This is a summary of the third quarter fiscal 2006 earnings call conducted by American Eagle Outfitters, Inc. (AEOS), on November 14, 2006
Management:
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President, Chief Merchandising Officer, AE Brand:Susan McGalla.
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CEO: Jim O’Donnell.
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CFO: Joan Hilson.
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IR: Judy Meehan.
Key investors issues:
- Sales increased 20% to $696 million as comparable store sales increased 13%.
- Earnings were up 40% to $101 million or 68 cents a share from $73 million or 48 cents a share in 2005.
- The firm repurchased 2 million shares of its stock during the period.
Third Quarter Highlights:
Sales increased 20% to $696.3 million from $580.5 million last year as comparable store sales increased 13% following a 14% increase last year.
- The sales increase reflect positive store traffic trends, higher transactions and a strong full priced business.
- The number of transactions per store increase in the mid-single-digits and units sold per store were up in the low-double-digits.
- The average transaction value increased in the high-single-digits, driven by a high-single-digit increase in units per transaction and a higher AUR.
- The AUR increased in the low-single-digits due to less promotional activity.
- All geographic regions comped positively with high-teens in Canada and the Northeast, mid teens in the Midwest, low-double-digits in the Mid Atlantic and Southwest regions, high-single-digit Southeast and mid-single-digits in the West.
Gross profit increased to $342.5 million, from $269.4million, or 46.4% as a percentage of sales last year.
- SG&A as a percent of sales was 24.4% compared to 23.7% in the third quarter last year.
- Operating income increased 32% to $152.5 million from $112.8 million last year as other income increased to $9.1 million as a result of higher investment balance and yields.
- Total cash and investments increased $224 million to $904 million while capital expenditures were $58 million.
- Total merchandise inventories were $349 million, an increase of $46 million compared to last year as inventory per square foot at costs increased 2% from a year ago.
Growth Strategies Advance:
- In September, the company successfully launched aerie by American Eagle, its first sub-brand, which was met with strong customer acceptance.
- Undies, bras and dorm-wear all achieved strong performance, contributing to both sales and earnings.
- The company is currently evaluating a variety of aerie store formats, including two new stand-alone locations.
- The company''s real estate expansion plans continued, opening 19 new AE stores and remodeled nine stores, and is on-track to complete 46 new AE store openings and 65 renovations this year.
- Also in September, American Eagle launched its new retail concept, MARTIN + OSA.
Fourth Quarter Guidance:
- The firm expects stock option expenses of approximately 1 cent per share and expect inventory to be up in the high single digits on a cost per foot basis.
- Earnings per share is expected to be in the range of 94 cents to 96 cents per share.
- The company expects approximately 8% total square footage growth, which includes 45 new and 50 renovated American Eagle stores and 15 new MARTIN + OSA.
The company will be launching a new point-of-sale system across the chain designed to drive store productivity as well as to enable a more personalized shopping experience.
- American Eagle also focused on tightening the expense management and have opportunities in the areas of supply procurement and service purchase.
- The company will continue to build upon the initial success of aerie with strong collections, targeted marketing and a branded in-store environment.
Key questions and answers for the third quarter fiscal 2006 earnings call, conducted by American Eagle Outfitters, Inc. (AOES) on November 14, 2006
Adrienne Tennant:
Can you give the dollar amount of the severance spend and then fiscal 2007 expected CapEx?
Joan Hilson: CapEx is expected to be in the 200 million range as we continue to invest in our growth for the future and further investment in our headquarters, our distribution facility, and performance center for AE Direct. With respect to the severance charge, that it is part of the de-leverage point that we experienced in SG&A.
Adrienne Tennant:
When did you start to see the margin pressure from MARTIN + OSA, when do we anniversary that?
