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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/23/21 American Eagle Outfitters Inc. 10-Q 10/30/21 80:9.2M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 939K
2: EX-10.1 Material Contract HTML 82K
3: EX-10.2 Material Contract HTML 106K
4: EX-10.3 Material Contract HTML 39K
5: EX-31.1 Certification -- §302 - SOA'02 HTML 28K
6: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
7: EX-32.1 Certification -- §906 - SOA'02 HTML 25K
8: EX-32.2 Certification -- §906 - SOA'02 HTML 25K
15: R1 Document and Entity Information HTML 76K
16: R2 Consolidated Balance Sheets HTML 139K
17: R3 Consolidated Balance Sheets (Parenthetical) HTML 44K
18: R4 Consolidated Statements of Operations HTML 96K
19: R5 Consolidated Statements of Comprehensive Income HTML 48K
20: R6 Consolidated Statements of Stockholders' Equity HTML 97K
21: R7 Consolidated Statements of Stockholders' Equity HTML 25K
(Parenthetical)
22: R8 Consolidated Statements of Cash Flows HTML 111K
23: R9 Interim Financial Statements HTML 36K
24: R10 Summary of Significant Accounting Policies HTML 77K
25: R11 Cash and Cash Equivalents HTML 59K
26: R12 Fair Value Measurements HTML 36K
27: R13 Earnings per Share HTML 79K
28: R14 Property and Equipment HTML 49K
29: R15 Intangible Assets, including Goodwill HTML 77K
30: R16 Long-Term Debt, Net HTML 91K
31: R17 Share-Based Compensation HTML 147K
32: R18 Income Taxes HTML 30K
33: R19 Legal Proceedings HTML 26K
34: R20 Segment Reporting HTML 258K
35: R21 Impairment, Restructuring and COVID-19 Related HTML 63K
Charges
36: R22 Subsequent Events HTML 27K
37: R23 Summary of Significant Accounting Policies HTML 147K
(Policies)
38: R24 Summary of Significant Accounting Policies HTML 28K
(Tables)
39: R25 Cash and Cash Equivalents (Tables) HTML 58K
40: R26 Earnings per Share (Tables) HTML 77K
41: R27 Property and Equipment (Tables) HTML 48K
42: R28 Intangible Assets, including Goodwill (Tables) HTML 77K
43: R29 Long-Term Debt, Net (Tables) HTML 91K
44: R30 Share-Based Compensation (Tables) HTML 147K
45: R31 Segment Reporting (Tables) HTML 256K
46: R32 Impairment, Restructuring and COVID-19 Related HTML 66K
Charges (Tables)
47: R33 Interim Financial Statements - Additional HTML 26K
Information (Detail)
48: R34 Summary of Significant Accounting Policies - HTML 102K
Additional Information (Detail)
49: R35 Useful Lives of Major Classes of Assets (Detail) HTML 39K
50: R36 Useful Lives of Major Classes of Assets HTML 28K
(Parenthetical) (Detail)
51: R37 Cash and Cash Equivalents - Fair Market Values for HTML 34K
Cash and Cash Equivalents (Detail)
52: R38 Fair Value Measurements - Additional Information HTML 58K
(Detail)
53: R39 Earnings per Share - Reconciliation Between Basic HTML 38K
and Diluted Weighted Average Shares Outstanding
(Detail)
54: R40 Earnings per Share - Reconciliation Between Basic HTML 33K
and Diluted Weighted Average Shares Outstanding
(Parenthetical) (Detail)
55: R41 Property and Equipment (Detail) HTML 32K
56: R42 Intangible Assets, Including Goodwill (Detail) HTML 41K
57: R43 Intangible Assets, Including Goodwill HTML 25K
(Parenthetical) (Detail)
58: R44 Long-Term Debt, Net - Components of Long-Term Debt HTML 36K
(Detail)
59: R45 Long-Term Debt, Net - Additional Information HTML 90K
(Detail)
60: R46 Long-Term Debt, Net - Schedule of Interest Expense HTML 34K
for Notes (Detail)
61: R47 Long-Term Debt, Net - Schedule of Notes Conversion HTML 31K
Amounts (Detail)
62: R48 Share-Based Compensation - Additional Information HTML 60K
(Detail)
63: R49 Share-Based Compensation - Summary of Stock Option HTML 69K
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64: R50 Share-Based Compensation - Summary of Stock Option HTML 28K
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65: R51 Share-Based Compensation - Black-Scholes Option HTML 48K
Valuation Assumptions (Detail)
66: R52 Share-Based Compensation - Summary of Restricted HTML 53K
Stock Activity (Detail)
67: R53 Income Taxes - Additional Information (Detail) HTML 31K
68: R54 Segment Reporting - Additional Information HTML 30K
(Detail)
69: R55 Segment Reporting - Reconciliation from GAAP HTML 57K
Operating Performance Measure to Non-GAAP Adjusted
Operating Income (Loss) on Consolidated Basis
(Detail)
70: R56 Segment Reporting - Reconciliation from GAAP HTML 27K
Operating Performance Measure to Non-GAAP Adjusted
Operating Income (Loss) on Consolidated Basis
(Parenthetical) (Detail)
71: R57 Segment Reporting - Summary of Geographical HTML 36K
Information (Detail)
72: R58 Impairment, Restructuring and COVID-19 Related HTML 26K
Charges - Addition Information (Detail)
73: R59 Summary of Impairment, Restructuring and COVID-19 HTML 34K
Related Charges (Detail)
74: R60 Summary of Impairment, Restructuring and COVID-19 HTML 39K
Related Charges (Parenthetical) (Detail)
75: R61 Rollforward of Restructuring Liabilities HTML 28K
Recognized in Accrued Compensation and Payroll
Taxes and Other Current Liabilities and Accrued
Expenses in Consolidated Balance Sheet (Detail)
76: R62 Subsequent Events - Additional Information HTML 29K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
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i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i October 30, 2021
OR
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i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: i 1-33338
i American Eagle Outfitters, Inc.
(Exact name of registrant as specified in its charter)
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i Delaware |
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No. i 13-2721761 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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i 77 Hot Metal Street, i Pittsburgh, i PA |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: ( i 412) i 432-3300
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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i Common Stock, $0.01 par value |
i AEO |
i New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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i Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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i ☐ |
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Emerging growth company |
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i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: i 168,621,661 Common Shares were outstanding at November 19, 2021.
AMERICAN EAGLE OUTFITTERS, INC.
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Page Number |
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3 |
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Item 1. |
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7 |
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Consolidated Balance Sheets: October 30, 2021, January 30, 2021 and October 31, 2020 |
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7 |
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Consolidated Statements of Operations: 13 and 39 weeks ended October 30, 2021 and October 31, 2020 |
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8 |
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9 |
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10 |
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Consolidated Statements of Cash Flows: 39 weeks ended October 30, 2021 and October 31, 2020 |
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11 |
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12 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
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Item 3. |
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39 |
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Item 4. |
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40 |
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Item 1. |
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41 |
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Item 1A. |
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41 |
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Item 2. |
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41 |
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Item 3. |
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Defaults Upon Senior Securities |
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N/A |
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Item 4. |
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Mine Safety Disclosures |
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N/A |
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Item 5. |
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Other Information |
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N/A |
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Item 6. |
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43 |
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2
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:
|
• |
the planned opening of approximately 20 to 30 American Eagle stores and 75 Aerie and OFFLINETM stores (which includes stand-alone locations as well as side-by-side locations), during Fiscal 2021 (as defined below); |
|
• |
the anticipated remodeling of approximately 25 to 35 American Eagle and Aerie stores in the U.S. and Canada during Fiscal 2021; |
|
• |
the potential closure of approximately 30 to 50 American Eagle and five to 10 Aerie stores at the expiration of their lease term, primarily in North America, during Fiscal 2021; |
|
• |
the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally; |
|
• |
the success of our business priorities and strategies; |
|
• |
the continued validity of our trademarks; |
|
• |
our performance during the year-end holiday selling season; |
|
• |
the accuracy of the estimates and assumptions we make pursuant to our critical accounting policies and estimates; |
|
• |
the payment of a dividend in future periods; |
|
• |
the possibility that future access to the debt markets may not be available, or available at terms or interest rates that are attractive; |
|
• |
the availability of sufficient cash flow to fund anticipated capital expenditures, future dividends, and working capital requirements; |
|
• |
the possibility that product costs are adversely affected by foreign trade issues (including import tariffs and other trade restrictions with China and other countries), currency exchange rate fluctuations, increasing prices for raw materials, supply chain issues, political instability, or other reasons; |
|
• |
the impact of changes in global economic and financial conditions, and resulting impacts on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits; and |
|
• |
the possibility that we may be required to take additional impairment or other restructuring charges. |
Our forward-looking statements surrounding the coronavirus (COVID-19) pandemic include, but are not limited to, statements about:
|
• |
the ongoing impact of the COVID-19 pandemic on global economic conditions, our customers’ discretionary income, and freedom of movement; |
|
• |
the currently unknown duration of the COVID-19 pandemic, including a potential resurgence in the fourth quarter of Fiscal 2021 or beyond; |
|
• |
the impact of governmental regulations that have been, and may in the future be, imposed in response to the COVID-19 pandemic, including regulations that could adversely affect our business or cause us to cease our digital business |
3
|
if we are required to close our distribution and fulfillment centers or are otherwise unable to acquire or deliver merchandise, or to close our recently reopened retail stores; |
|
• |
the deterioration in economic conditions in the U.S., which could have an impact on discretionary consumer spending; |
|
• |
the ability of our distribution centers to maintain adequate staffing to meet increased customer demand; |
|
• |
the possibility of temporary furloughs of store, field, and corporate associates surrounded by store closures; |
|
• |
the reduction of operating expenses; and |
|
• |
the uncertainties surrounding whether currently open stores will remain open. |
4
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
|
• |
the risk associated with our inability to anticipate and respond to changing consumer preferences; |
|
• |
the risk associated with pricing pressure from existing and new competitors; |
|
• |
the risk of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences; |
|
• |
the risk that seasonality could cause sales to fluctuate and negatively impact our results of operations; |
|
• |
the risk that the COVID-19 global pandemic has and could continue to have a material adverse effect on our business and results of operations, the nature and extent of which are highly uncertain and unpredictable; |
|
• |
the risk that our results could be adversely affected by natural disaster, public health crises (including, without limitation, the COVID-19 pandemic), political crises, negative global climate patterns, or other catastrophic events; |
|
• |
the risk that any current or future federal, or state or local regulations on employers requiring COVID-19 vaccination or frequent testing of employees could have a material adverse impact on our business, financial conditions, results of operations, and prospects; |
|
• |
the risk that impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability; |
|
• |
