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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 October 31, 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: (412432-3300

 

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: 166,184,108 Common Shares were outstanding at December 1, 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: October 31, 2020, February 1, 2020  and November 2, 2019

 

5

 

 

Consolidated Statements of Operations: 13 and 39 weeks ended October 31, 2020 and November 2, 2019

 

6

 

 

Consolidated Statements of Comprehensive Income: 13 and 39 weeks ended October 31, 2020 and November 2, 2019

 

7

 

 

Consolidated Statements of Stockholders’ Equity: 13 and 39 weeks ended October 31, 2020 and November 2, 2019

 

8

 

 

Consolidated Statements of Cash Flows: 39 weeks ended October 31, 2020 and November 2, 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 30 Aerie stores during Fiscal 2020;

the potential closures, including temporary 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, including a potential resurgence during the fourth quarter of Fiscal 2020 or beyond;

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;

3


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

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

 

 

 

October 31,

 

 

February 1,

 

 

November 2,

 

(In thousands, except per share amounts)

 

2020

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

692,356

 

 

$

361,930

 

 

$

214,514

 

Short-term investments

 

 

-

 

 

 

55,000

 

 

 

50,000

 

Merchandise inventory

 

 

559,961

 

 

 

446,278

 

 

 

647,329

 

Accounts receivable, net

 

 

124,560

 

 

 

119,064

 

 

 

112,304

 

Prepaid expenses and other

 

 

130,909

 

 

 

65,658

 

 

 

54,427

 

Total current assets

 

 

1,507,786

 

 

 

1,047,930

 

 

 

1,078,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, at cost, net of accumulated depreciation

 

 

650,397

 

 

 

735,120

 

 

 

764,350

 

Operating lease right-of-use assets

 

 

1,243,311

 

 

 

1,418,916

 

 

 

1,486,133

 

Intangible assets net, including goodwill

 

 

50,864

 

 

 

53,004

 

 

 

55,466

 

Non-current deferred income taxes

 

 

12,774

 

 

 

22,724

 

 

 

16,833

 

Other Assets

 

 

33,083

 

 

 

50,985

 

 

 

50,896

 

Total assets

 

$

3,498,215

 

 

$

3,328,679

 

 

$

3,452,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

304,552

 

 

$

285,746

 

 

$

366,676

 

Current portion of operating lease liabilities

 

 

346,321

 

 

 

299,161

 

 

 

292,312

 

Accrued income and other taxes

 

 

15,503

 

 

 

9,514

 

 

 

18,421

 

Accrued compensation and payroll taxes

 

 

117,736

 

 

 

43,537

 

 

 

43,473

 

Dividends payable

 

 

22,843

 

 

 

 

 

 

 

Unredeemed gift cards and gift certificates

 

 

39,794

 

 

 

56,974

 

 

 

32,411

 

Other current liabilities and accrued expenses

 

 

47,587

 

 

 

56,824

 

 

 

56,859

 

Total current liabilities

 

 

894,336

 

 

 

751,756

 

 

 

810,152

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

321,081

 

 

 

 

 

 

 

Non-current operating lease liabilities

 

 

1,196,755

 

 

 

1,301,735

 

 

 

1,353,819

 

Other non-current liabilities

 

 

17,846

 

 

 

27,335

 

 

 

27,896

 

Total non-current liabilities

 

 

1,535,682

 

 

 

1,329,070

 

 

 

1,381,715

 

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; 166,129, 166,993 and 166,974 shares

   outstanding, respectively

 

 

2,496

 

 

 

2,496

 

 

 

2,496

 

Contributed capital

 

 

655,891

 

 

 

577,856

 

 

 

574,391

 

Accumulated other comprehensive loss

 

 

(44,673

)

 

 

(33,168

)

 

 

(35,861

)

Retained earnings

 

 

1,865,370

 

 

 

2,108,292

 

 

 

2,127,312

 

Treasury stock, 83,437, 82,573 and 82,592 shares, respectively

 

 

(1,410,887

)

 

 

(1,407,623

)

 

 

(1,407,953

)

Total stockholders’ equity

 

 

1,068,197

 

 

 

1,247,853

 

 

 

1,260,385

 

Total liabilities and stockholders’ equity

 

$

3,498,215

 

 

$

3,328,679

 

 

$

3,452,252

 

 

Refer to Notes to Consolidated Financial Statements

5


AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

 

 

October 31,

 

 

November 2,

 

October 31,

 

 

November 2,

 

(In thousands, except per share amounts)

 

2020

 

 

2019

 

2020

 

 

2019

 

Total net revenue

 

 

1,031,617

 

 

 

1,066,412

 

 

2,466,819

 

 

 

2,993,581

 

Cost of sales, including certain buying, occupancy and

   warehousing expenses

 

 

616,840

 

 

 

659,350

 

 

1,758,537

 

 

 

1,879,027

 

Gross profit

 

 

414,777

 

 

 

407,062

 

 

708,282

 

 

 

1,114,554

 

Selling, general and administrative expenses

 

 

273,297

 

 

 

258,973

 

 

685,206

 

 

 

742,764

 

Impairment, restructuring and COVID-19 related charges

 

 

6,955

 

 

 

-

 

 

177,186

 

 

 

4,272

 

Depreciation and amortization expense

 

 

38,974

 

 

 

44,987

 

 

120,818

 

 

 

134,648

 

Operating income (loss)

 

 

95,551

 

 

 

103,102

 

 

(274,928

)

 

 

232,870

 

Interest expense (income), net

 

 

7,924

 

 

 

(1,238

)

 

16,617

 

 

 

(4,797

)

Other income, net

 

 

(2,223

)

 

 

(1,339

)

 

(793

)

 

 

(5,952

)

Income (loss) before income taxes

 

 

89,850

 

