<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to______________
COMMISSION FILE NUMBER: 0-23760
AMERICAN EAGLE OUTFITTERS, INC.
(Exact name of registrant as specified in its charter)
OHIO No. 25-1724320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 THORN HILL DRIVE, WARRENDALE, PA 15086-7528
(Address of principal executive offices) (Zipcode)
(412) 776-4857
(Registrant's telephone number, including area code)
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.
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, 9,875,000 shares outstanding as of June 3, 1996
<PAGE> 2
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
May 4, 1996 (unaudited) and February 3, 1996 3
Consolidated Statements of Operations (unaudited)
Three months ended May 4, 1996 and April 29, 1995 4
Consolidated Statements of Cash Flows (unaudited)
Three months ended May 4, 1996 and April 29, 1995 5
Notes to Consolidated Financial Statements 6-7
Review By Independent Accountants 8
Independent Accountants' Review Report 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 23 Acknowledgment of Independent Accountants 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except common stock share amounts) May 4, 1996 February 3, 1996
----------- ----------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $17,857 $19,986
Merchandise inventory 24,469 23,394
Receivables 2,467 5,642
Prepaid expenses and other 5,017 4,429
Deferred income taxes 2,891 2,891
------- -------
Total current assets 52,701 56,342
------- -------
Fixed assets:
Fixtures and equipment 26,949 26,447
Leasehold improvements 30,987 30,326
------- -------
57,936 56,773
Less: Accumulated depreciation and amortization 24,515 23,044
------- -------
33,421 33,729
Notes receivable -- 3,568
Other assets 1,779 1,724
------- -------
Total assets $87,901 $95,363
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $14,507 $16,166
Accrued compensation and payroll taxes 3,848 4,255
Accrued rent 4,883 4,550
Accrued income taxes 1,145 3,536
Other liabilities and accrued expenses 2,508 3,060
------- -------
Total current liabilities 26,891 31,567
------- -------
Stockholders' equity:
Common stock, 30,000,000 shares authorized and
10,000,000 shares issued 52,501 52,507
Contributed capital 4,262 4,262
Retained earnings 8,203 11,194
------- -------
64,966 67,963
Less: Deferred compensation 2,440 2,651
Treasury stock, 125,000 shares 1,516 1,516
------- -------
Total stockholders' equity 61,010 63,796
------- -------
Total liabilities and stockholders' equity $87,901 $95,363
======= =======
</TABLE>
See notes to Consolidated Financial Statements
3
<PAGE> 4
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
May 4, April 29,
1996 1995
---- ----
<S> <C> <C>
Net sales $54,396 $ 48,417
Cost of sales, including certain buying, occupancy
and warehousing expenses 40,786 42,085
------- --------
Gross profit 13,610 6,332
Selling, general and administrative expenses 17,286 16,734
Depreciation and amortization 1,567 1,311
------- --------
Operating loss (5,243) (11,713)
Interest (income) expense, net (314) 93
------- --------
Loss before income taxes (4,929) (11,806)
Benefit for income taxes (1,938) (4,883)
------- --------
Net loss $(2,991) $ (6,923)
======= ========
Net loss per common share $ (0.30) $ (0.69)
======= ========
Weighted average common shares outstanding 9,875 10,000
======= ========
Retained earnings, beginning $11,194 $ 12,527
Net loss (2,991) (6,923)
------- --------
Retained earnings, ending $ 8,203 $ 5,604
======= ========
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE> 5
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
------------
May 4, April 29,
1996 1995
---- ----
<S> <C> <C>
Net loss $ (2,991) $ (6,923)
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,567 1,311
Loss on disposal 237 70
Restricted stock compensation 206 328
Deferred income taxes -- (464)
Changes in assets and liabilities:
Merchandise inventory (1,075) (10,242)
Receivables 3,173 2,629
Prepaid and other (649) (1,656)
Accounts payable (1,660) (2,378)
Accrued liabilities (3,038) (4,705)
-------- --------
Total adjustments (1,239) (15,107)
-------- --------
Net cash used for operating activities (4,230) (22,030)
-------- --------
Investing activities:
Capital expenditures (1,467) (5,014)
Collection on notes from sale of outlet stores 3,568 --
-------- --------
Net cash provided by (used for) financing activities 2,101 (5,014)
-------- --------
Financing activities:
Net borrowings on notes payable -- 16,900
-------- --------
Net cash provided by financing activities -- 16,900
-------- --------
Net decrease in cash (2,129) (10,144)
Cash - beginning of period 19,986 10,363
-------- --------
Cash - end of period $ 17,857 $ 219
======== ========
</TABLE>
See notes to Consolidated Financial Statements
5
<PAGE> 6
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle
Outfitters, Inc. (the "Company") at May 4, 1996 and for the three months ended
May 4, 1996 (the "current period") and April 29, 1995 (the "prior period") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The Consolidated Balance Sheet at
February 3, 1996 was derived from the audited financial statements. The
Company's 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.
