American Eagle Outfitters Reports Fourth Quarter and Full Year 2016 Results

PITTSBURGH–(BUSINESS WIRE)–American Eagle Outfitters, Inc. (NYSE:AEO) today reported EPS of $0.30
for the fourth quarter and $1.16 for the year ended January 28, 2017.
Excluding asset impairment, restructuring and related charges of $0.09
per diluted share, the company’s adjusted EPS were $0.39 and $1.25 for
the fourth quarter and full year, respectively.

Last year, the company reported EPS of $0.42 for the fourth quarter and
EPS from continuing operations of $1.09 for the year ended January 30,
2016, which included a gain on the sale of a distribution center and a
lower tax rate related to income tax settlements, federal tax credits
and tax strategies. Excluding these items, last year’s adjusted fourth
quarter EPS was $0.35 and annual EPS from continuing operations was
$1.01. The EPS figures refer to diluted earnings per share.

Jay Schottenstein, Chief Executive Officer commented, “I’m extremely
proud that our strategic priorities centered on product innovation and
customer focus have delivered results and greater consistency throughout
2016, despite a highly competitive and challenging retail landscape. The
American Eagle brand continued its strong leadership in jeans and
bottoms and has experienced accelerated growth in women’s apparel. Aerie
posted double-digit sales growth throughout 2016, fueled by superior
merchandise, a strengthening customer base and growing brand awareness.
We’ve made great progress, yet we have much more opportunity across the
marketplace. I’m confident that the strength of our brands and focused
priorities will enable us to deliver long-term returns to our
shareholders.”

Fourth Quarter 2016 Results

The following discussion is based on Non-GAAP results, as presented in
the accompanying GAAP to Non-GAAP reconciliation.

• Total net revenue decreased 1% to $1.10 billion from $1.11 billion
  last year.
• Consolidated comparable sales were up slightly, following a 4%
  increase last year.
• Gross profit increased slightly to $389 million from $388 million. The
  gross margin rate increased 30 basis points to 35.4% of revenue
  compared to 35.1% last year. A favorable merchandise margin reflecting
  improved IMU was partially offset by higher delivery costs related to
  growth in the direct business.
• Selling, general and administrative expense of $242 million was flat
  compared to last year, with higher advertising expense offset by lower
  incentive compensation. As a rate to revenue, SG&A deleveraged 20
  basis points to 22.1%.
• Operating income of $107 million compared to $106 million last year,
  improving 20 basis points to 9.8% as a rate to revenue.
• Adjusted EPS of $0.39 increased 11% compared to adjusted EPS of $0.35
  last year.

Fiscal Year 2016 Results

The following discussion is based on Non-GAAP results from continuing
operations, as presented in the accompanying GAAP to Non-GAAP
reconciliation.

• Total net revenue increased 2% to $3.61 billion from $3.52 billion
  last year.
• Consolidated comparable sales increased 3%, following a 7% increase
  last year.
• Gross profit increased 5% to $1.37 billion and leveraged 90 basis
  points to 37.9% as a rate to revenue. The improvement in the gross
  margin reflected an increase in the merchandise margin based on
  improved IMU.
• Selling, general and administrative expense of $858 million was up 2%
  compared to $844 million last year, due to higher advertising expense
  offset by lower incentive compensation. As a rate to revenue, SG&A
  leveraged 20 basis points to 23.8%.
• Operating income increased 14% to $353 million. The operating margin
  increased 100 basis points to 9.8%.
• Adjusted EPS from continuing operations of $1.25 increased 24%
  compared to adjusted EPS of $1.01 last year.

Asset Impairment and Restructuring Charges

In the fourth quarter, the company had asset impairment and
restructuring charges totaling $21 million related to its owned and
operated stores in the UK, China and Hong Kong. The company is exploring
an initiative to convert those markets to licensed partnerships. Related
to these initiatives, the company expects to incur additional
restructuring charges in fiscal 2017. The timing and magnitude of
charges is dependent on a number of factors, including negotiating
third-party agreements, adherence to notification requirements and local
laws.

Inventory

Total ending inventories at cost increased 17% to $358 million. The
average unit cost was up 13% and units increased 4% compared to last
year. In-transit inventory was significantly higher due to acceleration
of receipts. On-hand inventories were up 6% to last year. The inventory
composition reflected an investment in AE bottoms to support better
in-stocks and an increase in aerie inventory to support strong demand
and new store growth.

