American Eagle Outfitters Inc. AEO reported robust fourth-quarter fiscal 2015 results, wherein earnings of 42 cents per share increased 17% from 36 cents recorded in the prior-year quarter, and also beat the Zacks Consensus Estimate of 41 cents.
Results benefited from the company’s merchandise related initiatives as well as actions taken to improve operational performance. Further, the company’s quarterly results gained from solid growth at its American Eagle brand and better-than-expected performance at its Aerie brand.
Despite the general macro challenges surrounding the retail world, American Eagle managed to report sales growth and operating margin expansion in the fourth quarter.
Total revenue of this Zacks Rank #3 (Hold) company increased nearly 3% to $1,105.8 million, but fell short of the Zacks Consensus Estimate of $1,121 million. Comparable-store sales (comps) improved 4% as against flat comps recorded last year. Brand-wise, comps increased 26% at the company's aerie stores and 3% at AE Total Brand outlets.
Quarter in Detail
Gross profit in the quarter rose 3% to $388 million, while gross margin was flat with last year at 35.1% owing to lower markdowns, product costs and rent expense, fully offset by higher incentive costs as well as increased delivery costs.
Selling, general and administrative (SG&A) expenses were up 3% year over year to $233 million, reflecting higher incentive compensation expenses, along with deliberate investments in digital marketing. This was offset slightly by gain related to the closing of the Warrendale, PA distribution center. However, as a percentage of sales, SG&A expenses declined 10 basis points to 21.1%.
The company’s operating income came in at $116 million, marking a 3% rise from $112 million recorded in the prior-year quarter. Operating margin was flat at 10.5%.
Fiscal 2015 Synopsis
For fiscal 2015, the company’s adjusted earnings came in at $1.09 per share, up nearly 73% from the last fiscal and ahead of the Zacks Consensus Estimate of $1.08. Revenues for the fiscal year rose approximately 7% to $3,521.8 million but fell short of the Zacks Consensus Estimate of $3,542 million.
Financial Position
American Eagle ended the fiscal with cash and cash equivalents of nearly $260.1 million compared with $410.7 million in the prior-year quarter.
In fiscal 2015, the company incurred $153 million of capital expenditures. For fiscal 2016, the company expects to spend about $160–$170 million toward capital expenditure.
As of Jan 30, 2016, American Eagle’s total inventory was $305 million, up 9% from the comparable year-ago period. American Eagle expects inventory at cost to decline in the low single digits range at the end of first-quarter fiscal 2016.
Store Update
During the fourth quarter, American Eagle inaugurated 1 new Tailgate Clothing store, while it closed 21 AE stores and one Aerie store. Alongside, on the global platform, the company opened 15 international licensed stores, which also marks the company’s foray into Bahrain and Oman.
With this, the company has closed nearly 76 AE and 26 Aerie stores since the start of fiscal 2014. This brings it closer to its target of closing about 150 stores, which it anticipates to complete by the end of fiscal 2016.
As of Jan 30, 2016, American Eagle operated 1,047 company stores and 141 international licensed outlets across 22 countries.
By the end of fiscal 2016, the company expects to operate 174 international licensed stores. The company’s total store count at the end of fiscal 2016 is expected to be in the range of 1,058 to 1,029.
Guidance
American Eagle anticipates comps growth at a mid single-digit rate in the first quarter of fiscal 2016. Consequently, the company projects earnings per share in the band of 17–19 cents compared with 15 cents earned in the prior-year quarter.
Other Stocks to Consider
Other favorably placed stocks in the same industry include DSW Inc. DSW, Zumiez Inc. ZUMZ and Foot Locker Inc. FL, each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ZUMIEZ INC (ZUMZ): Free Stock Analysis Report
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
FOOT LOCKER INC (FL): Free Stock Analysis Report
DSW INC CL-A (DSW): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research