American Eagle Outfitters(AEO) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Forward Looking Statements The company outlines its Fiscal 2023 plans and highlights significant risks from economic conditions and competition - Fiscal 2023 plans include opening approximately 20-30 Aerie locations and 5-15 American Eagle stores, while closing 20-40 American Eagle stores[7] - The company identifies significant business risks, including global economic conditions and their impact on discretionary consumer spending[7] - Other major risks include anticipating fashion trends, intense competition, supply chain disruptions, and inventory management failures[7][8] Financial Statements This section presents the unaudited consolidated financial statements for the quarterly period ended April 29, 2023 Consolidated Balance Sheets Total assets decreased to $3.37 billion while stockholders' equity increased to $1.62 billion year-over-year Consolidated Balance Sheet Summary (in thousands) | Account | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $117,841 | $228,775 | | Merchandise inventory | $624,851 | $682,100 | | Total current assets | $1,129,501 | $1,280,539 | | Total assets | $3,373,894 | $3,701,518 | | Liabilities & Equity | | | | Total current liabilities | $716,437 | $737,479 | | Long-term debt, net | $30,225 | $405,807 | | Total liabilities | $1,754,878 | $2,318,512 | | Total stockholders' equity | $1,619,016 | $1,383,006 | Consolidated Statements of Operations Net revenue slightly increased to $1.08 billion, but net income fell to $18.5 million due to an impairment charge Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | 13 Weeks Ended April 29, 2023 | 13 Weeks Ended April 30, 2022 | | :--- | :--- | :--- | | Total net revenue | $1,080,926 | $1,055,037 | | Gross profit | $413,179 | $388,026 | | Impairment, restructuring and other charges | $21,275 | $0 | | Operating income | $22,831 | $41,902 | | Net income | $18,453 | $31,740 | | Diluted net income per common share | $0.09 | $0.16 | Consolidated Statements of Cash Flows Net cash used for operating activities improved significantly to ($8.2 million) from ($108.2 million) year-over-year Cash Flow Summary (in thousands) | Activity | 13 Weeks Ended April 29, 2023 | 13 Weeks Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash used for operating activities | ($8,216) | ($108,247) | | Net cash used for investing activities | ($46,020) | ($58,660) | | Net cash provided by (used for) financing activities | $1,908 | ($38,355) | | Net change in cash and cash equivalents | ($52,368) | ($205,995) | Notes to Consolidated Financial Statements Notes detail the redemption of convertible notes, segment performance, and a $21.3 million impairment charge - The company operates under two main reportable segments: American Eagle® (AE) and Aerie®[22][27][77] - During Q1 2023, the company fully redeemed its remaining outstanding 2025 Convertible Senior Notes[94][100][101] Segment Revenue (in thousands) | Segment | 13 Weeks Ended April 29, 2023 | 13 Weeks Ended April 30, 2022 | | :--- | :--- | :--- | | American Eagle | $671,092 | $685,579 | | Aerie | $359,082 | $321,712 | | Corporate and Other | $50,752 | $47,746 | | Total net revenue | $1,080,926 | $1,055,037 | Impairment & Restructuring Charges Q1 2023 (in thousands) | Charge Type | Amount | | :--- | :--- | | Long-lived asset impairment charges | $10,759 | | Employee related costs | $5,592 | | Other commercial related charges | $4,924 | | Total | $21,275 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 2% revenue increase, improved gross margin, and an operating income decline due to impairment Results of Operations Q1 2023 net revenue rose 2% driven by Aerie, while net income fell due to a $21.3 million impairment charge Brand Revenue Performance - Q1 2023 vs Q1 2022 (in millions) | Brand | Q1 2023 Revenue | Q1 2022 Revenue | Change | | :--- | :--- | :--- | :--- | | American Eagle | $671.1 | $685.6 | (2.1%) | | Aerie | $359.1 | $321.7 | +11.6% | - Gross profit margin increased to 38.2% from 36.8% year-over-year, driven by lower inbound transportation costs[144] - The company recorded a $21.3 million impairment and restructuring charge related to Quiet Platforms, impacting income[149] - Net income per diluted share was $0.09, which included an $0.08 per share impact from the impairment charge[136][155] Liquidity and Capital Resources The company held $117.8 million in cash, with $45.9 million in Q1 capital expenditures and a paid quarterly dividend Liquidity Measures | Metric | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Working Capital (in thousands) | $413,064 | $543,060 | | Current Ratio | 1.58 | 1.74 | - Capital expenditures for Q1 2023 were $45.9 million, primarily for store investments ($21.6M) and IT initiatives ($17.2M)[168] - The company paid a quarterly cash dividend of $0.10 per share on April 21, 2023[172] - As of April 29, 2023, the company had $30.0 million in borrowings under its revolving credit facility and the 2025 Senior Notes were fully redeemed[159] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure is from foreign exchange fluctuations, which remains unchanged from Fiscal 2022 - The company is primarily exposed to foreign exchange rate risk through its operations in Canada (Canadian dollar) and Mexico (Mexican peso)[175] - An unrealized gain of $5.9 million related to foreign currency translation was included in accumulated other comprehensive income[175] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[178] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected these controls[179] PART II - OTHER INFORMATION Legal Proceedings Pending legal matters are not expected to have a material adverse effect on the company's financial position - The company states that it does not anticipate the outcome of any currently pending legal matters to materially affect its consolidated financial position[115][181] Risk Factors There have been no material changes to the risk factors disclosed in the Fiscal 2022 Form 10-K - There have been no material changes to the risk factors previously disclosed in the Fiscal 2022 Form 10-K[183] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 0.7 million shares for employee tax payments, with 13.0 million shares remaining for repurchase Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Month 1 | 155,569 | $16.25 | — | | Month 2 | 504,683 | $13.24 | — | | Month 3 | 80,177 | $13.68 | — | | Total | 740,429 | $13.92 | — | - No shares were repurchased as part of the publicly announced share repurchase program during the quarter[171][184] - As of April 29, 2023, 13.0 million shares remained available for repurchase under the current authorization[170][184] Exhibits This section lists filed exhibits, including CEO/CFO certifications and financial statements in inline XBRL format - Key exhibits filed include certifications by the CEO and CFO pursuant to Sarbanes-Oxley Act rules[187] - The report includes financial data formatted in inline eXtensible Business Reporting Language (XBRL)[187]