 

 

105,679

 

 

(290,752

)

 

 

243,619

 

Provision (Benefit) for income taxes

 

 

31,742

 

 

 

24,918

 

 

(77,943

)

 

 

57,125

 

Net income (loss)

 

 

58,108

 

 

 

80,761

 

 

(212,809

)

 

 

186,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per basic share

 

$

0.35

 

 

$

0.48

 

$

(1.28

)

 

$

1.09

 

Net income (loss) per diluted share

 

$

0.32

 

 

$

0.48

 

$

(1.28

)

 

$

1.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

166,185

 

 

 

167,912

 

 

166,385

 

 

 

170,463

 

Weighted average common shares outstanding - diluted

 

 

184,397

 

 

 

168,693

 

 

166,385

 

 

 

171,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to Notes to Consolidated Financial Statements

6


AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

 

39 Weeks Ended

 

 

 

October 31,

 

 

November 2,

 

 

 

October 31,

 

 

November 2,

 

(In thousands)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

58,108

 

 

$

80,761

 

 

 

$

(212,809

)

 

$

186,494

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,318

 

 

 

769

 

 

 

 

(11,505

)

 

 

(1,029

)

Other comprehensive income (loss):

 

 

3,318

 

 

 

769

 

 

 

 

(11,505

)

 

 

(1,029

)

Comprehensive income (loss)

 

$

61,426

 

 

$

81,530

 

 

 

$

(224,314

)

 

$

185,465

 

 

Refer to Notes to Consolidated Financial Statements

7


AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

13 Weeks Ended October 31, 2020 and November 2, 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 August 3, 2019

 

 

168,962

 

 

$

2,496

 

 

$

568,413

 

 

$

2,070,077

 

 

$

(1,375,779

)

 

$

(36,630

)

 

$

1,228,577

 

Stock awards

 

 

 

 

 

 

 

 

5,565

 

 

 

 

 

 

 

 

 

 

 

 

5,565

 

Repurchase of common stock as part of

   publicly announced programs

 

 

(2,000

)

 

 

 

 

 

 

 

 

 

 

 

(32,381

)

 

 

 

 

 

(32,381

)

Repurchase of common stock from employees

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

(50

)

Reissuance of treasury stock

 

 

15

 

 

 

 

 

 

(175

)

 

 

20

 

 

 

257

 

 

 

 

 

 

102

 

Net income

 

 

 

 

 

 

 

 

 

 

 

80,761

 

 

 

 

 

 

 

 

 

80,761

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

769

 

 

 

769

 

Cash dividends declared and dividend

   equivalents ($0.1375 per share)

 

 

 

 

 

 

 

 

588

 

 

 

(23,546

)

 

 

 

 

 

 

 

 

(22,958

)

Balance at November 2, 2019

 

 

166,974

 

 

$

2,496

 

 

$

574,391

 

 

$

2,127,312

 

 

$

(1,407,953

)

 

$

(35,861

)

 

$

1,260,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at August 1, 2020

 

 

166,090

 

 

$

2,496

 

 

$

647,284

 

 

$

1,807,687

 

 

$

(1,411,576

)

 

$

(47,991

)

 

$

997,900

 

Stock awards

 

 

 

 

 

 

 

 

8,946

 

 

 

 

 

 

 

 

 

 

 

 

8,946

 

Repurchase of common stock from employees

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

(142

)

 

 

 

 

 

(142

)

Reissuance of treasury stock

 

 

50

 

 

 

 

 

 

(536

)

 

 

(420

)

 

 

831

 

 

 

 

 

 

(125

)

Net income

 

 

 

 

 

 

 

 

 

 

 

58,108

 

 

 

 

 

 

 

 

 

58,108

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,318

 

 

 

3,318

 

Current period adjustment to dividend

   declared ($0.375 per share)

 

 

 

 

 

 

 

 

197

 

 

 

(5

)

 

 

 

 

 

 

 

 

192

 

Balance at October 31, 2020

 

 

166,129

 

 

$

2,496

 

 

$

655,891

 

 

$

1,865,370

 

 

$

(1,410,887

)

 

$

(44,673

)

 

$

1,068,197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39 Weeks Ended October 31, 2020 and November 2, 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

 

 

 

 

 

 

 

 

19,731

 

 

 

 

 

 

 

 

 

 

 

 

19,731

 

Repurchase of common stock as part of

   publicly announced programs

 

 

(6,336

)

 

 

 

 

 

 

 

 

 

 

 

(112,381

)

 

 

 

 

 

(112,381

)

Repurchase of common stock from employees

 

 

(425

)

 

 

 

 

 

 

 

 

 

 

 

(7,980

)

 

 

 

 

 

(7,980

)

Adoption of ASC 842, net of tax

 

 

 

 

 

 

 

 

 

 

 

(44,435

)

 

 

-

 

 

 

 

 

 

(44,435

)

Reissuance of treasury stock

 

 

1,299

 

 

 

 

 

 

(21,847

)

 

 

1,999

 

 

 

22,100

 

 

 

 

 

 

2,252

 

Net income

 

 

 

 

 

 

 

 

 

 

 

186,494

 

 

 

 

 

 

 

 

 

 

186,494

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,029

)

 

 

(1,029

)

Cash dividends declared and dividend

   equivalents ($0.1375 per share)

 

 

 

 

 

 

 

 

1,578

 

 

 

(71,400

)

 

 

 

 

 

 

 

 

(69,822

)

Balance at November 2, 2019

 

 

166,974

 

 

$

2,496

 

 

$

574,391

 

 

$

2,127,312

 

 

$

(1,407,953

)

 

$

(35,861

)

 

$

1,260,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at February 1, 2020

 

 

166,993

 

 

$

2,496

 

 

$

577,856

 

 

$

2,108,292