Wednesday, November 28, 2012

AEO 3Q12 Earnings

Pre-market, American Eagle Outfitters (AEO) released earnings for 3Q12.  The company is trading at 20.69, up 6.7%, on the release. They reported net sales of $910mil compared to $819mil last year, which represents an 11% increase year-over-year, and beats street expectations of $873mil.  Sales were driven by a 10% increase in comparable store sales (including e-commerce), higher store traffic and conversion, and an increase in the average selling price. The company's AE Brand, aerie and e-commerce reported a growth of 8%, 5% and 28%, respectively, in comparable store sales.  An EPS of  $0.41 marks a 37% increase year-over-year.  Gross margin improved 350 basis points to 41.6%. Operating margin expanded to 14%, the best since 2008. Increase in margins was driven by strong top-line growth, lower product costs, reduced markdowns, and rent leverage.  AEO opened 13 new stores, of which 12 were outlet stores, during the quarter. It closed 19 locations, including 4 Aerie stores.  In 3Q12, the exit of the 77kids business was completed. An after-tax loss of $4mil was incurred during the the quarter. 

EPS estimate for the fourth quarter is between 54 – 56 cents, excluding potential impact of Hurricane Sandy impairment charges.  For the year, adjusted EPS is expected to be $1.38 to $1.40 which assumes comp store sales growth in the mid single-digit range. So far in Q4, AEO had record sales volumes on Black Friday and plan to see more sales growth during the upcoming holiday season. CEO Robert Hanson announced the plan to upgradge the existing store base through a robust remodeling program and to close approx. 35 to 40 "unproductive stores" this year and continue closings at that rate for the next several years.

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