the risk that our inability to grow our digital channels and leverage omni-channel capabilities could impact our business, particularly if our stores are closed or our customers have restricted freedom of movement; |
|
• |
the risk that failure to define, launch, and communicate a brand relevant customer experience could have a negative impact; |
|
• |
the risk that our efforts to execute on our key business priorities could have a negative impact; |
|
• |
the risk that our efforts to expand internationally expose us to risks inherent in operating in new countries; |
|
• |
the risk that failure to protect our reputation could have a material adverse effect; |
|
• |
the risk that we are unable to implement and sustain adequate information technology systems; |
|
• |
the risk that measures intended to prevent the spread of COVID-19 may negatively impact our operations; |
|
• |
the risk that our inability to safeguard against security breaches with respect to our information technology systems could damage our reputation and adversely impact our profitability; |
|
• |
the risk that we may be exposed to costs associated with the loss of customer information; |
|
• |
the risk that we may fail to manage growth in our omni-channel operations and the resulting impact on our distribution and fulfillment networks may have an adverse effect on our results of operations; |
|
• |
the risk that our international merchandise sourcing strategy subjects us to risks that could impact our business and results of operations; |
|
• |
the risk that rising freight costs and difficulty procuring shipping capacity beyond our control resulting from recent increased demand, supply chain shutdowns and congestion at ports and supply lines, could continue to negatively impact our business and results of operations; |
|
• |
the risk that our product costs may be adversely affect by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, political instability, or other reasons; |
|
• |
the risks associated with our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic, or attract customers to our stores; |
|
• |
the risks associated with leasing substantial amount of space, including increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations; |
|
• |
the risk that we rely on key personnel, the loss of whom could have a material adverse effect on our business; |
|
• |
the risk from the Company’s (as defined below) amended and restated bylaws (“Bylaws”) provides, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal |
5
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actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims, or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers, or other employees; |
|
• |
the risk that we may be unable to protect our trademarks and other intellectual property rights; |
|
• |
the risks associated with a complex regulatory, compliance, and legal environment; |
|
• |
the risk that fluctuations in our tax obligations and effective tax rate could adversely affect us; and |
|
• |
the risk that the impact of various legal proceedings, lawsuits, disputes, and claims could have an adverse impact on our business, financial condition, and results of operation. |
Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
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October 30, |
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January 30, |
|
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October 31, |
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|||
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(In thousands, except per share amounts) |
|
2021 |
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2021 |
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2020 |
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(Unaudited) |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
i 740,668 |
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$ |
i 850,477 |
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$ |
i 692,356 |
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Merchandise inventory |
|
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i 739,808 |
|
|
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i 405,445 |
|
|
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i 559,961 |
|
|
Accounts receivable, net |
|
|
i 228,461 |
|
|
|
i 146,102 |
|
|
|
i 124,560 |
|
|
Prepaid expenses and other |
|
|
i 66,593 |
|
|
|
i 120,619 |
|
|
|
i 130,909 |
|
|
Total current assets |
|
|
i 1,775,530 |
|
|
|
i 1,522,643 |
|
|
|
i 1,507,786 |
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Property and equipment, at cost, net of accumulated depreciation |
|
|
i 665,408 |
|
|
|
i 623,808 |
|
|
|
i 650,397 |
|
|
Operating lease right-of-use assets |
|
|
i 1,148,108 |
|
|
|
i 1,155,965 |
|
|
|
i 1,243,311 |
|
|
Intangible assets net, including goodwill |
|
|
i 69,332 |
|
|
|
i 70,332 |
|
|
|
i 50,864 |
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|
Non-current deferred income taxes |
|
|
i 57,753 |
|
|
|
i 33,045 |
|
|
|
i 12,774 |
|
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Other Assets |
|
|
i 33,884 |
|
|
|
i 29,013 |
|
|
|
i 33,083 |
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Total assets |
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$ |
i 3,750,015 |
|
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$ |
i 3,434,806 |
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$ |
i 3,498,215 |
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Liabilities and Stockholders’ Equity |
|
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|
|
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|
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Current liabilities: |
|
|
|
|
|
|
|
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|
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Accounts payable |
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$ |
i 314,561 |
|
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$ |
i 255,912 |
|
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$ |
i 304,552 |
|
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Current portion of operating lease liabilities |
|
|
i 299,693 |
|
|
|
i 328,624 |
|
|
|
i 346,321 |
|
|
Accrued compensation and payroll taxes |
|
|
i 123,588 |
|
|
|
i 142,272 |
|
|
|
i 117,736 |
|
|
Other current liabilities and accrued expenses |
|
|
i 56,090 |
|
|
|
i 55,343 |
|
|
|
i 47,587 |
|
|
Unredeemed gift cards and gift certificates |
|
|
i 42,070 |
|
|
|
i 62,181 |
|
|
|
i 39,794 |
|
|
Accrued income and other taxes |
|
|
i 33,570 |
|
|
|
i 14,150 |
|
|
|
i 15,503 |
|
|
Dividends payable |
|
|
— |
|
|
|
— |
|
|
|
i 22,843 |
|
|
Total current liabilities |
|
|
i 869,572 |
|
|
|
i 858,482 |
|
|
|
i 894,336 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current operating lease liabilities |
|
|
i 1,123,681 |
|
|
|
i 1,148,742 |
|
|
|
i 1,196,755 |
|
|
Long-term debt, net |
|
|
i 336,249 |
|
|
|
i 325,290 |
|
|
|
i 321,081 |
|
|
Other non-current liabilities |
|
|
i 23,816 |
|
|
|
i 15,627 |
|
|
|
i 17,846 |
|
|
Total non-current liabilities |
|
|
i 1,483,746 |
|
|
|
i 1,489,659 |
|
|
|
i 1,535,682 |
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i i 0.01 / / par value; i i i 5,000 / / shares authorized; i i i i i i none / / / / / issued and outstanding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common stock, $ i i i 0.01 / / par value; i i i 600,000 / / shares authorized; i i i 249,566 / / shares issued; i 168,622, i 166,335, and i 166,129 shares outstanding, respectively |
|
|
i 2,496 |
|
|
|
i 2,496 |
|
|
|
i 2,496 |
|
|
Contributed capital |
|
|
i 627,264 |
|
|
|
i 663,718 |
|
|
|
i 655,891 |
|
|
Accumulated other comprehensive loss |
|
|
( i 39,049 |
) |
|
|
( i 40,748 |
) |
|
|
( i 44,673 |
) |
|
Retained earnings |
|
|
i 2,185,393 |
|
|
|
i 1,868,613 |
|
|
|
i 1,865,370 |
|
|
Treasury stock at cost, i 80,944, i 83,231, and i 83,437 shares, respectively |
|
|
( i 1,379,407 |
) |
|
|
( i 1,407,414 |
) |
|
|
( i 1,410,887 |
) |
|
Total stockholders’ equity |
|
|
i 1,396,697 |
|
|
|
i 1,086,665 |
|
|
|
i 1,068,197 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
i 3,750,015 |
|
|
$ |
i 3,434,806 |
|
|
$ |
i 3,498,215 |
|
Refer to Notes to Consolidated Financial Statements
7
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
13 Weeks Ended |
|
39 Weeks Ended |
|
||||||||||
|
|
|
October 30, |
|
|
October 31, |
|
October 30, |
|
|
October 31, |
|
||||
|
(In thousands, except per share amounts) |
|
2021 |
|
|
2020 |
|
2021 |
|
|
2020 |
|
||||
|
Total net revenue |
|
$ |
i 1,274,078 |
|
|
$ |
i 1,031,617 |
|
$ |
i 3,502,848 |
|
|
$ |
i 2,466,819 |
|
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
|
|
i 709,554 |
|
|
|
i 616,840 |
|
|
i 1,999,743 |
|
|
|
i 1,758,537 |
|
|
Gross profit |
|
|
i 564,524 |
|
|
|
i 414,777 |
|
|
i 1,503,105 |
|
|
|
i 708,282 |
|
|
Selling, general and administrative expenses |
|
|
i 313,890 |
|
|
|
i 273,297 |
|
|
i 872,320 |
|
|
|
i 685,206 |
|
|
Impairment, restructuring and COVID-19 related charges |
|
|
— |
|
|
|
i 6,955 |
|
|
— |
|
|
|
i 177,186 |
|
|
Depreciation and amortization expense |
|
|
i 40,947 |
|
|
|
i 38,974 |
|
|
i 119,674 |
|
|
|
i 120,818 |
|
|
Operating income (loss) |
|
|
i 209,687 |
|
|
|
i 95,551 |
|
|
i 511,111 |
|
|
|
( i 274,928 |
) |
|
Interest expense, net |
|
|
i 8,612 |
|
|
|
i 7,924 |
|
|
i 26,038 |
|
|
|
i 16,617 |
|
|
Other (income), net |
|
|
( i 3,130 |
) |
|
|
( i 2,223 |
) |
|
( i 6,354 |
) |
|
|
( i 793 |
) |
|
Income (loss) before income taxes |
|
|
i 204,205 |
|
|
|
i 89,850 |
|
|
i 491,427 |
|
|
|
( i 290,752 |
) |
|
Provision (benefit) for income taxes |
|
|
i 51,981 |
|
|
|
i 31,742 |
|
|
i 122,226 |
|
|
|
( i 77,943 |
) |
|
Net income (loss) |
|
$ |
i 152,224 |
|
|
$ |
i 58,108 |
|
$ |
i 369,201 |
|
|
$ |
( i 212,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share |
|
$ |
i 0.91 |
|
|
$ |
i 0.35 |
|
$ |
i 2.20 |
|
|
$ |
( i 1.28 |
) |
|
Net income (loss) per diluted share |
|
$ |
i 0.74 |
|
|
$ |
i 0.32 |
|
$ |
i 1.78 |
|
|
$ |
( i 1.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
|
i 167,637 |
|
|
|
i 166,185 |
|
|
i 168,062 |
|
|
|
i 166,385 |
|
|
Weighted average common shares outstanding - diluted |
|
|
i 205,013 |
|
|
|
i 184,397 |
|
|
i 207,032 |
|
|
|
i 166,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
8
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
13 Weeks Ended |
|
|
|
39 Weeks Ended |
|
||||||||||
|
|
|
October 30, |
|
|
October 31, |
|
|
|
October 30, |
|
|
October 31, |
|
||||
|
(In thousands) |
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
||||
|
Net income (loss) |
|
$ |
i 152,224 |
|
|
$ |
i 58,108 |
|
|
|
$ |
i 369,201 |
|
|
$ |
( i 212,809 |
) |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
( i 2,155 |
) |
|
|
i 3,318 |
|
|
|
|
i 1,699 |
|
|
|
( i 11,505 |
) |
|
Other comprehensive (loss) income |
|
|
( i 2,155 |
) |
|
|
i 3,318 |
|
|
|
|
i 1,699 |
|
|
|
( i 11,505 |
) |
|
Comprehensive income (loss) |
|
$ |
i 150,069 |
|
|
$ |
i 61,426 |
|
|
|
$ |
i 370,900 |
|
|
$ |
( i 224,314 |
) |
Refer to Notes to Consolidated Financial Statements
9
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
13 Weeks Ended October 30, 2021 and October 31, 2020 |
|
|||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
|
(In thousands, except per share amounts) |
|
Shares Outstanding |
|
|
Common Stock |
|
|
Contributed Capital |
|
|
Retained Earnings |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive (Loss) |
|
|
Stockholders' Equity |
|
|||||||
|
Balance at August 1, 2020 |
|
|
i 166,090 |
|
|
$ |
i 2,496 |
|
|
$ |
i 647,284 |
|
|
$ |
i 1,807,687 |
|
|
$ |
( i 1,411,576 |
) |
|
$ |
( i 47,991 |
) |
|
$ |
i 997,900 |
|
|
Stock awards |
|
|
— |
|
|
|
— |
|
|
|
i 8,946 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,946 |
|
|
Repurchase of common stock from employees |
|
|
( i 11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 142 |
) |
|
|
— |
|
|
|
( i 142 |
) |
|
Reissuance of treasury stock |
|
|
i 50 |
|
|
|
— |
|
|
|
( i 536 |
) |
|
|
( i 420 |
) |
|
|
i 831 |
|
|
|
— |
|
|
|
( i 125 |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 58,108 |
|
|
|
— |
|
|
|
— |
|
|
|
i 58,108 |
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,318 |
|
|
|
i 3,318 |
|
|
Cash dividends declared and dividend equivalents ($ i 0.1375 per share) |
|
|
— |
|
|
|
— |
|
|
|
i 197 |
|
|
|
( i 5 |
) |
|
|
— |
|
|
|
— |
|
|
|
i 192 |
|
|
Balance at October 31, 2020 |
|
|
i 166,129 |
|
|
$ |
i 2,496 |
|
|
$ |
i 655,891 |
|
|
$ |
i 1,865,370 |
|
|
$ |
( i 1,410,887 |
) |
|
$ |
( i 44,673 |
) |
|
$ |
i 1,068,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2021 |
|
|
i 168,454 |
|
|
$ |
i 2,496 |
|
|
$ |
i 630,506 |
|
|
$ |
i 2,058,448 |
|
|
$ |
( i 1,379,025 |
) |
|
$ |
( i 36,894 |
) |
|
$ |
i 1,275,531 |
|
|
Stock awards |
|
|
— |
|
|
|
— |
|
|
|
i 7,791 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 7,791 |
|
|
Repurchase of common stock from employees |
|
|
( i 188 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 6,452 |
) |
|
|
— |
|
|
|
( i 6,452 |
) |
|
Reissuance of treasury stock |
|
|
i 356 |
|
|
|
— |
|
|
|
( i 11,778 |
) |
|
|
i 5,820 |
|
|
|
i 6,070 |
|
|
|
— |
|
|
|
i 112 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 152,224 |
|
|
|
— |
|
|
|
— |
|
|
|
i 152,224 |
|
|
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,155 |
) |
|
|
( i 2,155 |
) |
|
Cash dividends declared and dividend equivalents ($ i 0.1800 per share) |
|
|
— |
|
|
|
— |
|
|
|
i 745 |
|
|
|