Capital Expenditures

In 2016, capital expenditures totaled $161 million. For fiscal 2017, the
company expects capital expenditures to be in the range of $160 to $170
million, with roughly half related to store remodeling projects and new
openings, and the balance to support the digital business, omni-channel
tools and general corporate maintenance.

Cash

The company ended the year with total cash of $379 million. As a result
of strong free cash flow, cash increased $119 million compared to the
end of 2015. During 2016, we returned $91 million in cash dividends to
our shareholders.

Store Information

In the quarter, the company opened 2 AE stores and closed 11 AE stores.
There were 6 Aerie stand alone stores opened and 1 Aerie stand alone
store closed. Additionally, the company opened 1 Tailgate store and 1
Todd Snyder store. Internationally, the company opened 15 licensed
stores and closed 2 licensed stores during the quarter. The company
ended the year with 943 AE stores, which included 88 Aerie side-by-side
locations. Additionally, the company had 102 Aerie stand alone stores
and 176 licensed stores at year end. For additional fourth quarter 2016
actual and fiscal 2017 projected store information, see the accompanying
table.

First Quarter Outlook

Based on anticipated comparable store sales in the range of flat to a
low single digit decline, management expects first quarter 2017 EPS to
be approximately $0.15 to $0.17. This guidance excludes potential asset
impairment and restructuring charges, and compares to EPS of $0.22 last
year.

Conference Call and Supplemental Financial Information

Today, management will host a conference call and real time webcast at
9:00 a.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or
internationally dial 1-201-689-8562 or go to http://investors.ae.com
to access the webcast and audio replay. Also, a financial results
presentation is posted on the company’s website.

Non-GAAP Measures

This press release includes information on non-GAAP financial measures
(“non-GAAP” or “adjusted”), including earnings per share information and
the consolidated results of operations excluding non-GAAP items. These
financial measures are not based on any standardized methodology
prescribed by U.S. generally accepted accounting principles (“GAAP”) and
are not necessarily comparable to similar measures presented by other
companies. The company believes that this non-GAAP information is useful
as an additional means for investors to evaluate the company’s operating
performance, when reviewed in conjunction with the company’s GAAP
financial statements. These amounts are not determined in accordance
with GAAP and therefore, should not be used exclusively in evaluating
the company’s business and operations.

About American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global
specialty retailer offering high-quality, on-trend clothing, accessories
and personal care products at affordable prices under its American Eagle
Outfitters® and Aerie® brands. The company operates more than 1,000
stores in the United States, Canada, Mexico, China, Hong Kong and the
United Kingdom, and ships to 81 countries worldwide through its
websites. American Eagle Outfitters and Aerie merchandise also is
available at more than 170 international locations operated by
licensees. For more information, please visit www.ae.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform
Act of 1995: This release contains forward-looking statements, which
represent our expectations or beliefs concerning future events,
including first quarter 2017 results. All forward-looking statements
made by the company involve material risks and uncertainties and are
subject to change based on factors beyond the company’s control. Such
factors include, but are not limited to the risk that the company’s
operating, financial and capital plans may not be achieved and the risks
described in the Risk Factor Section of the company’s Form 10-K and Form
10-Q filed with the Securities and Exchange Commission. Accordingly, the
company’s future performance and financial results may differ materially
from those expressed or implied in any such forward-looking statements.
The company does not undertake to publicly update or revise its
forward-looking statements even if future changes make it clear that
projected results expressed or implied will not be realized.

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
				January 28,				January 30,
				2017				2016
				(unaudited)
ASSETS
	Cash and cash equivalents		$	378,613			$	260,067
	Merchandise inventory			358,446				305,178
	Accounts receivable			86,634				80,912
	Prepaid expenses and other			77,536				77,218
	Total current assets			901,229				723,375
	Property and equipment, net			707,797				703,586
	Intangible assets, net			49,373				51,832
	Goodwill			14,887				17,186
	Non-current deferred income taxes			49,250				64,927
	Other assets			60,124				51,340
	Total Assets		$	1,782,660			$	1,612,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
	Accounts payable		$	246,204			$	182,789
	Accrued compensation and payroll taxes			54,184				79,302
	Accrued rent			78,619				77,482
	Accrued income and other taxes			12,220				22,223
	Unredeemed gift cards and gift certificates			52,966				48,274
	Current portion of deferred lease credits			12,780				12,711
	Other current liabilities and accrued expenses			36,810				40,901
	Total current liabilities			493,783				463,682
	Deferred lease credits			45,114				50,104
	Non-current accrued income taxes			4,537				4,566
	Other non-current liabilities			34,657				42,518
	Total non-current liabilities			84,308				97,188
	Commitments and contingencies			–				–
	Preferred stock			–				–
	Common stock			2,496				2,496
	Contributed capital			603,890				590,820
	Accumulated other comprehensive income			(36,462	)			(29,868	)
	Retained earnings			1,775,775				1,659,267
	Treasury stock			(1,141,130	)			(1,171,339	)
	Total stockholders’ equity			1,204,569				1,051,376
	Total Liabilities and Stockholders’ Equity		$	1,782,660			$	1,612,246
	Current Ratio			1.83				1.56