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 Transition 1996 Annual Report.
2. Basis of Presentation
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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,
management reviews its estimates based on currently available information.
Changes in facts and circumstances may result in revised estimates.
Earnings Per Share
Earnings per share have been computed based upon the weighted average number of
common shares outstanding during the periods presented. Common share
equivalents, principally in the form of employee stock option awards, are not
reflected in the common stock outstanding as they are anti-dilutive.
Reclassification
Certain reclassifications have been made to the Consolidated Financial
Statements for the prior period in order to conform to the May 4, 1996
presentation.
3. Supplemental Disclosures of Cash Flow Information
Because no borrowings were required under the terms of the Company's line of
credit, there were no amounts paid for interest during the quarter ended May 4,
1996. Interest costs were $0.1 million during the prior period. Income tax
payments were $0.6 million and $0.1 million during the current and prior
periods, respectively.
4. Related Party Transactions
As described in the information that follows, the Company has various
transactions with related parties. The nature of the relationship is primarily
through common ownership. The Company has an operating lease for its corporate
headquarters and distribution center with an affiliate of the Company. The
lease, which was entered into on January 1, 1996, and expires on December 31,
2010 provides for annual rental payments of approximately $1.2 million through
2001, $1.6 million through 2006, and $1.8 million through the end of the lease.
In addition, the Company purchases merchandise from and sells merchandise to
various related parties and uses the services of a related importing company.
6
<PAGE> 7
Transactions with these related parties and associated balance sheet amounts
were as follows:
<TABLE>
<CAPTION>
(In thousands)
May 4, April 29,
1996 1995
---- ----
<S> <C> <C>
Merchandise purchases plus
import administrative charges $7,076 $10,670
Accounts payable $4,499 $ N/A
Accounts receivable $ 401 $ N/A
Rent expense $ 395 $ 334
Merchandise sales $ 178 $ 523
</TABLE>
The Company has provided loans to certain officers and other individuals to pay
the taxes on the restricted stock that vested in April 1995. As of May 4, 1996,
the outstanding value of these loans, including interest at 6.8%, approximated
$350,000 as compared with $345,000 at February 3, 1996.
5. Income Taxes
The provisions of FASB No. 109, "Accounting for Income Taxes", have been
reflected in the accompanying Consolidated Financial Statements. For the three
months ended May 4, 1996 and April 29, 1995, the effective tax rate used to
provide income tax amounts was 39.3%.
7
<PAGE> 8
REVIEW BY INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, our independent accountants, have performed a limited review
of the Consolidated Financial Statements for the quarters ended May 4, 1996 and
April 29, 1995, as indicated in their report on the limited review included
below. Since they did not perform an audit, they express no opinion on the
Consolidated Financial Statements referred to above. Management has given
effect to any significant adjustments and disclosures proposed in the course of
the limited review.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
American Eagle Outfitters, Inc.