( i 31,099 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 30,354 |
) |
|
Balance at October 30, 2021 |
|
|
i 168,622 |
|
|
$ |
i 2,496 |
|
|
$ |
i 627,264 |
|
|
$ |
i 2,185,393 |
|
|
$ |
( i 1,379,407 |
) |
|
$ |
( i 39,049 |
) |
|
$ |
i 1,396,697 |
|
|
|
|
|||||||||||||||||||||||||||
|
39 Weeks Ended October 30, 2021 and October 31, 2020 |
|
|||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
|
(In thousands, except per share amounts) |
|
Shares Outstanding |
|
|
Common Stock |
|
|
Contributed Capital |
|
|
Retained Earnings |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive (Loss) |
|
|
Stockholders' Equity |
|
|||||||
|
Balance at February 1, 2020 |
|
|
i 166,993 |
|
|
$ |
i 2,496 |
|
|
$ |
i 577,856 |
|
|
$ |
i 2,108,292 |
|
|
$ |
( i 1,407,623 |
) |
|
$ |
( i 33,168 |
) |
|
$ |
i 1,247,853 |
|
|
Stock awards |
|
|
— |
|
|
|
— |
|
|
|
i 24,300 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 24,300 |
|
|
Repurchase of common stock as part of publicly announced programs |
|
|
( i 1,720 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 20,000 |
) |
|
|
— |
|
|
|
( i 20,000 |
) |
|
Repurchase of common stock from employees |
|
|
( i 447 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 5,357 |
) |
|
|
— |
|
|
|
( i 5,357 |
) |
|
Convertible Senior Notes - Equity portion, net of tax |
|
|
— |
|
|
|
— |
|
|
|
i 68,330 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 68,330 |
|
|
Reissuance of treasury stock |
|
|
i 1,303 |
|
|
|
— |
|
|
|
( i 15,324 |
) |
|
|
( i 7,270 |
) |
|
|
i 22,093 |
|
|
|
— |
|
|
|
( i 501 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 212,809 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 212,809 |
) |
|
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 11,505 |
) |
|
|
( i 11,505 |
) |
|
Cash dividends declared and dividend equivalents ($ i 0.1375 per share) |
|
|
— |
|
|
|
— |
|
|
|
i 729 |
|
|
|
( i 22,843 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 22,114 |
) |
|
Balance at October 31, 2020 |
|
|
i 166,129 |
|
|
$ |
i 2,496 |
|
|
$ |
i 655,891 |
|
|
$ |
i 1,865,370 |
|
|
$ |
( i 1,410,887 |
) |
|
$ |
( i 44,673 |
) |
|
$ |
i 1,068,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2021 |
|
|
i 166,335 |
|
|
$ |
i 2,496 |
|
|
$ |
i 663,718 |
|
|
$ |
i 1,868,613 |
|
|
$ |
( i 1,407,414 |
) |
|
$ |
( i 40,748 |
) |
|
$ |
i 1,086,665 |
|
|
Stock awards |
|
|
— |
|
|
|
— |
|
|
|
i 29,245 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 29,245 |
|
|
Repurchase of common stock from employees |
|
|
( i 779 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 23,963 |
) |
|
|
— |
|
|
|
( i 23,963 |
) |
|
Reissuance of treasury stock |
|
|
i 2,719 |
|
|
|
— |
|
|
|
( i 58,063 |
) |
|
|
i 26,417 |
|
|
|
i 46,071 |
|
|
|
— |
|
|
|
i 14,425 |
|
|
Equity portion of partial extinguishment of Convertible Senior Notes, net of tax |
|
|
i 347 |
|
|
|
— |
|
|
|
( i 9,876 |
) |
|
|
i 6,995 |
|
|
|
i 5,899 |
|
|
|
— |
|
|
|
i 3,018 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 369,201 |
|
|
|
— |
|
|
|
- |
|
|
|
i 369,201 |
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,699 |
|
|
|
i 1,699 |
|
|
Cash dividends declared and dividend equivalents ($ i 0.4975 per share) |
|
|
— |
|
|
|
— |
|
|
|
i 2,240 |
|
|
|
( i 85,833 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 83,593 |
) |
|
Balance at October 30, 2021 |
|
|
i 168,622 |
|
|
$ |
i 2,496 |
|
|
$ |
i 627,264 |
|
|
$ |
i 2,185,393 |
|
|
$ |
( i 1,379,407 |
) |
|
$ |
( i 39,049 |
) |
|
$ |
i 1,396,697 |
|
Refer to Notes to Consolidated Financial Statements
10
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
39 Weeks Ended |
|
|||||
|
|
|
October 30, |
|
|
October 31, |
|
||
|
(In thousands) |
|
2021 |
|
|
2020 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
i 369,201 |
|
|
$ |
( i 212,809 |
) |
|
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
i 122,906 |
|
|
|
i 123,094 |
|
|
Share-based compensation |
|
|
i 29,435 |
|
|
|
i 24,685 |
|
|
Deferred income taxes |
|
|
( i 28,261 |
) |
|
|
i 12,013 |
|
|
Loss on impairment of assets |
|
|
— |
|
|
|
i 153,617 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Merchandise inventory |
|
|
( i 333,871 |
) |
|
|
( i 114,907 |
) |
|
Operating lease assets |
|
|
i 222,403 |
|
|
|
i 189,630 |
|
|
Operating lease liabilities |
|
|
( i 269,153 |
) |
|
|
( i 146,809 |
) |
|
Other assets |
|
|
( i 44,120 |
) |
|
|
( i 86,501 |
) |
|
Accounts payable |
|
|
i 57,363 |
|
|
|
i 17,769 |
|
|
Accrued compensation and payroll taxes |
|
|
( i 18,690 |
) |
|
|
i 74,374 |
|
|
Accrued and other liabilities |
|
|
i 26,488 |
|
|
|
( i 44,550 |
) |
|
Net cash provided by (used for) operating activities |
|
|
i 133,701 |
|
|
|
( i 10,394 |
) |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
( i 144,405 |
) |
|
|
( i 92,591 |
) |
|
Purchase of available-for-sale investments |
|
|
( i 75,000 |
) |
|
|
( i 14,956 |
) |
|
Sale of available-for-sale investments |
|
|
i 75,000 |
|
|
|
i 69,956 |
|
|
Other investing activities |
|
|
( i 4,372 |
) |
|
|
( i 511 |
) |
|
Net cash (used for) investing activities |
|
|
( i 148,777 |
) |
|
|
( i 38,102 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Repurchase of common stock as part of publicly announced programs |
|
|
— |
|
|
|
( i 20,000 |
) |
|
Repurchase of common stock from employees |
|
|
( i 23,963 |
) |
|
|
( i 5,357 |
) |
|
Proceeds from revolving line of credit and convertible senior notes |
|
|
— |
|
|
|
i 736,108 |
|
|
Principal payments on revolving line of credit |
|
|
— |
|
|
|
( i 330,000 |
) |
|
Net proceeds from stock options exercised |
|
|
i 13,065 |
|
|
|
— |
|
|
Cash dividends paid |
|
|
( i 83,593 |
) |
|
|
— |
|
|
Other financing activities |
|
|
( i 329 |
) |
|
|
( i 889 |
) |
|
Net cash (used for) provided by financing activities |
|
|
( i 94,820 |
) |
|
|
i 379,862 |
|
|
Effect of exchange rates changes on cash |
|
|
i 87 |
|
|
|
( i 940 |
) |
|
Net change in cash and cash equivalents |
|
|
( i 109,809 |
) |
|
|
i 330,426 |
|
|
Cash and cash equivalents - beginning of period |
|
|
i 850,477 |
|
|
|
i 361,930 |
|
|
Cash and cash equivalents - end of period |
|
$ |
i 740,668 |
|
|
$ |
i 692,356 |
|
Refer to Notes to Consolidated Financial Statements
11
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company,” “we,” ”us,” and “our”) at October 30, 2021 and October 31, 2020 and for the 13-and 39-week periods ended October 30, 2021 and October 31, 2020 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2021 (the “Fiscal 2020 Form 10-K”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.
Founded in 1977, the Company is a leading multi-brand, global specialty retailer that operates under the American Eagle® (“AE” or “American Eagle”) and Aerie® (“Aerie”) brands. The Aerie brand includes OFFLINETM by Aerie, a new sub-brand offering a complete collection of active wear and accessories built for REAL movement and REAL comfort launched in Fiscal 2020 (as defined below).
We also operate Todd Snyder New York, a premium menswear brand, and Unsubscribed, a new brand with a focus on consciously-made, slow fashion launched in Fiscal 2020.
We offer a broad assortment of high quality, on-trend apparel, accessories, and personal care products at affordable prices for men and women under the AE brand, and intimates, apparel, active wear, and swim collections under the Aerie brand. We sell directly to consumers through our retail channel, which includes our stores and concession-based shop-within-shops. We operate stores in the U.S., Canada, Mexico, and Hong Kong. We also have license agreements with third parties to operate American Eagle and Aerie stores throughout Asia, Europe, India, Latin America, and the Middle East.
The Company operates more than i 1,000 retail stores in the U.S. and internationally, online at www.ae.com and www.aerie.com, as well www.toddsnyder.com and www.unsubscribed.com (which e-commerce operations we collectively refer to as “AEO Direct”), and more than i 200 international store locations managed by third-party operators.
In Fiscal 2021, we acquired AirTerra, a logistics and supply chain platform that solves ecommerce fulfillment and shipping challenges in a unique and innovative way for retailers and brands of all sizes. This acquisition represents the first step in building our supply chain platform, as part our ongoing supply chain transformation strategy of leveraging scale and innovation to help us manage costs and improve service.
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather, and general economic and political conditions. During Fiscal 2020, historic seasonal trends were impacted by consumer behavior due to the coronavirus (“COVID-19”) global pandemic.
COVID-19 Pandemic
Impacts related to the onging COVID-19 pandemic have been significantly negative for the retail industry, our Company, our customers, and our associates. We have experienced and may continue to experience significant disruptions to our business due to the COVID-19 pandemic and the related suggested and mandated social distancing and shelter-in-place orders, which initially resulted in the temporary closure of all our stores and furlough of our associates during the first-half of Fiscal 2020. During Fiscal 2021 and Fiscal 2020, while stores were impacted by negative mall traffic, we focused on our
/12
omni-channel capabilities. As of the 13 and 39 weeks ended October 30, 2021, our stores have reopened, although we continue to see residual impacts on foot traffic and in-store revenues.
The impacts of the COVID-19 pandemic on our business are discussed in further detail within these notes to the Consolidated Financial Statements and within Item 2 of this Quarterly Report on Form 10-Q, of which these notes form a part.
i
2. Summary of Significant Accounting Policies
iPrinciples of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At October 30, 2021, the Company operated in i two reportable segments, American Eagle and Aerie.
/ iFiscal Year
Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2021” refers to the 52-week period that will end on January 29, 2022. “Fiscal 2020” refers to the 52-week period ended January 30, 2021. “Fiscal 2019” refers to the 52-week period ended February 1, 2020.
iEstimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
iRecent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), Financial Instruments–Credit Losses (Topic 326) (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The Company adopted ASU 2016-13 on i February 2, 2020. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In December 2019, the FASB amended Accounting Standards Codification ("ASC") 740, Income Taxes (issued under ASU 2019-12, Simplifying the Accounting for Income Taxes). This amendment removes certain exceptions to the general principles of ASC 740, and clarifies and amends the existing guidance to improve consistent application. The Company adopted the guidance effective i January 31, 2021. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (“ASU 2020-06”), which simplifies accounting for convertible instruments. The new guidance eliminates two of the three models in ASC 470-20, Debt with Conversion and Other Options that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance is effective for fiscal years beginning after December 15, 2021. The Company will adopt ASU 2020-06 at the beginning of Fiscal 2022 using the modified retrospective approach.
In April 2020, the Company issued $ i 415 million aggregate principal amount of convertible senior notes due i 2025 (the “Notes”). The Notes are currently accounted for under the cash conversion model, which is one of the models being eliminated. The adoption of ASU 2020-06 will result in the Notes being accounted for as a single balance in long-term debt, rather than being accounted for as separate debt and equity components.
Subsequently, the adoption of ASU 2020-06 is expected to reduce reported interest expense and, correspondingly, increase reported net income. Additionally, the dilutive effect of the Notes will increase to approximately i 48 million dilutive shares, or an incremental i 14 million shares compared to the dilutive effect of the Notes as of October 30, 2021, which will reflect the assumed conversion of all outstanding Notes. We do not anticipate a material impact to diluted earnings per share, as a result of a reduction in interest expense offset by the increase in diluted shares from the adoption of ASU 2020-06.
/ /13
Foreign Currency Translation
In accordance with ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies into U.S. dollars (“USD”) (the Company’s reporting currency) at the exchange rates prevailing at the balance sheet date. The Company translates revenues and expenses denominated in foreign currencies into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the consolidated results of operations, whereas related translation adjustments are reported as an element of other comprehensive income (loss) in accordance with ASC 220, Comprehensive Income.
We are exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. During the 13 weeks ended October 30, 2021, an unrealized loss of $ i 2.2 million is included in accumulated other comprehensive (loss) income primarily due to the decline in the US dollar to Canadian dollar. During the 39 weeks ended October 30, 2021, an unrealized gain of $ i 1.7 million is included in accumulated other comprehensive income (loss), primarily related to the rise in the USD to Mexican peso and USD to Canadian dollar exchange rates.
