This is a summary of the third quarter fiscal 2008 earnings call conducted by American Eagle Outfitters, Inc. (AEO) on November 25, 2008.
Management:
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Vice President, Investor Relations: Judy Meehan
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Chief Executive Officer, Director: James V. O''Donnell
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Executive Vice President, CFO: Joan Hilson
Key Investor Issues:
- Profit for the quarter fell to $42.6 million, or 21 cents per share, from $99.4 million, or 45 cents per share, last year.
- Revenue rose 1% to $754 million from $744 million a year ago.
- Same-store sales fell 7%.
- American Eagle lowered its guidance earlier this month to 30 cents per share, due to weak sales during the quarter.
- American Eagle will lower planned capital spending to $110 million to $135 million, from a previous range of $150 million to $175 million.
Third Quarter Highlights:
American Eagle Outfitters experienced lower store traffic, weak consumer demand, primarily in women''s. As a result, earnings per share excluding the impairment charge decreased 33%, driven by a 7% comp store sales decline.
Although the third quarter earnings declined, the company achieved a 12.6% operating margin, and so far this year American Eagle Outfitters has generated $320 million in EBITDA. Currently, the company has $616 million in cash and cash equivalents, with $333 million of cash and liquid Treasury funds.
Looking forward, the company expects the near-term environment to remain challenging and is planning accordingly. To that end, American Eagle Outfitters is reducing costs and tightly managing inventory levels. Also, the company significantly lowered its 2009 capital spending plans, driven by the decision to open fewer new stores next year. American Eagle Outfitters now expects to add a total of 29 stores versus the original plan of 90.
Capital expenditures are expected to be in the range of $110 to $135 million.
That compares to $250 to $270 million this year. Longer term, the company sees continued new store opportunities for all of its brands; however, given the current state of the economy, conserving capital and lowering the cost structure takes precedence.
Although the women''s business remains weak, American Eagle Outfitters sees improvements in certain areas.
The company is making progress with an increased selection of unique fashion items at great prices. For example, accessories, jewelry and new fashion tops are showing modest improvement.
Aerie continues to emerge as a promising new business.
American Eagle Outfitters now has a solid base of 114 stores, with excellent upside potential. The merchandise margins in this business are very good; essentially, they''re equal to the AE brand. The company has reduced its operating expense base and the store build out costs.
MARTIN + OSA is showing solid progress.
Consistent with the lower 2009 capital spending plan, American Eagle Outfitters is not opening any new stores next year in MARTIN + OSA. The company will continue to strengthen its operating model with the 28 existing stores and look for ongoing progress in merchandising and building consumer awareness.
Last month American Eagle Outfitters launched 77kids online to an extremely positive customer response, which well exceeded plans. The company hopes to open retail stores some time over the next few years.
The third quarter earnings were the result of a decline in top line sales and increased promotional activity compared to last year.
Third quarter comparable store sales declined 7% compared to a 2% increase for the same period last year. Total sales increased 1%.
A challenging retail climate contributed to lower traffic and transactions per store. The average dollar sale was essentially flat. More promotional activity resulted in a lower average unit retail price and drove an increase in units per transaction.