We have reviewed the accompanying consolidated balance sheet of American Eagle
Outfitters, Inc. as of May 4, 1996, and the consolidated statements of
operations and cash flows for the three-month periods ended May 4, 1996, and
April 29, 1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any modifications that should be made
to the accompanying financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of American Eagle Outfitters, Inc. as
of February 3, 1996, and the related consolidated statements of operations and
cash flows for the year then ended (not presented herein) and in our report
dated March 29, 1996 we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of February 3, 1996, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
May 28, 1996
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of the listed items included in the Company's
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three months ended
------------------
May 4, April 29,
1996 1995
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales, including certain buying,
occupancy and warehousing expenses 75.0 86.9
----- -----
Gross profit 25.0 13.1
Selling, general and administrative expenses 31.8 34.6
Depreciation and amortization 2.9 2.7
----- -----
Operating loss (9.7) (24.2)
Interest (income) expense, net (0.6) 0.2
----- -----
Loss before income taxes (9.1) (24.4)
Benefit for income taxes (3.6) (10.1)
----- -----
Net loss (5.5)% (14.3)%
----- -----
</TABLE>
Comparison of three months ended May 4, 1996 to three months ended April 29,
1995
Net sales for the three months ended May 4, 1996 (the "current period")
increased to $54.4 million from $48.4 million for the three months ended April
29, 1995 (the "prior period"). The $6.0 million or 12.3% increase in net sales
was attributable to an increase of $4.1 million or 10.3% in comparable store
sales and $7.7 million from non-comparable stores. Net sales in the prior
period included $5.8 million in sales generated by the outlet stores which were
sold in October 1995. The Company operated 274 stores, excluding 3 temporary
locations, at the end of the current period, compared to 273 stores operated at
the end of the prior period. The total increase in net sales resulted primarily
from an increase in units sold.
Gross profit for the current period increased to $13.6 million from $6.3
million for the prior period. Gross profit as a percent of net sales for the
current period increased to 25.0% from 13.1% for the prior period. The increase
in gross profit was primarily attributable to higher markon and a decrease in
markdowns.
Selling, general and administrative expenses for the current period increased
to $17.3 million from $16.7 million for the prior period. As a percent of net
sales, these expenses decreased to 31.8% from 34.6% for the prior period. The
increase of $0.6 million resulted primarily from additional advertising and
other store expenses necessary to support new store openings as compared to the
prior period. The 2.8% improvement as a percent to sales resulted from the
favorable sales performance as well as improved store level payroll
performance.
Depreciation and amortization expense for the current period increased to $1.6
million from $1.3 million for the prior period. As a percent of net sales,
these expenses increased to 2.9% from 2.7% from the prior period, due to
additional new stores, capital additions and the reduction of the estimated
useful life of certain computer and related equipment.
Interest income for the current period was $0.3 million compared to interest
expense of $0.1 million for the prior period. Interest expense decreased
because no borrowings were required under the terms of the Company's line of
credit during the quarter ended May 4, 1996. The interest income for the
current period resulted from interest on notes receivable and cash investments.
9
<PAGE> 10
The loss before income taxes for the current period decreased to $4.9 million
from $11.8 million for the prior period. As a percent of net sales, loss before
income taxes for the current period decreased to 9.1% from 24.4% for the prior
period. The decrease in loss before income taxes of $6.9 million was primarily
a result of the favorable sales performance and higher margins attributable to
higher markon and lower markdowns.
Liquidity and Capital Resources
The Company's primary sources of working capital are cash and cash equivalents
provided by operating activities and borrowings under its revolving credit
facility. The primary uses are for the acquisition of inventory and fixed
assets. The Company had working capital of $25.8 and $24.8 million at May 4,
1996 and February 3, 1996, respectively. The current period increase resulted
from the increase in cash provided primarily by the collection of the $3.6
million in notes from the October 1995 sale of the outlet division.
For the current period, the cash used for operating activities of $4.2 million
was primarily the result of inventory increases, funding of current liabilities
and the net loss for the period.
At May 4, 1996, the Company had an unsecured demand lending arrangement with a
bank to provide a $60.0 million line of credit at either the lender's prime
lending rate (8.25% at May 4, 1996) or a negotiated rate such as LIBOR. The
facility has a limit of $40.0 million to be used for direct borrowing. No
borrowings were outstanding and letters of credit in the amount of $21.3
million were outstanding at May 4, 1996. The remaining available balance on
the line was $38.7 million at May 4, 1996.
