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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 August 1, 2020

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: 166,113,983 Common Shares were outstanding at September 4, 2020.

AMERICAN EAGLE OUTFITTERS, INC.

TABLE OF CONTENTS

		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Forward Looking Statements Financial Statements	5
	Consolidated Balance Sheets: August 1, 2020, February 1, 2020  and August 3, 2019	5
	Consolidated Statements of Operations: 13 and 26 weeks ended August 1, 2020 and August 3, 2019	6
	Consolidated Statements of Comprehensive Income: 13 and 26 weeks ended August 1, 2020 and August 3, 2019	7
	Consolidated Statements of Stockholders’ Equity: 13 and 26 weeks ended August 1, 2020 and August 3, 2019	8
	Consolidated Statements of Cash Flows: 26 weeks ended August 1, 2020 and August 3, 2019	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	N/A
Item 4.	Mine Safety Disclosures	N/A
Item 5.	Other Information	N/A
Item 6.	Exhibits	40

2

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, 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 on Form 10-Q 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 20 Aerie stores during Fiscal 2020;

• the potential closures of American Eagle and Aerie stores, primarily in North America, during Fiscal 2020;

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

• the success of our business priorities and strategies;

• the continued validity of our trademarks;

• our performance during the year-end holiday selling season;

• 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;

• the possibility that future access to the debt markets may not be available, or available at terms or interest rates that are attractive;

• the availability of sufficient cash flow to fund anticipated capital expenditures, future dividends, and working capital requirements;

• 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 further 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 and restructuring charges.

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

• the ongoing impact of the COVID-19 pandemic on global economic conditions, our customers’ discretionary income and freedom of movement;

• the current unknown duration of the COVID-19 pandemic;

• the impact of governmental regulations that have been, and may in the future be, imposed in response to the 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 recently reopened retail stores;

• the deterioration in the economic conditions in the United States, which could have an impact on discretionary consumer spending;

• the ability of our distribution centers to maintain adequate staffing to meet increased customer demand;

• the possibility of temporary furloughs of store, field, and corporate associates surrounded by store closures;

• the reduction of operating expenses, which includes delayed merit increases for associates, hiring freezes, and other cost-saving initiatives;

• the uncertainties surrounding the duration of store closures and whether currently open stores will remain open;

• the reduction or deferral of inventory receipts to align with lower demand due to store closures; and

3

• the planned reduction of capital expenditures across stores, information technology and other projects within a range of $100 million to $125 million for Fiscal 2020.

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 associated with our inability to anticipate and respond to changing consumer preferences;

• the risk associated with pricing pressure from existing and new competitors;

• the risk of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences;

• the risk that seasonality could cause sales to fluctuate and negatively impact our results of operations;

• the risk that the COVID-19 global pandemic could continue to have a material adverse effect on our business and results of operations, the nature and extent of which remains highly uncertain and unpredictable;

• the risk that our results could be adversely affected by natural disasters, public health crises (including, without limitation, the recent COVID-19 pandemic coronavirus outbreak), political crises, negative global climate patterns, 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 impact our business, particularly if our stores are closed or our customers have restricted freedom of movement;

• the risk that failure to define, launch and communicate a brand relevant customer experience could have a negative impact;

• the risk that our efforts to execute on our key business priorities could have a negative impact;

• the risk that our efforts to expand internationally expose us to risks inherent in operating in new countries;

• the risk that failure to protect our reputation could have a material adverse effect;

• the risk that we are unable to implement and sustain adequate information technology systems;

• the risk that our inability to safeguard against security breaches with respect to our information technology systems could damage our reputation and adversely impact our profitability;

• the risk that we may be exposed to costs associated with the loss of customer information;

• the risk that our international merchandise sourcing strategy subjects us to risks that could impact our business and results of operations;

• the risk that our product costs may be adversely affect by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, political instability, or other reasons;

• the risks associated with our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic or attract customers to our stores;

• the risks associated with leasing substantial amount of space, including increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations;

• the risk that we rely on key personnel, the loss of whom 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 a complex regulatory, compliance and legal environment;

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

• the risk that the impact of various legal proceedings, lawsuits, disputes, and claims could have an adverse impact on our business, financial condition, and results of operation.