/ iCash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents.
iReceivables
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of certain of our customers to make required payments for products or services delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical and expected future receivables and reserve trends, and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’s reserves have approximated actual experience.
iMerchandise Inventory
Merchandise inventory is valued at the lower of average cost or net realizable value, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company.
The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its current ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.
The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.
iProperty and Equipment
Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. i The useful lives of our major classes of assets are as follows:
|
Buildings |
|
i 25 years |
|
Leasehold improvements |
|
i Lesser of i 10 years or the term of the lease / |
|
Fixtures and equipment Information technology |
|
Five years Three - five years |
14
As of October 30, 2021, the weighted average remaining useful life of our assets was approximately i 7.0 years.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company’s management evaluates the value of leasehold improvements, store fixtures, and operating lease right-of-use (“ROU”) assets associated with retail stores, which have been open for a period sufficient to reach maturity. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under impairment, restructuring and COVID-19 related charges.
When the Company closes, remodels, or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment and to Note 13 to the Consolidated Financial Statements for additional information regarding impairment charges for the 39 weeks ended October 31, 2020.
iIntangible Assets, including Goodwill
The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, and other immaterial acquisitions. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment at least annually or more frequently if an impairment indicator exists, by comparing the estimated fair value of each reporting unit to its carrying value. As a result of the Company’s annual goodwill impairment test as of January 30, 2021, the Company concluded that its goodwill was i not impaired.
Definite-lived intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over i 15 to i 25 years.
The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. i i i i No / / / definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended October 30, 2021 and October 31, 2020.
Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets, including goodwill.
/ iGift Cards
Revenue is not recorded on the issuance of gift cards. The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage (as defined below) and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue.
The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During the 13 weeks ended October 30, 2021 and October 31, 2020, the Company recorded approximately $ i 1.7 million and $ i 1.6 million, respectively, of revenue related to gift card breakage. During the 39 weeks ending October 30, 2021 and October 31, 2020, the Company recorded $ i 6.1 million and $ i 4.9 million, respectively, of revenue related to gift card breakage.
/15
Construction Allowances
As part of certain lease agreements for retail stores, the Company receives construction allowances from lessors, which are generally comprised of cash amounts. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.
iSelf-Insurance Liability
The Company uses a combination of insurance and self-insurance mechanisms for certain losses related to employee medical benefits and worker’s compensation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped by stop loss contracts with insurance companies. However, any significant variation of future claims from historical trends could cause actual results to differ from the accrued liability.
iLeases
The Company adopted ASC Topic 842, Leases (“ASC 842”), in Fiscal 2019. The standard establishes a ROU model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The Company leases all store premises, some of its office space, and certain information technology and office equipment. These leases are generally classified as operating leases.
Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes, and certain other expenses.
Most leases include one or more options to renew. The exercise of lease renewal options is at the Company’s discretion and is not reasonably certain at lease commencement. When measuring operating lease ROU assets and operating lease liabilities, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.
Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of operating lease ROU assets and operating lease liabilities.
When determining the present value of future payments for an operating lease that does not have a readily determinable implicit rate, the Company uses its incremental borrowing rate as of the date of initial possession of the leased asset.
Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.
16
i i No / operating lease ROU asset impairments were recorded for the 13 or 39 weeks ended October 30, 2021. There was i no operating lease ROU impairment recorded for the 13 weeks ended October 31, 2020. During the 39 weeks ended October 31, 2020, the Company recorded impairment of operating lease ROU assets of $ i 84.1 million. Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the impairment of these assets.
Leases Modifications and COVID-19
The FASB staff issued a Q&A document in April 2020 providing guidance on how to apply the lease modification guidance in ASC 842 to rent concessions arising from COVID-19, allowing companies to elect accounting for the concessions as if enforceable rights and obligations existed, regardless of whether they are explicitly stated in the lease contract. Per the FASB staff Q&A guidance, entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.
|
|
• |
For concessions in the form of rent forgiveness, the Company invoked the accounting elections provided by the FASB staff; savings were recorded as a credit to variable rent in the period the amendments became fully executed. |
|
|
• |
For concessions in the form of deferred payments, the Company did not apply the FASB accounting elections; rent expense was recorded in accordance with ASC 842 and the unpaid amount remained accrued as part of the current operating lease liability. |
|
|
• |
All other forms of rent concessions followed our normal accounting policy for lease modifications, adhering to the guidance set forth in ASC 842. |
Co-branded Credit Card
The Company offers a co-branded credit card and a private label credit card under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (the “Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the Agreement. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations.
For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below.
iCustomer Loyalty Program
In June 2020, the Company launched a highly-digitized loyalty program called Real Rewards by American Eagle and Aerie™ (the “Program”). The Program features both shared and unique benefits for loyalty members and credit card holders. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Members earn rewards in the form of discount savings certificates. Prior to the Program’s launch in June 2020, we also offered additional rewards for key items such as jeans and bras under our previous program, AEO Connected™. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.
Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the reward, and the impact of adjustments is recorded in revenue.
The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606.
iSales Return Reserve
Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages.
17
The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.
iIncome Taxes
The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws, and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws, or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.
The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.
The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance, requires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances, or net income (loss).
Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.
iRevenue Recognition
The Company recognizes revenue pursuant to ASC 606. Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.
Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages.
Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption above.
The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned and collection is probable.
The Company defers a portion of the sales revenue attributed to loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption above for additional information.
18
Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses
Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage, and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs.
Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies, and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.
Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses, and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers, and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving, and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales.
iSelling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, equipment leasing costs, and services purchased.
Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing, and importing teams, our buyers, and our distribution centers, as these amounts are recorded in cost of sales. Additionally, selling, general and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales.
iInterest Expense, Net
Interest expense, net primarily consists of interest expense related to the Notes and borrowings under the revolving credit facility, as well as interest income from cash, cash equivalents, and short-term investments.
iOther (Income), Net
Other (income), net consists primarily of gains and losses resulting from foreign currency transactions.
iSegment Information
The Company has identified i two operating segments (American Eagle and Aerie) that also represent our reportable segments. For additional information regarding the Company’s segment and geographic information, refer to Note 12 to the Consolidated Financial Statements.
/
i
3. Cash and Cash Equivalents
iThe following table summarizes the fair market values for the Company’s cash and cash equivalents, which are recorded on the Consolidated Balance Sheets:
|
(In thousands) |
|
|
|
|
|
|
||||||
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
i 364,769 |
|
|
$ |
i 524,970 |
|
|
$ |
i 317,027 |
|
|
Interest bearing deposits |
|
|
i 375,899 |
|
|
|
i 275,507 |
|
|
|
i 325,319 |
|
|
Money market securities |
|
|
— |
|
|
|
— |
|
|
|
i 50,010 |
|
|
Certificates of deposit |
|
|
— |
|
|
|
i 50,000 |
|
|
|
— |
|
|
Total cash and cash equivalents |
|
$ |
i 740,668 |
|
|
$ |
i 850,477 |
|
|
$ |
i 692,356 |
|
/
19
i
4. Fair Value Measurements
iASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
• |
Level 1 — Quoted prices in active markets. |
|
• |
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly. |
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company’s cash equivalents are Level 1 financial assets and are measured at fair value on a recurring basis, for all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents.
Long-Term Debt
As of October 30, 2021, the Company had i no outstanding borrowings under its revolving credit facilities and had repaid the outstanding borrowings of $ i 330 million under its revolving credit facilities as of October 31, 2020.
In April 2020, the Company issued $ i 415 million aggregate principal amount of convertible senior notes due in i 2025. The fair value of the Notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, and is therefore within Level 2 of the fair value hierarchy.
Refer to Note 8 to the Consolidated Financial Statements for additional information regarding long-term debt and other credit arrangements.
Non-Financial Assets
The Company’s non-financial assets, which include intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur and the Company is required to evaluate the non-financial asset for impairment, a resulting impairment would require that the non-financial asset be recorded at the estimated fair value.
Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. There were i i no / asset impairment charges recorded during the 13 or 39 weeks ended October 30, 2021. There were i no asset impairment charges recorded during the 13 weeks ended October 31, 2020. During the 39 weeks ended October 31, 2020, the Company recorded asset impairment charges of $ i 153.6 million. Included in this amount are retail store impairment charges of $ i 109.6 million, of which $ i 84.1 million relates to operating lease ROU assets and $ i 25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). This impairment was primarily driven by store closures due to the COVID-19 pandemic. We also recorded $ i 26.0 million of impairment related charges to certain corporate property and equipment, as well as $ i 18.0 million of impairment charges related to certain cost and equity method investments. The assets were adjusted to their fair value and the loss on impairment was recorded within impairment, restructuring and COVID-19 related charges in the Consolidated Statements of Operations. The fair value of the impaired assets, after the recorded loss, was approximately $ i 163.4 million.
The fair value of the impaired assets was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest and a real estate market participant discount rate for the ROU assets. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.
/
20
i
5. Earnings per Share
iThe following is a reconciliation between basic and diluted weighted average shares outstanding:
|
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
October 31, |
|
||||
|
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
|
i 167,637 |
|
|
|
i 166,185 |
|
|
|
i 168,062 |
|
|
|
i 166,385 |
|
|
Dilutive effect of convertible notes |
|
|
i 33,687 |
|
|
|
i 16,382 |
|
|
|
i 34,616 |
|
|
|
— |
|
|
Dilutive effect of stock options and non-vested restricted stock |
|
|
i 3,689 |
|
|
|
i 1,830 |
|
|
|
i 4,354 |
|
|
|
— |
|
|
Diluted number of common shares outstanding |
|
|
i 205,013 |
|
|
|
i 184,397 |
|
|
|
i 207,032 |
|
|
|
i 166,385 |
|
|
Anti-Dilutive Shares* |
|
|
i 286 |
|
|
|
i 1,423 |
|
|
|
i 172 |
|
|
|
i 9,250 |
|
*For the 39 weeks ended October 31, 2020, there were i 1.4 million potentially dilutive equity awards and i 7.8 million potentially dilutive shares from the Company’s convertible senior notes that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive. For all other periods, anti-dilutive shares relate to stock options and unvested restricted stock.
/
The Company has the right to settle the Notes in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the Notes in cash and any conversion value above the principal in common stock. Because of this repayment policy election, only the conversion spread portion of the amount owed is reflected as dilutive in our weighted average diluted shares outstanding. The Company uses the average of the daily closing prices of its common stock (NYSE: AEO) as reported on the New York Stock Exchange to calculate the conversion spread. The Notes could have a potential dilutive effect in future periods.
Refer to Notes 8 and 9 to the Consolidated Financial Statements for additional information regarding the Notes and share-based compensation, respectively.
/i
6. Property and Equipment
iProperty and equipment consists of the following:
|
|
|
October 30, |
|
|
January 30, |
|
|
October 31, |
|
|||
|
(In thousands) |
|
2021 |
|
|
2021 |
|
|
2020 |
|
|||
|
Property and equipment, at cost |
|
$ |
i 2,394,148 |
|
|
$ |
i 2,250,974 |
|
|
$ |
i 2,255,676 |
|
|
Less: Accumulated depreciation and impairment |
|
|
( i 1,728,740 |
) |
|
|
( i 1,627,166 |
) |
|
|
( i 1,605,279 |
) |
|
Property and equipment, net |
|
$ |
i 665,408 |
|
|
$ |
i 623,808 |
|
|
$ |
i 650,397 |
|
/ /
i
7. Intangible Assets, including Goodwill
iIntangible assets consist of the following:
|
|
|
October 30, |
|
|
January 30, |
|
|
October 31, |
|
|||
|
(In thousands) |
|
2021 |
|
|
2021 |
|
|
2020 |
|
|||
|
Goodwill, gross |
|
$ |
i 20,585 |
|
|
$ |
i 17,463 |
|
|
$ |
i 17,331 |
|
|
Accumulated impairment (1) |
|
|
( i 4,196 |
) |
|
|
( i 4,196 |
) |
|
|
( i 4,196 |
) |
|
Goodwill, net |
|
$ |
i 16,389 |
|
|
$ |
i 13,267 |
|
|
$ |
i 13,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, at cost |
|
$ |
i 93,504 |
|
|
$ |
i 92,663 |
|
|
$ |
i 72,194 |
|
|
Accumulated amortization |
|
|
( i 40,561 |
) |
|
|
( i 35,598 |
) |
|
|
( i 34,465 |
) |
|
Trademarks, net |
|
$ |
i 52,943 |
|
|
$ |
i 57,065 |
|
|
$ |
i 37,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net, including goodwill |
|
$ |
i 69,332 |
|
|
$ |
i 70,332 |
|
|
$ |
i 50,864 |
|
21
|
(1) |
Accumulated impairment includes $ i 1.7 million recorded in Fiscal 2019 and $ i 2.5 million recorded in Fiscal 2016. |
i
8. Long-Term Debt, Net
iOur long-term debt consisted of the following at each of October 30, 2021, January 30, 2021, and October 31, 2020:
|
(In thousands) |
|
|
|
|
|
||||||
|
Convertible senior notes principal |
$ |
i 412,025 |
|
|
$ |
i 415,025 |
|
|
$ |
i 415,025 |
|
|
Less: unamortized discount |
|
i 75,776 |
|
|
|
i 89,735 |
|
|
|
i 93,944 |
|
|
Total long-term debt, net |
$ |
i 336,249 |
|
|
$ |
i 325,290 |
|
|
$ |
i 321,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes - Equity portion, net of tax |
|
i 58,454 |
|
|
|
i 68,330 |
|
|
|
i 68,330 |
|
Convertible notes
In April 2020, the Company issued $ i 415 million aggregate principal amount of convertible senior notes due in i 2025 in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended. i The Notes have a stated interest rate of i 3.75%, i payable semi-annually. / The Company may redeem the Notes, in whole or in part, at any time beginning in i April 2023. The Company used the net proceeds from the offering for general corporate purposes.