Capital expenditures, net of construction allowances, totaled $1.5 million for
the current period. These expenditures included the addition of 3 new store
locations, as well as remodels. In line with the Company's stated goal of
absorbing the prior significant new store growth, the Company plans to open
fewer new stores in fiscal 1996 than in 1995 and 1994. The number of new store
openings currently planned is approximately 35, although the number may be
increased or decreased depending on the Company's financial position and the
number of advantageous mall store leases that may become available. The Company
believes that the cash flow from operations and its bank line of credit will be
sufficient to meet its presently anticipated cash requirements through fiscal
1996.
Seasonality and General Economic Conditions
The Company desires to take advantage of the new "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The statements contained
in this report which are not historical facts are "forward looking statements"
that involve various important risks, uncertainties and other factors which
could cause the Company's actual results for fiscal 1996 and beyond to differ
materially from those expressed in such forward looking statements. These
important factors include, without limitation, the risks and factors set forth
below, as well as other risks previously disclosed in the Company's securities
filings.
Historically, the Company's operations have been seasonal, with highest sales
and net income occurring in the fourth fiscal quarter, reflecting increased
demand during the year-end holiday selling season and, to a lesser extent, the
third quarter, reflecting increased demand during the back-to-school selling
season. The Company has historically recognized net losses during its first and
second fiscal quarters.
The Company's results of operations will also fluctuate from quarter to quarter
in the future as a result of numerous other factors. These include factors the
Company cannot control that impact mall-based apparel retailers generally, such
as factors affecting the amount of traffic in enclosed shopping malls and
regional and national economic conditions affecting disposable consumer
incomes. They also include factors over which the Company has some control,
such as distinguishing itself from its competitors based on the quality and
design of its private label brand names, identifying and responding to fashion
trends in a timely manner, the ability to direct source merchandise closer to
need and in appropriate quantities, the ability to retain qualified personnel
and the number and timing of the opening of new stores. Any one or a
combination of these factors could have a material adverse affect on the
Company's results of operations and financial condition.
Impact of Inflation
The Company does not believe that the relatively modest levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on its net sales or its profitability. Substantial increases
in cost, however, could have a significant impact on the Company and the
industry in the future.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
23. Acknowledgment of Independent Accountants
</TABLE>
11
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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 June 12, 1996
American Eagle Outfitters, Inc.
(Registrant)
/s/ LAURA A. WEIL
-------------------------------
Laura A. Weil
Executive Vice President
and Chief Financial Officer
/s/ DALE E. CLIFTON
-------------------------------
Dale E. Clifton
Vice President, Controller
and Chief Accounting Officer
12
<PAGE> 1
Exhibit 23
Acknowledgment of Ernst & Young LLP
The Board of Directors and Stockholders
American Eagle Outfitters, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Forms S-8) of American Eagle Outfitters, Inc. pertaining to the American Eagle
Outfitters, Inc. 1994 Stock Option Plan, the Stock Fund of the American Eagle
Outfitters, Inc. Profit Sharing and 401(k) Plan, the American Eagle Outfitters,
Inc. Employee Stock Purchase Plan, and the American Eagle Outfitters, Inc. 1994
Restricted Stock Plan of our report dated May 28, 1996 relating to the
unaudited consolidated interim financial statements of American Eagle
Outfitters, Inc. which are included in its Form 10-Q for the quarter ended May
4, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 6, 1996
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MAY 4, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000919012
<NAME> AMERICAN EAGLE OUTFITTERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 17,857
<SECURITIES> 0
<RECEIVABLES> 2,467
<ALLOWANCES> 0
<INVENTORY> 24,469
<CURRENT-ASSETS> 52,701
<PP&E> 57,936
<DEPRECIATION> 24,515
<TOTAL-ASSETS> 87,901
<CURRENT-LIABILITIES> 26,891
<BONDS> 0
<COMMON> 52,501
0
0
<OTHER-SE> 8,509
<TOTAL-LIABILITY-AND-EQUITY> 87,901
<SALES> 54,396
<TOTAL-REVENUES> 54,396
<CGS> 40,786
<TOTAL-COSTS> 40,786
<OTHER-EXPENSES> 18,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (314)
<INCOME-PRETAX> (4,929)
<INCOME-TAX> (1,938)
<INCOME-CONTINUING> (2,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,991)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