4

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS

	August 1,			February 1,			August 3,
(In thousands, except per share amounts)	2020			2020			2019
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	898,787		$	361,930		$	267,166
Short-term investments		—			55,000			50,000
Merchandise inventory		421,196			446,278			534,762
Accounts receivable, net		107,243			119,064			98,604
Prepaid expenses and other		155,141			65,658			69,541
Total current assets		1,582,367			1,047,930			1,020,073
Property and equipment, at cost, net of accumulated depreciation		659,351			735,120			754,031
Operating lease right-of-use assets		1,271,491			1,418,916			1,462,544
Intangible assets net, including goodwill		51,432			53,004			56,326
Non-current deferred income taxes		30,224			22,724			16,759
Other Assets		33,111			50,985			49,426
Total assets	$	3,627,976		$	3,328,679		$	3,359,159
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	295,296		$	285,746		$	316,995
Current portion of operating lease liabilities		348,921			299,161			279,207
Accrued income and other taxes		12,783			9,514			17,754
Accrued compensation and payroll taxes		66,131			43,537			54,683
Dividends payable		22,837			—			—
Unredeemed gift cards and gift certificates		43,165			56,974			34,742
Other current liabilities and accrued expenses		51,281			56,824			60,265
Total current liabilities		840,414			751,756			763,646
Non-current liabilities:
Long-term debt, net		516,953			—			—
Non-current operating lease liabilities		1,253,105			1,301,735			1,338,634
Other non-current liabilities		19,604			27,335			28,302
Total non-current liabilities		1,789,662			1,329,070			1,366,936
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; 166,090, 166,993 and 168,962 shares    outstanding, respectively		2,496			2,496			2,496
Contributed capital		647,284			577,856			568,413
Accumulated other comprehensive loss		(47,991	)		(33,168	)		(36,630	)
Retained earnings		1,807,687			2,108,292			2,070,077
Treasury stock, 83,476, 82,573 and 80,604 shares, respectively		(1,411,576	)		(1,407,623	)		(1,375,779	)
Total stockholders’ equity		997,900			1,247,853			1,228,577
Total liabilities and stockholders’ equity	$	3,627,976		$	3,328,679		$	3,359,159

Refer to Notes to Consolidated Financial Statements

5

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	13 Weeks Ended					26 Weeks Ended
	August 1,			August 3,		August 1,			August 3,
(In thousands, except per share amounts)	2020			2019		2020			2019
Total net revenue	$	883,510		$	1,040,879	$	1,435,202		$	1,927,169
Cost of sales, including certain buying, occupancy and    warehousing expenses		618,311			658,308		1,141,697			1,219,677
Gross profit		265,199			382,571		293,505			707,492
Selling, general and administrative expenses		223,711			253,051		411,908			483,791
Impairment, restructuring and COVID-19 related charges		14,611			2,728		170,231			4,272
Depreciation and amortization expense		39,114			44,870		81,844			89,661
Operating (loss) income		(12,237	)		81,922		(370,478	)		129,768
Other (expense) income, net		(6,993	)		3,990		(10,122	)		8,172
(Loss) income before income taxes		(19,230	)		85,912		(380,600	)		137,940
(Benefit) provision for income taxes		(5,478	)		20,931		(109,685	)		32,206
Net (loss) income	$	(13,752	)	$	64,981	$	(270,915	)	$	105,734
Net (loss) income per basic share	$	(0.08	)	$	0.38	$	(1.63	)	$	0.61
Net (loss) income per diluted share	$	(0.08	)	$	0.38	$	(1.63	)	$	0.61
Weighted average common shares outstanding - basic		166,315			170,756		166,461			172,291
Weighted average common shares outstanding - diluted		166,315			171,781		166,461			173,701