The Company does not have the right to redeem the Notes prior to i April 17, 2023. On or after April 17, 2023 and prior to the 40th scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the Notes, at its option, for cash, if the last reported sale price of the Company’s common stock has been at least i 130% of the conversion price then in effect for at least i 20 trading days (whether or not consecutive) during any i 30-consecutive-trading-day period. Beginning i January 2025, noteholders may convert their Notes for approximately i 117.1 shares of common stock per $ i 1,000 principal amount of the Notes, equivalent to a conversion price of approximately $ i 8.54 per share.
The Company has the right to settle conversions in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the Notes in cash and any conversion value above the principal in common stock. Because of this repayment policy, only the conversion spread portion of the amount owed is reflected as dilutive in earnings per share.
The effective interest rate for the Notes is i 10.0% and the Company calculated the effective yield using a market approach. The remaining amortization period of the discount is i 3.50 years as of October 30, 2021.
i
Interest expense for the Notes was:
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
||||||||
|
Accrued interest for interest payments |
$ |
i 3,863 |
|
|
$ |
i 3,848 |
|
|
$ |
i 11,611 |
|
|
$ |
i 7,966 |
|
|
Amortization of discount |
|
i 4,569 |
|
|
|
i 4,113 |
|
|
|
i 13,953 |
|
|
|
i 8,308 |
|
|
Total interest expense |
$ |
i 8,432 |
|
|
$ |
i 7,961 |
|
|
$ |
i 25,564 |
|
|
$ |
i 16,274 |
|
i
The following table discloses conversion amounts if the Notes were all converted as of the end of the period:
|
(In thousands, except per share amounts) |
|
||
|
Number of shares convertible |
|
i 48,258 |
|
|
Conversion price per share |
|
i 8.54 |
|
|
Value in excess of principal if converted |
|
i 952,555 |
|
22
Revolving credit facilities
In January 2019, the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”). The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $ i 400 million, subject to customary borrowing base limitations. The Credit Facilities expire on i January 30, 2024.
All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.
As of October 30, 2021, the Company was in compliance with the terms of the Credit Agreement and had $ i 7.9 million outstanding in stand-by letters of credit. i No loans were outstanding under the Credit Agreement as of October 30, 2021. As of October 31, 2020, the Company had repaid $ i 330.0 million of outstanding loans under its Credit Facilities.
i
9. Share-Based Compensation
iThe Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the Company to measure and recognize compensation expense for all share-based payments at fair value.
Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 and 39 weeks ended October 30, 2021 was $ i 7.9 million ($ i 5.9 million, net of tax) and $ i 29.4 million ($ i 22.2 million, net of tax), respectively, and for the 13 and 39 weeks ended October 31, 2020 was $ i 9.0 million ($ i 5.7 million, net of tax) and $ i 24.7 million ($ i 17.9 million, net of tax), respectively.
Stock Option Grants
The Company has granted time-based stock option awards. Time-based stock option awards vest over the requisite service period of the award or to an employee’s retirement eligible date, if earlier. i A summary of the Company’s stock option activity for the 39 weeks ended October 30, 2021 follows:
|
|
|
|
|
|
|
Weighted- Average |
|
|
Weighted- Average Remaining Contractual |
|
|
Aggregate |
|
|||
|
|
|
Options |
|
|
Exercise Price |
|
|
Term |
|
|
Intrinsic Value |
|
||||
|
|
|
(In thousands) |
|
|
|
|
|
|
(In years) |
|
|
(In thousands) |
|
|||
|
Outstanding - January 30, 2021 |
|
|
i 3,940 |
|
|
$ |
i 14.87 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
i 478 |
|
|
$ |
i 31.46 |
|
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
|
( i 771 |
) |
|
$ |
i 16.33 |
|
|
|
|
|
|
|
|
|
|
Outstanding - October 30, 2021 |
|
|
i 3,647 |
|
|
$ |
i 16.74 |
|
|
|
4.5 |
|
|
$ |
i 29,226 |
|
|
Vested and expected to vest - October 30, 2021 |
|
|
i 2,503 |
|
|
$ |
i 16.59 |
|
|
|
3.2 |
|
|
$ |
i 14,678 |
|
|
Exercisable - October 30, 2021 (2) |
|
|
i 1,788 |
|
|
$ |
i 16.28 |
|
|
|
1.7 |
|
|
$ |
i 13,345 |
|
|
(1) |
Options exercised during the 39 weeks ended October 30, 2021 ranged in price from $ i 8.62 to $ i 21.41. |
|
(2) |
Options exercisable represent “in-the-money” vested options based upon the weighted-average exercise price of vested options compared to the Company’s stock price on October 30, 2021. |
Cash received from the exercise of stock options was $ i 13.1 million for the 39 weeks ended October 30, 2021. The actual tax benefit realized from share-based payments totaled $ i 4.3 million for the 39 weeks ended October 30, 2021. There were i no stock options exercised during the 39 weeks ended October 31, 2020.
As of October 30, 2021, there was $ i 7.5 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of i 2.0 years.
i /23
The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
39 Weeks Ended |
|
39 Weeks Ended |
|
|
|
October 30, |
|
October 31, |
|
Black-Scholes Option Valuation Assumptions |
|
2021 |
|
2020 |
|
Risk-free interest rate (1) |
|
i 0.9% |
|
0.3 - 0.6% |
|
Dividend yield |
|
i 1.6% |
|
3.5 - 6.0% |
|
Volatility factor (2) |
|
i 50.7% |
|
43.1 - 48.7% |
|
Weighted-average expected term (3) |
|
i 4.5 years |
|
i 4.4 years |
|
(1) |
Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options. |
|
(2) |
Based on historical volatility of the Company’s common stock. |
|
(3) |
Represents the period of time that options are expected to be outstanding. The weighted average expected option terms were determined based on historical experience. |
Restricted Stock Grants
Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over i three years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three-year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
The grant date fair value of time-based restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A Monte-Carlo simulation was utilized to determine the fair value for performance-based restricted stock awards.
iA summary of the Company’s restricted stock activity is presented in the following tables:
|
|
|
Time-Based Restricted Stock Units |
|
|
Performance-Based Restricted Stock Units |
|
||||||||||
|
|
|
|
|
|
||||||||||||
|
(Shares in thousands) |
|
Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
|
Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
||||
|
Nonvested - January 30, 2021 |
|
|
i 3,698 |
|
|
$ |
i 12.42 |
|
|
|
i 1,868 |
|
|
$ |
i 17.44 |
|
|
Granted |
|
|
i 699 |
|
|
$ |
i 32.47 |
|
|
|
i 337 |
|
|
$ |
i 39.54 |
|
|
Vested |
|
|
( i 1,478 |
) |
|
$ |
i 14.90 |
|
|
|
( i 418 |
) |
|
$ |
i 22.22 |
|
|
Cancelled |
|
|
( i 200 |
) |
|
$ |
i 13.49 |
|
|
|
( i 324 |
) |
|
$ |
i 17.72 |
|
|
Nonvested - October 30, 2021 |
|
|
i 2,719 |
|
|
$ |
i 16.15 |
|
|
|
i 1,463 |
|
|
$ |
i 21.10 |
|
As of October 30, 2021, there was $ i 30.8 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of i 1.9 years. Based on current probable performance, there is $ i 9.3 million of unrecognized compensation expense related to performance-based restricted stock unit awards, which will be recognized as achievement of performance goals is probable over a one- to three-year period.
As of October 30, 2021, the Company had i 7.6 million shares available for all equity grants.
24
i
10. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended October 30, 2021 was i 25.5% compared to i 35.3% for the 13 weeks ended October 31, 2020. The effective income tax rate for the 39 weeks ended October 30, 2021 was i 24.9% compared to the effective tax benefit rate of i 26.8% for the 39 weeks ended October 31, 2020. The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which impacted the 13 weeks ended October 31, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was i 35%, as opposed to the current U.S. federal corporate income tax rate of i 21%, which resulted in a higher rate applicable to the 13 weeks ended October 31, 2020.
The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended October 30, 2021. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $ i 0.6 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.
/
i
11. Legal Proceedings
iThe Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations, or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
/
i
12. Segment Reporting
In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified i two operating segments (American Eagle and Aerie) that also represent our reportable segments and reflect the Chief Operating Decision Maker’s (defined as our CEO) internal view of analyzing results and allocating resources. Historically, all operating segments were aggregated as permitted by ASC 280 as i one reportable segment. In the fourth quarter of Fiscal 2020, we revised our reportable segment structure to have i two reportable segments, American Eagle and Aerie.
Our CEO analyzes segment results and allocates resources based on adjusted operating income (loss), which is a non-GAAP measure. Adjusted operating income (loss) is defined as operating income (loss) excluding impairment, restructuring and COVID-19 related charges. Adjusted operating income (loss) may not be comparable to similarly titled measures of other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of our ongoing operating results and provides a higher degree of transparency. i The following includes a reconciliation from consolidated operating income (loss), the most directly comparable GAAP operating performance measure presented on the Consolidated Financial Statements, to our non-GAAP adjusted operating income (loss) on a consolidated basis.
/
25
|
(in thousands) |
American Eagle |
|
|
Aerie |
|
|
Corporate(1) |
|
|
Total(2) |
|
||||
|
13 weeks ended October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
i 940,992 |
|
|
$ |
i 315,049 |
|
|
$ |
i 18,037 |
|
|
$ |
i 1,274,078 |
|
|
Operating income (loss) |
$ |
i 261,225 |
|
|
$ |
i 52,021 |
|
|
$ |
( i 103,559 |
) |
|
$ |
i 209,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
$ |
i 13,298 |
|
|
$ |
i 24,867 |
|
|
$ |
i 20,036 |
|
|
$ |
i 58,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended October 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
i 775,961 |
|
|
$ |
i 246,748 |
|
|
$ |
i 8,908 |
|
|
$ |
i 1,031,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
$ |
i 155,259 |
|
|
$ |
i 35,738 |
|
|
$ |
( i 95,446 |
) |
|
$ |
i 95,551 |
|
|
Impairment, restructuring, and COVID-19 related charges |
|
— |
|
|
|
— |
|
|
|
i 6,955 |
|
|
|
i 6,955 |
|
|
Adjusted operating income (loss) |
$ |
i 155,259 |
|
|
$ |
i 35,738 |
|
|
$ |
( i 88,491 |
) |
|
$ |
i 102,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
$ |
i 10,488 |
|
|
$ |
i 6,399 |
|
|
$ |
i 14,302 |
|
|
$ |
i 31,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 weeks ended October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
i 2,513,700 |
|
|
$ |
i 947,851 |
|
|
$ |
i 41,297 |
|
|
$ |
i 3,502,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
$ |
i 611,650 |
|
|
$ |
i 191,341 |
|
|
$ |
( i 291,880 |
) |
|
$ |
i 511,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
$ |
i 36,093 |
|
|
$ |
i 48,164 |
|
|
$ |
i 60,148 |
|
|
$ |
i 144,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 weeks ended October 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
i 1,791,042 |
|
|
$ |
i 653,240 |
|
|
$ |
i 22,537 |
|
|
$ |
i 2,466,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
$ |
i 1,113 |
|
|
$ |
i 47,011 |
|
|
$ |
( i 323,052 |
) |
|
$ |
( i 274,928 |
) |
|
Impairment, restructuring, and COVID-19 related charges |
|
i 90,926 |
|
|
|
i 18,215 |
|
|
|
i 68,045 |
|
|
|
i 177,186 |
|
|
Adjusted operating income (loss) |
$ |
i 92,039 |
|
|
$ |
i 65,226 |
|
|
$ |
( i 255,007 |
) |
|
$ |
( i 97,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
$ |
i 25,361 |
|
|
$ |
i 23,807 |
|
|
$ |
i 43,423 |
|
|
$ |
i 92,591 |
|
|
|
(1) |
Corporate includes revenue and operating results of the Todd Snyder and Unsubscribed brands, and AirTerra, which are not material to disclose as separate reportable segments. Corporate operating costs represents certain costs that are not directly attributable to another reportable segment. |
|
|
(2) |
The difference between Operating income (loss) and Income (loss) before income taxes includes the following items, which are not allocated to our reportable segments: |
We do not allocate assets to the reportable segment level and therefore our CEO does not use segment asset information to make decisions.
