AEO Q4 Profit Plummets 89%, Forecast Weak

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AEOPittsburgh—American Eagle Outfitters, Inc. today reported its fourth quarter profit plummeted 89% as it sales were hit by winter storms and increased costs. Its first quarter forecast also was weak.

For the quarter ended Feb. 1, the teen specialty retailer posted net income of $10.51 million, or 5 cents a share, compared with $94.78 million, or 47 a share, a year before.

Excluding charges related to its discontinued AE Performance line, employee severance costs and other items, adjusted earnings were 27 cents a share, which actually beat analysts’ estimate by 1 cent.

AEO, which is amid a turnaround strategy, had forecast a weak fourth quarter after consecutive quarters of falling profit and declining comparable store sales.

‘Tough Macro Conditions’

Total revenue was down 7% to $1.04 billion, edging past analysts forecast for $1.03 billion in sales. Comparable store sales were also down 7% compared with a

Gross profit fell 28% to $332 million and decreased 930 basis points to 31.9% as a rate to revenue. “The decrease was primarily the result of increased promotional activity and the deleverage of rent on negative comparable sales,” the company stated.

For 2013, AEO said its net income decreased $83 million, or 43 cents a share, from $232.1 million, or $1.16 a share, in the prior year. Adjusted earnings were 74 cents a share. Annual revenue fell 5% to $3.31 billion while comp store sales were down 6%.

“The company’s results in 2013 were highly disappointing,” said Interim CEO Jay Schottenstein who replaced CEO Robert Hanson. “While tough macro conditions have persisted in our retail sector, our merchandise and overall customer experience fell short of expectations. We’re taking steps to bring greater focus and excitement to our product offering and better engage our core customers. Our brands remain incredibly strong and I’m confident in our ability to execute the strategic plan and resume long-term profitable growth.”

The company, which spent $278 million on capital expenditures in 2013, expects to spend $230 million in 2014 for “for new and upgraded systems, the completion of the distribution center and omni-channel projects, while the rest relates to store upgrades, as well as factory and international store expansion plans.”

But AEO’s forecast was weaker than expected, basically breakeven earnings in its first quarter which missed analysts’ forecast for 13 cents a share.

Moreover the company predicted a single-digit decline in sales.

“Business conditions remain challenging, with severe weather contributing to weak demand,” the company said.


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