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
			GAAP Basis
			13 Weeks Ended
			January 28,		% of				January 30,			% of
			2017		Revenue				2016			Revenue
Total net revenue		$	1,097,246		100.0	%		$	1,105,828			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses			708,744		64.6	%			717,877			64.9	%
Gross profit			388,502		35.4	%			387,951			35.1	%
Selling, general and administrative expenses			242,059		22.1	%			233,020			21.1	%
Impairment and restructuring charges			21,166		1.9	%			–			0.0	%
Depreciation and amortization			39,403		3.6	%			39,295			3.5	%
Operating income			85,874		7.8	%			115,636			10.5	%
Other income (expense), net			1,382		0.1	%			(2,262	)		-0.2	%
Income before income taxes			87,256		7.9	%			113,374			10.3	%
Provision for income taxes			32,634		2.9	%			31,668			2.9	%
Net income		$	54,622		5.0	%		$	81,706			7.4	%
Net income per basic share		$	0.30					$	0.43
Net income per diluted share		$	0.30					$	0.42
Weighted average common shares outstanding – basic			182,055						191,697
Weighted average common shares outstanding – diluted			185,054						194,259
			GAAP Basis
			52 Weeks Ended
			January 28,		% of				January 30,			% of
			2017		Revenue				2016			Revenue
Total net revenue		$	3,609,865		100.0	%		$	3,521,848			100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses			2,242,938		62.1	%			2,219,114			63.0	%
Gross profit			1,366,927		37.9	%			1,302,734			37.0	%
Selling, general and administrative expenses			857,562		23.8	%			834,700			23.7	%
Impairment and restructuring charges			21,166		0.6	%			–			0.0	%
Depreciation and amortization			156,723		4.3	%			148,156			4.2	%
Operating income			331,476		9.2	%			319,878			9.1	%
Other income, net			3,786		0.1	%			1,993			0.0	%
Income before income taxes			335,262		9.3	%			321,871			9.1	%
Provision for income taxes			122,813		3.4	%			108,580			3.1	%
Income from continuing operations			212,449		5.9	%			213,291			6.0	%
Gain from discontinued operations, net of tax			–		0.0	%			4,847			0.2	%
Net income		$	212,449		5.9	%		$	218,138			6.2	%
Basic income per common share:
Income from continuing operations		$	1.17					$	1.10
Gain from discontinued operations			–						0.02
Net income per basic share		$	1.17					$	1.12
Diluted income per common share:
Income from continuing operations		$	1.16					$	1.09
Gain from discontinued operations			–						0.02
Net income per diluted share		$	1.16					$	1.11
Weighted average common shares outstanding – basic			181,429						194,351
Weighted average common shares outstanding – diluted			183,835						196,237

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
		13 Weeks Ended
		January 28, 2017
		Operating income								Diluted income
		(loss)				Net income				per common share
GAAP Basis		$	85,874			$	54,622			$	0.30
% of Revenue			7.8	%			5.0	%
Add: Asset Impairment and Restructuring Charges (1):			21,166				13,991				0.07
Tax (2):			–				3,088				0.02
Non-GAAP Basis		$	107,040			$	71,701			$	0.39
% of Revenue			9.8	%			6.5	%
(1) – $21.2 million pre-tax asset impairments and restructuring charges relating to our wholly-owned businesses in the United Kingdom and Asia.
(2) – GAAP tax rate included impact of valuation allowances on asset impairment and restructuring charges. Excluding the impact of those items resulted in a 33.9% tax rate for the quarter.
		52 Weeks Ended
		January 28, 2017
		Operating income								Diluted income
		(loss)				Net income				per common share
GAAP Basis		$	331,476			$	212,449			$	1.16
% of Revenue			9.2	%			5.9	%
Add: Asset Impairment and Restructuring Charges (1):			21,166				13,631				0.07
Tax (2):			–				3,447				0.02
Non-GAAP Basis		$	352,642			$	229,527			$	1.25
% of Revenue			9.8	%			6.4	%
(1) – $21.2 million pre-tax asset impairments and restructuring charges relating to our wholly-owned businesses in the United Kingdom and Asia.
(2) – GAAP tax rate included impact of valuation allowances on asset impairment and restructuring charges. Excluding the impact of those items resulted in a 35.6% tax rate for the year.