iThe following table present summarized geographical information:
26
|
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
|
||||||||
|
Total net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
i 1,104,441 |
|
|
$ |
i 898,241 |
|
|
$ |
i 3,044,407 |
|
|
$ |
i 2,167,145 |
|
|
Foreign (1) |
|
$ |
i 169,637 |
|
|
$ |
i 133,376 |
|
|
$ |
i 458,441 |
|
|
|
i 299,674 |
|
|
Total net revenue |
|
$ |
i 1,274,078 |
|
|
$ |
i 1,031,617 |
|
|
$ |
i 3,502,848 |
|
|
$ |
i 2,466,819 |
|
|
|
(1) |
Amounts represent sales from American Eagle and Aerie international retail stores, e-commerce sales that are billed and/or shipped to foreign countries, and international license royalty revenue. |
i
13. Impairment, Restructuring and COVID-19 Related Charges
iThe following table represents impairment, restructuring and COVID-19 related charges for the 13 and 39 weeks ended October 31, 2020. There were i i no / impairment, restructuring and COVID-19 related charges for the 13 and 39 weeks ended October 30, 2021. All amounts were recorded within impairment, restructuring and COVID-19 related charges on the Consolidated Statements of Operations.
|
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||
|
|
|
October 31, |
|
|
October 31, |
|
||
|
(In thousands) |
|
2020 |
|
|
2020 |
|
||
|
Impairment charges (1) |
|
$ |
— |
|
|
$ |
i 153,617 |
|
|
Incremental COVID-19 related expenses (2) |
|
|
i 5,951 |
|
|
|
i 19,836 |
|
|
Severance and related employee costs |
|
|
i 1,004 |
|
|
|
i 3,733 |
|
|
Total impairment, restructuring and COVID-19 related charges |
|
$ |
i 6,955 |
|
|
$ |
i 177,186 |
|
(1) During the 39 weeks ended October 31, 2020, the Company recorded asset impairment charges of $ i 153.6 million. Included in this amount are retail store impairment charges of $ i 109.6 million, of which $ i 84.1 million relates to operating lease ROU assets and $ i 25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded $ i 26.0 million of impairment related charges to certain corporate property and equipment, as well as $ i 18.0 million of impairment charges related to certain cost and equity method investments.
(2) Incremental COVID-19 related expenses consist of personal protective equipment and supplies for our associates and customers.
/ iA roll-forward of restructuring liabilities recognized in accrued compensation and payroll taxes and other current liabilities and accrued expenses in the Consolidated Balance Sheet is as follows:
|
|
|
39 Weeks Ended |
|
|
|
|
|
October 30, |
|
|
|
(In thousands) |
|
2021 |
|
|
|
Restructuring liability as of January 30, 2021 |
|
$ |
i 2,812 |
|
|
Add: Costs incurred, excluding non-cash charges |
|
|
— |
|
|
Less: Cash payments and adjustments |
|
|
( i 2,421 |
) |
|
|
|
|
|
|
|
Restructuring liability as of October 30, 2021 |
|
$ |
i 391 |
|
/
i
14. Subsequent Events
Subsequent to October 30, 2021, the Company entered into a stock purchase agreement to acquire all of the issued and outstanding shares of capital stock of Quiet Logistics, Inc. (“Quiet Logistics”) and certain equity interests in Locus Robotics Corp. and Axlehire, Inc., for $ i 350 million in cash, subject to certain adjustments. The Company expects to finance the purchase price with cash on hand. The closing is subject to customary closing conditions and is expected to occur in the fourth quarter of Fiscal 2021. Quiet Logistics will be a wholly-owned subsidiary of the Company.
/
27
Quiet Logistics is a supply chain platform that utilizes state-of-the-art technology and robotics and has provided cost-effective in-market fulfillment services for the Company, as well as for numerous other leading consumer brands.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our Management’s Discussion and Analysis of Financial Condition and Results of Operations for Fiscal 2020, which can be found in our Fiscal 2020 Form 10-K filed with the Securities and Exchange Commission on March 11, 2021.
In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.
Executive Overview
We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories, and personal care products at affordable prices under our American Eagle® and Aerie® brands.
In the fourth quarter of Fiscal 2020, we revised our reportable segment structure to have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources based on adjusted operating income (loss). See Note 12 to the Consolidated Financial Statements included herein for additional information.
Financial highlights for the thirteen weeks ended October 30, 2021 include comparisons to the third quarter of Fiscal 2020:
•Record revenue of $1.27 billion increased 24%;
•Operating income reached an all-time third quarter high of $210 million;
•Revenue for Aerie increased 28%, with operating income up 46%; and
•American Eagle revenue increased 21%, with operating income up 68%.
Key Performance Indicators
Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:
Comparable sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In light of store closures and related disruptions from the COVID-19 pandemic, we have not disclosed comparable sales for Fiscal 2021 or Fiscal 2020.
Omni-channel Sales Performance – Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within this Management’s Discussion and Analysis (“MD&A”) when we believe they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):
|
• |
Average unit retail price represents the selling price of our goods. It is the cumulative net sales divided by the net units sold for a period of time. |
|
• |
Total transactions represents the count of customer transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise). |
|
• |
Units per transaction represents the number of units sold divided by total transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise). |
|
• |
Consolidated comparable traffic represents visits to our Company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time. |
29
Gross profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage, and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.
Buying, occupancy and warehousing costs consist of: compensation, employee benefit expenses, and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers, and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving, and inspection costs; and shipping and handling costs related to our e-commerce operations.
The inability to obtain acceptable levels of sales, initial markups, or any significant increase in our use of markdowns could have an adverse effect on our gross profit and consolidated results of operations.
Operating income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling, general, and administrative expenses, and our level of capital expenditures for a reasonable period of time. In light of store closures and disruptions from the COVID-19 pandemic, our operating income may not be comparable for Fiscal 2021 versus Fiscal 2020.
Cash flow and liquidity — Our management evaluates cash flow from operations, investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow will be sufficient to fund anticipated capital expenditures, dividends, and working capital requirements for the next twelve months.
COVID-19
The ongoing COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis, and we continue to see disruptions and volatility in our business caused by the COVID-19 pandemic.
As of October 30, 2021, all our stores have reopened and remain open. Our stores are operating with restrictive and precautionary measures in place, such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels. We do not believe that our results for the third quarter of Fiscal 2021 are directly comparable to the same period in Fiscal 2020.
The unpredictability of the trajectory of the COVID-19 pandemic has significantly diminished visibility into the future operating environment, and we believe that the Company may continue to experience degrees of volatility and business disruptions and remain at risk for periods of closure of our stores, distribution centers, and corporate facilities through the remainder of Fiscal 2021. While trends improved during the first nine months of 2021, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends will continue. Past and future impacts of COVID-19 also have the ability to disrupt the operations of our partners, suppliers, and vendors, which could lead to supply chain disruption, shipping delays, and freight cost increases. We are monitoring the ongoing developments as the COVID-19 vaccines are being distributed and administered, and we will take further actions that are in the best interests of our associates and customers, as needed. For further information about the risks associated with the COVID-19 pandemic, see “Risk Factors” in Part I, Item 1A of our Fiscal 2020 Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Results of Operations
Overview
Our third quarter Fiscal 2021 results reflected another quarter of record revenue and profitability. The work on our value creation plan drove meaningful improvements to our profitability through real estate and inventory optimization, omnichannel and customer focus, and our supply chain initiatives.
Additionally, during the 13 and 39 weeks ended October 31, 2020, our consolidated results of operations were materially impacted by the effects of COVID-19. Commencing in March 2020, we experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19 and government actions to combat it. In response, we closed our stores to the public after the close of business on March 17, 2020; however, we continued to operate our digital business. Subsequent to May 1, 2020, we began to reopen our stores, and as of October 31, 2020, nearly all of our stores
30
had reopened; however, we continued to experience reduced customer traffic in reopened store locations. Accordingly, our results for the third quarter of Fiscal 2020 were significantly impacted.
As of October 30, 2021, we had approximately $740.7 million in cash and cash equivalents, which includes the proceeds from our Notes issuance, discussed in greater detail below and in Note 8 to the Consolidated Financial Statements. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity.
Absent the impacts of the COVID-19 pandemic, our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.
The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations:
|
|
|
13 Weeks Ended |
|
|
|
39 Weeks Ended |
|
|
||||||||||||
|
|
|
October 30, |
|
|
|
October 31, |
|
|
|
October 30, |
|
|
|
|
|
|||||
|
|
|
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|||||
|
Total net revenue |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
|
|
55.7 |
|
|
|
|
59.8 |
|
|
|
|
57.1 |
|
|
|
|
71.3 |
|
|
|
Gross profit |
|
|
44.3 |
|
|
|
|
40.2 |
|
|
|
|
42.9 |
|
|
|
|
28.7 |
|
|
|
Selling, general and administrative expenses |
|
|
24.6 |
|
|
|
|
26.5 |
|
|
|
|
24.9 |
|
|
|
|
27.8 |
|
|
|
Impairment, restructuring and COVID-19 related charges |
|
|
— |
|
|
|
|
0.6 |
|
|
|
|
— |
|
|
|
|
7.1 |
|
|
|
Depreciation and amortization expense |
|
|
3.2 |
|
|
|
|
3.8 |
|
|
|
|
3.4 |
|
|
|
|
4.9 |
|
|
|
Operating income (loss) |
|
|
16.5 |
|
|
|
|
9.3 |
|
|
|
|
14.6 |
|
|
|
|
(11.1 |
) |
|
|
Interest expense, net |
|
|
0.7 |
|
|
|
|
0.8 |
|
|
|
|
0.7 |
|
|
|
|
0.7 |
|
|
|
Other (income) expense, net |
|
|
(0.2 |
) |
|
|
|
(0.2 |
) |
|
|
|
(0.2 |
) |
|
|
|
— |
|
|
|
Income (loss) before income taxes |
|
|
16.0 |
|
|
|
|
8.7 |
|
|
|
|
14.1 |
|
|
|
|
(11.8 |
) |
|
|
Provision (benefit) for income taxes |
|
|
4.1 |
|
|
|
|
3.1 |
|
|
|
|
3.6 |
|
|
|
|
(3.2 |
) |
|
|
Net income (loss) |
|
|
11.9 |
|
% |
|
|
5.6 |
|
% |
|
|
10.5 |
|
% |
|
|
(8.6 |
) |
% |
The following table shows our consolidated store data:
|
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
|
|||||
|
|
|
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|||||
|
Number of stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
1,090 |
|
|
|
1,098 |
|
|
|
1,078 |
|
|
|
1,095 |
|
|
Opened |
|
|
31 |
|
|
|
10 |
|
|
|
62 |
|
|
|
29 |
|
|
Closed |
|
|
— |
|
|
|
(3 |
) |
|
|
(19 |
) |
|
|
(19 |
) |
|
End of period |
|
|
1,121 |
|
|
|
1,105 |
|
|
|
1,121 |
|
|
|
1,105 |
|
|
Total gross square feet at end of period (in '000) |
|
|
6,924 |
|
|
|
6,858 |
|
|
|
6,924 |
|
|
|
6,858 |
|
|
International licensed/franchise stores at end of period (1) |
|
|
256 |
|
|
|
225 |
|
|
|
256 |
|
|
|
225 |
|
|
|
(1) |
International licensed/franchise stores are not included in the consolidated store data or the total gross square feet calculation. |
Our operations consist of 897 American Eagle retail stores, which include 181 Aerie side-by-side locations and 1 OFFLINE side-by-side locations; 216 Aerie stand-alone locations (including 8 OFFLINE stand-alone locations and 5 OFFLINE side-by-side location); and AEO Direct. Additionally, there are three Todd Snyder stand-alone locations and four Unsubscribed locations.