Refer to Notes to Consolidated Financial Statements

6

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	August 1,			August 3,			August 1,			August 3,
(In thousands)	2020			2019			2020			2019
Net (loss) income	$	(13,752	)	$	64,981		$	(270,915	)	$	105,734
Other comprehensive income (loss):
Foreign currency translation adjustments		7,059			(1,276	)		(14,823	)		(1,798	)
Other comprehensive (loss) income:		7,059			(1,276	)		(14,823	)		(1,798	)
Comprehensive (loss) income	$	(6,693	)	$	63,705		$	(285,738	)	$	103,936

Refer to Notes to Consolidated Financial Statements

7

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

13 Weeks Ended August 1, 2020 and August 3, 2019
(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 4, 2019		171,870		$	2,496	$	570,443		$	2,028,627		$	(1,324,461	)	$	(35,354	)	$	1,241,751
Stock awards		—			—		9,207			—			—			—			9,207
Repurchase of common stock as part of    publicly announced programs		(3,425	)		—		—			—			(60,000	)		—			(60,000	)
Repurchase of common stock from employees		(252	)		—		—			—			(4,423	)		—			(4,423	)
Reissuance of treasury stock		769			—		(11,797	)		261			13,105			—			1,569
Net income		—			—		—			64,981						—			64,981
Other comprehensive income (loss)		—			—		—			—			—			(1,276	)		(1,276	)
Cash dividends declared and dividend    equivalents ($0.1375 per share)		—			—		560			(23,792	)		—			—			(23,232	)
Balance at August 3, 2019		168,962		$	2,496	$	568,413		$	2,070,077		$	(1,375,779	)	$	(36,630	)	$	1,228,577
Balance at May 2, 2020		165,500		$	2,496	$	646,350		$	1,826,413		$	(1,423,226	)	$	(55,050	)	$	996,983
Stock awards		—			—		11,436			—			—			—			11,436
Repurchase of common stock as part of    publicly announced programs		—			—		—			—			—			—			—
Repurchase of common stock from employees		(322	)		—		—			—			(3,785	)		—			(3,785	)
Convertible Notes- Equity portion, net of tax		—			—		—			—			—			—			—
Reissuance of treasury stock		912			—		(10,624	)		(4,893	)		15,435			—			(82	)
Net loss		—			—		—			(13,752	)		—			—			(13,752	)
Other comprehensive income (loss)		—			—		—			—			—			7,059			7,059
Cash dividends declared and dividend    equivalents ($0.1375 per share)		—			—		122			(81	)		—			—			41
Balance at August 1, 2020		166,090		$	2,496	$	647,284		$	1,807,687		$	(1,411,576	)	$	(47,991	)	$	997,900
26 Weeks Ended August 1, 2020 and August 3, 2019
(In thousands, except per share amounts)	Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)			Stockholders' Equity
Balance at February 2, 2019		172,436		$	2,496	$	574,929		$	2,054,654		$	(1,309,692	)	$	(34,832	)	$	1,287,555
Stock awards		—			—		14,166			—			—			—			14,166
Repurchase of common stock as part of    publicly announced programs		(4,336	)		—		—			—			(80,000	)		—			(80,000	)
Repurchase of common stock from employees		(421	)		—		—			—			(7,921	)		—			(7,921	)
Adoption of ASC 842, net of tax		—			—		—			(44,435	)		-			—			(44,435	)
Reissuance of treasury stock		1,283			—		(21,672	)		1,979			21,834			—			2,141
Net income		—			—		—			105,734						—			105,734
Other comprehensive income (loss)		—			—		—			—			—			(1,798	)		(1,798	)
Cash dividends declared and dividend    equivalents ($0.275 per share)		—			—		990			(47,855	)		—			—			(46,865	)
Balance at August 3, 2019		168,962		$	2,496	$	568,413		$	2,070,077		$	(1,375,779	)	$	(36,630	)	$	1,228,577
Balance at February 1, 2020		166,993		$	2,496	$	577,856		$