AMERICAN EAGLE OUTFITTERS, INC.
GAAP TO NON-GAAP RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
	13 Weeks Ended
	January 30, 2016
	Selling, general				Operating								Diluted income
	& administrative				income								per common
	expenses				(loss)				Net income				share
GAAP Basis	$	233,020			$	115,636			$	81,706			$	0.42
% of Revenue		21.1	%			10.5	%			7.4	%
Gain on Sale of Warrendale DC (1):		9,422				(9,422	)			(6,793	)			(0.03	)
Tax (2):		–				–				(7,443	)			(0.04	)
Non-GAAP Basis	$	242,442			$	106,214			$	67,470			$	0.35
% of Revenue		21.9	%			9.6	%			6.1	%
(1) – $9.4 million pre-tax gain on sale of previously closed Warrendale Distribution center.
(2) – GAAP tax rate included income tax settlements and a decrease to the valuation allowance on foreign deferred tax assets. Excluding the impact of those items resulted in a 35.1% tax rate.
	52 Weeks Ended
	January 30, 2016
													Diluted income
													per common
	Selling, general				Operating				Income from				share from
	& administrative				income				continuing				continuing
	expenses				(loss)				operations				operations
GAAP Basis	$	834,700			$	319,878			$	213,291			$	1.09
% of Revenue		23.7	%			9.1	%			6.0	%
Gain on Sale of Warrendale DC (1):		9,422				(9,422	)			(6,247	)			(0.04	)
Tax (2):		–				–				(7,990	)			(0.04	)
Non-GAAP Basis	$	844,122			$	310,455			$	199,055			$	1.01
% of Revenue		24.0	%			8.8	%			5.7	%
(1) – $9.4 million pre-tax gain on sale of previously closed Warrendale Distribution center.
(2) – GAAP tax rate included income tax settlements and a decrease to the valuation allowance on foreign deferred tax assets. Excluding the impact of those items resulted in a 36.3% tax rate.

AMERICAN EAGLE OUTFITTERS, INC.
COMPARABLE SALES RESULTS BY BRAND
(unaudited)
		Fourth Quarter
		Comparable Sales
		2016			2015
American Eagle Outfitters, Inc. (1)		0.4	%		4	%
AE Total Brand (1)		-1	%		3	%
aerie Total Brand (1)		17	%		26	%
		Fiscal Year
		Comparable Sales
		2016			2015
American Eagle Outfitters, Inc. (1)		3	%		7	%
AE Total Brand (1)		1	%		7	%
aerie Total Brand (1)		23	%		20	%
(1) AEO Direct is included in consolidated and total brand comparable sales.

AMERICAN EAGLE OUTFITTERS, INC.
STORE INFORMATION
(unaudited)
		Fourth Quarter		Fiscal		Fiscal 2017
		2016		2016		Guidance
Consolidated stores at beginning of period		1,052		1,047		1,050
Consolidated stores opened during the period
AE Brand		2		12		15 – 20
aerie		6		13		15
Tailgate Clothing Co.		1		3		1
Todd Snyder		1		1		1
Consolidated stores closed during the period
AE Brand		(11)		(18)		(15) – (20)
aerie		(1)		(8)		(8) – (10)
Total consolidated stores at end of period		1,050		1,050		1,057 – 1,059
Stores remodeled and refurbished during the period		5		63		55 – 65
Total gross square footage at end of period		6,619,267		6,619,267		Not Provided
International license locations at end of period (1)		176		176		206
(1) International license locations are not included in the consolidated store data or the total gross square footage calculation.

Contacts

American Eagle Outfitters, Inc.
Kristen McGraw, 412-432-3300