Non-GAAP Information
This results of operations section contains net income (loss) per diluted share presented on an adjusted or non GAAP basis, which is a non-GAAP financial measure (“non-GAAP” or “adjusted”). This financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and is not necessarily comparable to similar measures presented by other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements, and provides a higher degree of transparency. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating
31
our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.
|
|
|
13 Weeks Ended |
|
|||||
|
|
|
October 30, |
|
|
|
|||
|
|
|
|
|
2020 |
|
|||
|
Net income per diluted share - GAAP Basis |
|
$ |
0.74 |
|
|
$ |
0.32 |
|
|
Add: Incremental COVID-19 related expenses and Restructuring(1) |
|
|
— |
|
|
|
0.02 |
|
|
Add: Convertible Debt(2) |
|
|
0.02 |
|
|
|
0.01 |
|
|
Net income per diluted share - Adjusted or Non- GAAP Basis |
|
$ |
0.76 |
|
|
$ |
0.35 |
|
|
|
(1) |
13 weeks ended October 31, 2020: $6.0 million of Incremental COVID-19 related expenses consisting of personal protective equipment and supplies for our associates and customers and $1.0 million of corporate severance. |
|
|
(2) |
Amortization of the non-cash discount on the Notes. |
Comparison of the 13 weeks ended October 30, 2021 to the 13 weeks ended October 31, 2020
Total Net Revenue
Total net revenue increased 24%, or $242.5 million, to $1.274 billion compared to $1.032 billion last year. As discussed above, the COVID-19 pandemic negatively affected our financial results for the 13 weeks ended October 31, 2020; however, all our stores have reopened and we experienced increased store traffic, transactions, and transaction value, driving a 29% increase in store revenue and 10% increase in AEO Direct revenue for the third quarter of Fiscal 2021.
American Eagle
Total net revenue for the 13 weeks ended October 30, 2021 for the American Eagle brand increased 21% to $941.0 million compared to $776.0 million for the 13 weeks ended October 31, 2020.
Aerie
Total net revenue for the 13 weeks ended October 30, 2021 for the Aerie brand increased 28% to $315.0 million compared to $246.7 million for the 13 weeks ended October 31, 2020.
Gross Profit
Gross profit increased $149.7 million to $564.5 million compared to $414.8 million last year. As a percentage of total net revenue, gross margin increased to 44.3%, compared to 40.2% last year. This quarter’s gross margin reflected higher merchandise margins, primarily due to inventory optimization, higher full-priced sales and markdown improvement, partially offset by higher freight costs related to the global supply chain disruptions. Additionally, both rent and delivery expense improved, as a percent of total net revenue.
For the 13 weeks ended October 31, 2020, gross margin was significantly impacted by disruptions related to COVID-19, which reflected a reduction in store revenue and higher delivery and distribution center costs primarily due to a strong digital business, partly offset by lower rent expenses.
There was $3.5 million and $4.5 million of share-based payment expense included in gross profit for the 13-week periods ended October 30, 2021 and October 31, 2020, respectively, comprised of both time- and performance-based awards.
32
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased 15%, or $40.6 million, to $313.9 million from $273.3 million last year. As a percentage of total net revenue, SG&A expenses decreased 190 basis points to 24.6%, compared to 26.5% last year.
The 13 weeks ended October 30, 2021 reflected increased SG&A expenses primarily related to increased store payroll, as a result of improved store traffic, as well as increased advertising, partially offset by lower incentive compensation.
The 13 weeks ended October 31, 2020 were significantly impacted by disruptions related to COVID-19, resulting in lower operating expenses due to store closures and other cost reductions.
There was $4.4 million and $4.5 million of share-based payment expense included in SG&A expenses for the 13-week periods ended October 30, 2021 and October 31, 2020, respectively, comprised of both time- and performance-based awards.
Impairment, Restructuring and COVID-19 Related Charges
There were no impairment, restructuring and COVID-19 related charges recorded for the 13 weeks ended October 30, 2021. For the 13 weeks ended October 31, 2020, impairment, restructuring and COVID-19 related charges were $7.0 million, or 0.6% as a percentage of total net revenue. These charges consisted of $6.0 million of incremental COVID-19 related expenses, including personal protective equipment and supplies for our associates and customers and $1.0 million of severance costs. For further information, refer to Note 13 to the Consolidated Financial Statements.
Based on the uncertainty of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future periods.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 5%, or $2.0 million, to $40.9 million for the 13 weeks ended October 30, 2021, compared to $39.0 million for the 13 weeks ended October 31, 2020. As a percentage of total net revenue, depreciation and amortization expense was 3.2% for the 13 weeks ended October 30, 2021 compared to 3.8% for the 13 weeks ended October 31, 2020.
Interest Expense, Net
Interest expense, net increased $0.7 million to $8.6 million for the 13 weeks ended October 30, 2021, compared to $7.9 million for the 13 weeks ended October 31, 2020. The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income.
Other (Income), Net
Other income, net was $3.1 million for the 13 weeks ended October 30, 2021, compared to $2.2 million for the 13 weeks ended October 31, 2020. The increase was primarily attributable to foreign currency fluctuations and changes in other non-operating items.
33
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended October 30, 2021 was 25.5% compared to 35.3% for the 13 weeks ended October 31, 2020.
The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the CARES Act, which impacted the 13 weeks ended October 31, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current U.S. federal corporate income tax rate of 21%, which resulted in a higher rate applicable to the 13 weeks ended October 31, 2020.
Net Income (Loss)
Net income increased $94.1 million to $152.2 million for the 13 weeks ended October 30, 2021, or 11.9% as a percentage of total net revenue, as compared to $58.1 million, or 5.6% as a percentage of total net revenue, for the 13 weeks ended October 31, 2020.
Net income per share increased to $0.74 per diluted share for the 13 weeks ended October 30, 2021, which included $0.02 of amortization of the non-cash discount on the Notes, compared to $0.32 per diluted share, including $0.02 of incremental COVID-19 related expenses and restructuring, and $0.01 of amortization of the non-cash discount on the Notes, for the 13 weeks ended October 31, 2020. The change in net income (loss) was attributable to the factors identified above.
Comparison of the 39 weeks ended October 30, 2021 to the 39 weeks ended October 31, 2020
Total Net Revenue
Total net revenue increased 42%, or $1.036 billion, to $3.503 billion compared to $2.467 billion last year. The COVID-19 pandemic and the associated closures of our retail stores beginning March 17, 2020 negatively affected our financial results for the 39 weeks ended October 31, 2020.
American Eagle
Total net revenue for the 39 weeks ended October 30, 2021 for the American Eagle brand was $2.514 billion compared to $1.791 billion for the 39 weeks ended October 31, 2020.
Aerie
Total net revenue for the 39 weeks ended October 30, 2021 for the Aerie brand was $947.9 million compared to $653.2 million for the 39 weeks ended October 31, 2020.
Gross Profit
Gross profit increased $794.8 million to $1.503 billion compared to $708.3 million last year. Our gross margin percentage increased to 42.9% of revenue from 28.7% of revenue last year. The increase in gross margin reflected higher merchandise margins across brands, primarily due to higher full-priced sales and lower promotions, as well as improved rent and delivery expense, as a percent of total net revenue.
The 39 weeks ended October 31, 2020 were significantly impacted by disruptions related to COVID-19, which resulted in a decline in revenue from retail store closures, higher markdowns, and promotions to clear through spring and summer merchandise, and inventory provisions.
There was $11.6 million of share-based payment expense included in gross profit for both of the 39-week periods ended October 30, 2021 and October 31, 2020, comprised of both time- and performance-based awards.
34
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
SG&A expenses for the 39 weeks ending October 30, 2021 increased 27%, or $187.1 million, to $872.3 million from $685.2 million last year. As a percentage of total net revenue, SG&A expenses decreased 290 basis points to 24.9%, compared to 27.8% last year.
The 39 weeks ended October 30, 2021 reflected increased SG&A expenses primarily related to the reopening of our stores, including increased store payroll and variable selling expenses, as well as increased advertising, services and compensation costs.
The 39 weeks ended October 31, 2020 were significantly impacted by the disruption related to COVID-19, including the impact of lower store salaries from furloughs that took effect in early April 2020 related to the retail store closures.
There was $17.8 million and $13.0 million of share-based payment expense included in SG&A expenses for the periods ended October 30, 2021 and October 31, 2020, respectively, comprised of both time- and performance-based awards.
Impairment, Restructuring and COVID-19 Related Charges
There were no impairment, restructuring and COVID-19 related charges recorded for the 39 weeks ended October 30, 2021. Impairment, restructuring and COVID-19 related charges were $177.2 million, or 7.1% as a percentage of total net revenue, for the 39 weeks ended October 31, 2020. During the 39 weeks ended October 31, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded $26.0 million of impairment related charges to certain corporate property and equipment, as well as $18.0 million of impairment charges related to certain cost and equity method investments. Additionally, there was $19.8 million of incremental COVID-19 related expenses and $3.7 million of severance costs. For further information, refer to Note 13 to the Consolidated Financial Statements.
Based on the uncertainty of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future periods.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased 1%, or $1.1 million, to $119.7 million for the 39 weeks ended October 30, 2021, compared to $120.8 million for the 39 weeks ended October 31, 2020. As a percentage of total net revenue, depreciation and amortization expense was 3.4% for the 39 weeks ended October 30, 2021 compared to 4.9% for the 39 weeks ended October 31, 2020. The decrease in expense was primarily attributable to asset impairment recorded in Fiscal 2020.
Interest Expense, Net
Interest expense, net increased $9.4 million to $26.0 million for the 39 weeks ended October 30, 2021, compared to $16.6 million for the 39 weeks ended October 31, 2020. The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income, partially offset by no interest expense incurred for borrowings on our revolving credit facilities during the 39 weeks ended October 30, 2021.
Other (Income), Net
Other income, net was $6.4 million for the 39 weeks ended October 30, 2021. Other income, net was $0.8 million for the 39 weeks ended October 31, 2020. The increase was primarily attributable to foreign currency fluctuations and changes in other non-operating items.
35
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 39 weeks ended October 30, 2021 was 24.9% compared to the effective tax benefit rate of 26.8% for the 39 weeks ended October 31, 2020.
The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the CARES Act, which impacted the 39 weeks ended October 31, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current U.S. federal corporate income tax rate of 21%, which resulted in a higher benefit rate applicable to the 39 weeks ended October 31, 2020. The effective tax rate for the 39 weeks ended October 30, 2021 was also impacted by higher excess tax benefits on share-based payments.
Net Income (Loss)
Net income increased $582.0 million to $369.2 million for the 39 weeks ended October 30, 2021, or 10.5% as a percentage of total net revenue, as compared to a net loss of $212.8 million, or (8.6%) as a percentage of total net revenue, for the 39 weeks ended October 31, 2020. The change in net income (loss) was attributable to the factors identified above.
International Operations
We have agreements with multiple third-party operators to expand our brands internationally. Through these agreements, a series of franchised, licensed, or other brand-dedicated American Eagle stores have opened and will continue to open in Asia, Europe, India, Latin America, and the Middle East. These agreements do not involve a significant capital investment or operational involvement from us. We continue to increase the number of countries in which we enter into these types of arrangements as part of our strategy to expand internationally. As of October 30, 2021, we had 256 stores operated by our third-party operators in 30 countries. International third-party operated stores are not included in the consolidated store data or the total gross square feet calculation.
As of October 30, 2021, we had 96 Company-owned stores in Canada, 58 in Mexico, 12 in Hong Kong, and 7 in Puerto Rico.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
• |
Level 1 — Quoted prices in active markets. |
|
• |
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly. |
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of October 30, 2021, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash and cash equivalents.
36
In accordance with ASC 820, the following table represents the fair value hierarchy of our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of:
|
|
|
Fair Value Measurements at October 30, 2021 |
|
|||||||||||||
|
(In thousands) |
|
Carrying Amount |
|
|
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
364,769 |
|
|
$ |
364,769 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest bearing deposits |
|
|
375,899 |
|
|
|
375,899 |
|
|
|
— |
|
|
|
— |
|
|
Total cash and cash equivalents |
|
$ |
740,668 |
|
|
$ |
740,668 |
|
|
|
— |
|
|
|
— |
|
The fair value of the Notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, and is therefore within Level 2 of the fair value hierarchy.
Liquidity and Capital Resources
Our uses of cash have historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion, and the return of value to shareholders through the repurchase of common stock and the payment of dividends. Additionally, our uses of cash have included the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts.
Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $400 million, which will expire in January 2024. In April 2020, the Company issued $415 million aggregate principal amount of 3.75% convertible senior notes due in 2025 in a private placement to qualified institutional buyers. Interest is payable semi-annually. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding our long-term debt.
As of October 30, 2021, we had approximately $740.7 million in cash and cash equivalents, which includes the proceeds from the Notes. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity. Subsequent to October 30, 2021, we entered into an agreement to acquire Quiet Logistics, Inc. and strategic equity investments for $350 million in cash, subject to certain adjustments. This transaction is expected to close in the fourth quarter of Fiscal 2021. Refer to Note 14 to the Consolidated Financial Statements for information regarding the subsequent event.
