 

Contributed capital

 

 

380,959

 

 

 

636,355

 

 

 

630,506

 

Accumulated other comprehensive loss

 

 

(40,017

)

 

 

(40,845

)

 

 

(36,894

)

Retained earnings

 

 

2,000,021

 

 

 

2,203,772

 

 

 

2,058,448

 

Treasury stock, at cost, 62,254, 80,867, and 81,112 shares, respectively

 

 

(970,536

)

 

 

(1,378,106

)

 

 

(1,379,025

)

Total stockholders’ equity

 

 

1,372,923

 

 

 

1,423,672

 

 

 

1,275,531

 

Total liabilities and stockholders’ equity

 

$

3,629,217

 

 

$

3,786,643

 

 

$

3,495,022

 

 

Refer to Notes to Consolidated Financial Statements

6


 

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

July 30,

 

 

July 31,

 

 

July 30,

 

 

July 31,

 

(In thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

 

$

1,198,124

 

 

$

1,194,156

 

 

$

2,253,161

 

 

$

2,228,769

 

Cost of sales, including certain buying, occupancy and
   warehousing expenses

 

 

828,107

 

 

 

691,765

 

 

 

1,495,118

 

 

 

1,290,188

 

Gross profit

 

 

370,017

 

 

 

502,391

 

 

 

758,043

 

 

 

938,581

 

Selling, general and administrative expenses

 

 

307,832

 

 

 

293,939

 

 

 

606,587

 

 

 

558,430

 

Depreciation and amortization expense

 

 

48,171

 

 

 

40,456

 

 

 

95,540

 

 

 

78,727

 

Operating income

 

 

14,014

 

 

 

167,996

 

 

 

55,916

 

 

 

301,424

 

Debt related charges

 

 

60,066

 

 

 

-

 

 

 

60,066

 

 

 

-

 

Interest expense, net

 

 

3,421

 

 

 

8,921

 

 

 

8,009

 

 

 

17,426

 

Other income, net

 

 

(1,839

)

 

 

(1,363

)

 

 

(6,283

)

 

 

(3,223

)

(Loss) income before income taxes

 

 

(47,634

)

 

 

160,438

 

 

 

(5,876

)

 

 

287,221

 

(Benefit) provision for income taxes

 

 

(5,168

)

 

 

38,927

 

 

 

4,850

 

 

 

70,244

 

Net (loss) income

 

 

(42,466

)

 

 

121,511

 

 

 

(10,726

)

 

 

216,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per basic share

 

$

(0.24

)

 

$

0.73

 

 

$

(0.06

)

 

$

1.29

 

Net (loss) income per diluted share

 

$

(0.24

)

 

$

0.58

 

 

$

(0.06

)

 

$

1.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

180,189

 

 

 

167,491

 

 

 

174,544

 

 

 

168,036

 

Weighted average common shares outstanding - diluted

 

 

180,189

 

 

 

208,933

 

 

 

174,544

 

 

 

208,400

 

 

Refer to Notes to Consolidated Financial Statements

7


 

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

13 Weeks Ended

 

 

 

26 Weeks Ended

 

 

 

July 30,

 

 

July 31,

 

 

 

July 30,

 

 

July 31,

 

(In thousands)

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

Net (loss) income

 

$

(42,466

)

 

$

121,511

 

 

 

$

(10,726

)

 

$

216,977

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

298

 

 

 

916

 

 

 

 

828

 

 

 

3,854

 

Other comprehensive income:

 

 

298

 

 

 

916

 

 

 

 

828

 

 

 

3,854

 

Comprehensive (loss) income

 

$

(42,168

)

 

$

122,427

 

 

 

$

(9,898

)

 

$

220,831

 

 

Refer to Notes to Consolidated Financial Statements

8


 

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

13 Weeks Ended July 30, 2022 and July 31, 2021

(In thousands, except per share amounts)

 

Shares
Outstanding

 

 

Common
Stock

 

 

Contributed
Capital

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Accumulated Other
Comprehensive Loss

 

 

Stockholders'
Equity

 

Balance at May 1, 2021

 

 

167,671

 

 

$

2,496

 

 

$

648,434

 

 

$

1,951,496

 

 

$

(1,389,053

)

 

$

(37,810

)

 

$

1,175,563

 

Stock awards

 

 

 

 

 

 

 

 

8,901

 

 

 

 

 

 

 

 

 

 

 

 

8,901

 

Repurchase of common stock from employees

 

 

(195

)

 

 

 

 

 

 

 

 

 

 

 

(6,567

)

 

 

 

 

 

(6,567

)

Reissuance of treasury stock

 

 

631

 

 

 

 

 

 

(17,770

)

 

 

9,580

 

 

 

10,696

 

 

 

 

 

 

2,506

 

Equity portion of partial extinguishment of Convertible Senior Notes, net of tax

 

 

347

 

 

 

 

 

 

(9,876

)

 

 

6,995

 

 

 

5,899

 

 

 

 

 

 

3,018

 

Net income

 

 

 

 

 

 

 

 

 

 

 

121,511

 

 

 

 

 

 

 

 

 

121,511

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

916

 

 

 

916

 

Cash dividends and dividend equivalents ($0.18 per share)

 

 

 

 

 

 

 

 

817

 

 

 

(31,134

)

 

 

 

 

 

 

 

 

(30,317

)

Balance at July 31, 2021

 

 

168,454

 

 

$

2,496

 

 

$

630,506

 

 

$

2,058,448

 

 

$

(1,379,025

)

 

$

(36,894

)

 

$

1,275,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2022

 

 

169,421

 

 

$

2,496

 

 

$

562,973

 

 

$

2,224,113

 

 

$

(1,366,261

)

 

$

(40,315

)

 

$

1,383,006

 

Stock awards

 

 

 

 

 

 

 

 

8,504

 

 

 

 

 

 

 

 

 

 

 

 

8,504

 

Repurchase of common stock from employees

 

 

(113

)

 

 

 

 

 

 

 

 

 

 

 

(1,408

)

 

 

 

 

 

(1,408

)

Reissuance of treasury stock

 

 

348

 

 

 

 

 

 

(3,452

)

 

 

(1,915

)

 

 

5,955

 

 

 

 

 

 

588

 

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 loss

 

 

 

 

 

 

 

 

 

 

 

(42,466

)

 

 

 

 

 

 

 

 

(42,466

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298

 

 

 

298

 

Cash dividends and dividend equivalents ($0.18 per share)

 

 

 

 

 

 

 

 

828

 

 

 

(35,204

)

 

 

 

 

 

 

 

 

(34,376

)

Balance at July 30, 2022

 

 

187,312