The following sets forth certain measures of our liquidity:
|
|
|
October 30, |
|
|
January 30, |
|
|
|
||||
|
|
|
|
|
2021 |
|
|
2020 |
|
||||
|
Working Capital (in thousands) |
|
$ |
905,958 |
|
|
$ |
664,161 |
|
|
$ |
613,450 |
|
|
Current Ratio |
|
|
2.04 |
|
|
|
1.77 |
|
|
|
1.69 |
|
Working capital increased $241.8 million compared to January 30, 2021 and $292.5 million compared to October 31, 2020. The $292.5 million increase in our working capital, compared to October 31, 2020, is driven by a $179.8 million increase in inventory, a $103.9 million increase in accounts receivable, a $48.3 million increase in cash and short-term investments, a $46.6 million decrease in current operating lease liabilities, and a $22.8 million decrease due to dividends payable, offset by a $64.3 million decrease in prepaid expenses, a $18.1 million increase in accrued income and other taxes, and a $10.0 million increase in accounts payable.
37
Cash Flows provided by (used for) Operating Activities
Net cash provided by operating activities totaled $133.7 million for the 39 weeks ended October 30, 2021, compared to net cash used for operating activities of $10.4 million for the 39 weeks ended October 31, 2020. For the 39 weeks ended October 30, 2021, our major source of cash from operations was merchandise sales and our primary outflow was for the payment of operational costs. For the period ended October 31, 2020, our major source of cash from operations was merchandise sales and our primary outflow of cash for operations was for the payment of operational costs.
Cash Flows used for Investing Activities
Net cash used for investing activities totaled $148.8 million for the weeks ended October 30, 2021, compared to net cash used for investing activities of $38.1 million for the 39 weeks ended October 31, 2020. Investing activities for the 39 weeks ended October 30, 2021 primarily consisted of $144.4 million of capital expenditures for property and equipment. Investing activities for 39 the weeks ended October 31, 2020 primarily included $92.6 million of capital expenditures for property and equipment, offset by $55.0 million of net short-term investment sales.
Cash Flows (used for) provided by Financing Activities
Net cash used for financing activities totaled $94.8 million for the weeks ended October 30, 2021, compared to net cash provided by financing activities of $379.9 million for the 39 weeks ended October 31, 2020. Cash used for financing activities for the 39 weeks ended October 30, 2021 consisted primarily of $83.6 million for cash dividends paid at quarterly rates of $0.1375 for the 13 weeks ended May 2, 2021 and $0.18 for the 13 weeks ended July 31, 2021 and October 30, 2021, and $24.0 million for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments, partially offset by $13.1 million of proceeds from stock option exercises.
Cash provided by financing activities for the 39 weeks ended October 31, 2020 consisted primarily of $406.1 million of net proceeds from the issuance of convertible senior notes. This was partially offset by $20.0 million used for purchases of 1.7 million shares of common stock under publicly-announced programs in early March 2020, and $5.4 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments.
Credit Facilities
In January 2019, we entered into a Credit Agreement for five-year, syndicated, asset-based revolving Credit Facilities. The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities expire January 30, 2024.
All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.
As of October 30, 2021, the Company was in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. No loans were outstanding under the Credit Agreement as of October 30, 2021.
Capital Expenditures for Property and Equipment
Capital expenditures for the 39 weeks ended October 30, 2021 were $144.4 million, and included $78.6 million related to investments in our stores, including 61 new AEO stores (14 American Eagle stores, 43 Aerie stand-alone stores (including 4 OFFLINE stores), three Unsubscribed stores and one Todd Snyder store), 13 remodeled and refurbished stores, and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($46.0 million), e-commerce ($10.6 million), and other home office projects ($9.2 million).
38
For Fiscal 2021, we expect capital expenditures to be in the range of $250 million to $275 million related to the continued support of our expansion efforts, investments in our stores, information technology upgrades to support growth, and investments in e-commerce. We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations.
Stock Repurchases
During Fiscal 2019, our Board authorized the repurchase of 30.0 million shares of common stock under a new share repurchase program, which expires on February 3, 2024, bringing our total share repurchases authorization to 30.0 million shares.
In Fiscal 2020, to preserve cash liquidity in response to the uncertainty created by COVID-19, the Company suspended its publicly-announced share repurchase program. The Company unsuspended its share repurchase program at the beginning of Fiscal 2021, but did not repurchase any shares under this program during the 39 weeks ended October 30, 2021. In early 2020, prior to the suspension of our share repurchase program, we repurchased 1.7 million shares for $20.0 million, at a weighted average price of $11.63 per share.
During the 39 weeks ended October 30, 2021 and October 31, 2020, we repurchased approximately 0.8 million and 0.4 million shares, respectively, from certain employees at market prices totaling $24.0 million and $5.4 million, respectively. These shares were repurchased for the payment of taxes, in connection with the vesting of share-based payments, as permitted under our equity incentive plans. The aforementioned repurchased shares have been recorded at cost in treasury stock in the Consolidated Balance Sheet.
Dividends
During the 13 weeks ended July 31, 2021, our Board of Directors (“Board”) raised our annual dividend rate from $0.55 per share ($0.1375 per share on a quarterly basis) to $0.72 per share ($0.18 per share on a quarterly basis), a 31% increase. Additionally, our Board declared a quarterly cash dividend of $0.18 per share on September 9, 2021, which was paid on October 22, 2021.
Subsequent to the third quarter of Fiscal 2021, our Board declared a $0.18 per share dividend, payable on December 29, 2021, to the stockholders of record at the close of business on December 10, 2021.
The Company maintains the right to defer the record and payment dates of its dividends, depending upon, among other factors, the progression of the COVID-19 pandemic, business performance, and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation, and other relevant factors.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the Notes to our Consolidated Financial Statements for the year ended January 30, 2021 contained in our Fiscal 2020 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. An unrealized loss of $2.2 million and an unrealized gain of $1.7 million is included in other comprehensive (loss) income during the 13 and 39 weeks ended October 30, 2021, respectively. Our market risk profile as January 30, 2021 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal 2020 Form 10-K, which is unchanged as of October 30, 2021.
39
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management (the “Management”), including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Quarterly Report on Form 10-Q, as of October 30, 2021, the Company performed an evaluation under the supervision and with the participation of our Management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
40
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving consumer privacy, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. As of the date hereof, we believe that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims. Consistent with Item 103 of Regulation S-K, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Applying this threshold, there are no environmental matters to disclose for this period.
Refer to Note 11 to the Consolidated Financial Statements included herein for additional information.
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed within Part 1, Item 1A of our Fiscal 2020 Form 10-K. Except as set forth below, there have been no material changes to our risk factors as disclosed in the Fiscal 2020 Form 10-K and in our subsequent filings with the SEC.
Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, financial conditions, results of operations, and prospects.
On September 9, 2021, President Biden announced a proposed new rule requiring that all employers with at least 100 employees require that their employees be fully vaccinated or tested weekly. The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard (“ETS”) regulation to carry out this mandate. On November 6, 2021, the Unites States Court of Appeals for the Fifth Circuit granted a stay of the ETS, and on November 12, 2021 the Court upheld its stay and barred OSHA from enforcing the mandate “pending adequate judicial review” of a motion for permanent injunction. As a result, OSHA has suspended activities related to the implementation and enforcement of the ETS pending future developments. At this time, it remains unclear whether the ETS will go into effect, and if it does, whether it will apply to all employees or only to employees who work in the office, as well as how compliance will be documented.
As a company with over 35,000 employees globally, it is anticipated that, should the ETS or similar regulations go into effect, we would be subject to COVID-19 vaccination and/or testing mandates. Should the mandates apply to us, we may be required to implement a requirement that all of our employees get vaccinated or be frequently tested, subject to limited exceptions. At this time, it is not possible to predict the impact that a vaccine and testing mandate, or a vaccine requirement should we adopt one, will have on us or on our workforce. Any vaccine requirement or vaccine mandate, if implemented, may result in disruptions to our retail store operations, distribution operations, employee attrition and increased labor costs, which could materially and adversely affect our business and results of operations.
Although we cannot predict with certainty the impact that the vaccine mandate and any other related measures will have on our workforce and operations, these requirements and any future requirements may result in attrition and impede our ability to recruit and retain our workforce. These measures also may further disrupt the national supply chain, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of our common stock during the 13 weeks ended October 30, 2021.
41
|
|
|
Total |
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number of |
|
|||
|
|
|
Number of |
|
|
Average |
|
|
Shares Purchased as |
|
|
Shares that May |
|
||||
|
|
|
Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
||||
|
Period |
|
Purchased |
|
|
Per Share |
|
|
Announced Programs |
|
|
Under the Program |
|
||||
|
|
|
(1) |
|
|
(2) |
|
|
(1) |
|
|
(1) (3) |
|
||||
|
Month #1 (August 1, 2021 through August 28, 2021) |
|
|
170,770 |
|
|
$ |
34.46 |
|
|
|
— |
|
|
|
30,000,000 |
|
|
Month #2 (August 29, 2021 through October 2, 2021) |
|
|
9,527 |
|
|
$ |
26.30 |
|
|
|
— |
|
|
|
30,000,000 |
|
|
Month #3 (October 3, 2021 through October 30, 2021) |
|
|
12,580 |
|
|
$ |
24.89 |
|
|
|
— |
|
|
|
30,000,000 |
|
|
Total |
|
|
192,877 |
|
|
$ |
33.43 |
|
|
|
— |
|
|
|
30,000,000 |
|
|
(1) |
There were no shares repurchased as part of our publicly-announced share repurchase program during the 13 weeks ended October 30, 2021 and there were 0.2 million shares repurchased for the payment of taxes in connection with the vesting of share-based payments. |
|
(2) |
Average price paid per share excludes any broker commissions paid. |
|
(3) |
During Fiscal 2019, our Board authorized the public repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024. |
42
ITEM 6. EXHIBITS.
|
2.1 |
|
|
|
10.1^* |
|
|
|
10.2^* |
|
|
|
10.3^* |
|
Form of 2021 Confidentiality, Non-Competition and Intellectual Property Agreement |
|
* 31.1 |
|
Certification by Jay L. Schottenstein pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
|
|
|
|
|
* 31.2 |
|
Certification by Michael A. Mathias pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
|
|
|
|
|
** 32.1 |
|
|
|
|
|
|
|
** 32.2 |
|
|
|
|
|
|
|
* 101 |
|
The following materials from the Company’s Annual Report on Form 10-Q for the quarter ended October 30, 2021, formatted as inline eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets as of October 30, 2021, January 30, 2021 and October 31, 2020, (ii) Consolidated Statements of Operations for the 13 and 39 weeks ended October 30, 2021 and October 31, 2020, (iii) Consolidated Statements of Comprehensive Income for the 13 and 39 weeks ended October 30, 2021 and October 31, 2020, (iv) Consolidated Statements of Stockholders’ Equity for the 13 and 39 weeks ended October 30, 2021 and October 31, 2020, and (v) Consolidated Statements of Cash Flows for the 39 weeks ended October 30, 2021 and October 31, 2020 |
|
* 104 |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2021, formatted in inline XBRL |
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Management contract or compensatory plan or arrangement. |
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Filed with this report. |
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Furnished with this report. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 23, 2021
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American Eagle Outfitters, Inc. (Registrant) |
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By: |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
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Executive Vice President, Chief Financial Officer |
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(Principal Financial Officer) |
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44
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/3/24 | ||||
| 1/30/24 | ||||
| 4/17/23 | ||||
| 1/29/22 | 10-K | |||
| 12/29/21 | 4, 8-K | |||
| 12/15/21 | ||||
| 12/10/21 | ||||
| Filed on: | 11/23/21 | 8-K | ||
| 11/19/21 | ||||
| 11/12/21 | ||||
| 11/6/21 | ||||
| 10/31/21 | ||||
| For Period end: | 10/30/21 | |||
| 10/22/21 | 4 | |||
| 10/3/21 | ||||
| 10/2/21 | ||||
| 9/9/21 | ||||
| 8/29/21 | ||||
| 8/28/21 | ||||
| 8/1/21 | ||||
| 7/31/21 | 10-Q | |||
| 5/2/21 | ||||
| 3/11/21 | 10-K | |||
| 1/31/21 | ||||
| 1/30/21 | 10-K | |||
| 10/31/20 | 10-Q | |||
| 8/1/20 | 10-Q | |||
| 5/1/20 | ||||
| 3/27/20 | ||||
| 3/17/20 | ||||
| 2/2/20 | ||||
| 2/1/20 | 10-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/15/24 American Eagle Outfitters Inc. 10-K 2/03/24 105:15M Donnelley … Solutions/FA 3/13/23 American Eagle Outfitters Inc. 10-K 1/28/23 108:17M Donnelley … Solutions/FA 3/14/22 American Eagle Outfitters Inc. 10-K 1/29/22 106:15M Donnelley … Solutions/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/03/21 American Eagle Outfitters Inc. 8-K:1,7,9 11/02/21 12:733K Donnelley … Solutions/FA |