Q1 demonstrates progress toward our goals – American Eagle CEO
American Eagle Outfitters, Inc. announced that earnings for the first quarter ended May 1, 2010 were $0.05 per diluted share, compared to $0.11 per diluted share last year. Adjusted earnings for the period were $0.17 per diluted share, excluding closing charges and an operating loss related to the MARTIN+OSA business of $0.12 per diluted share. This compares to adjusted earnings for the first quarter ended May 2, 2009 of $0.11 per diluted share, which excluded a tax benefit, a realized loss related to the sale of investment securities and an operating loss related to MARTIN+OSA, as outlined in the table which follows.
“The first quarter demonstrated progress toward our goals. We achieved higher sales and stronger profitability,” said Jim O'Donnell, chief executive officer. “We remain focused on our priority to deliver margin improvement and earnings growth, with the ultimate goal of reaching our mid-teen operating margin target.”
On March 9, 2010, the company announced plans to close its MARTIN+OSA concept, including all 28 stores and the online business. As of the end of the first quarter, the closure was proceeding within the range of financial estimates provided.
Included in the first quarter net operating loss for MARTIN+OSA were pre-tax charges of $5 million for severance and other employee-related charges, $2 million of inventory charges and a non-cash asset impairment charge of $18 million. The net loss for the quarter was $25 million or $0.12 per diluted share. The second quarter closing charges and operating loss is estimated to be approximately $26 million, net of tax, or $0.13 per diluted share.
Total merchandise inventory at the end of the first quarter was $326 million, an increase of $47 million. On a cost per square foot basis, ending inventory increased 15%, following a 4% decline in inventory per foot at the end of the first quarter of 2009. The inventory position supports a year-round and in-stock denim strategy, which we begin to anniversary in the third quarter. As we initiate the changes in our buying and allocation process, second half inventories are planned down.
For the first quarter, capital expenditures were $19 million compared to $35 million last year. 2010 capital expenditures are now expected to be in the range of $90 to $110 million, a $10 million reduction from our previous expectation, primarily due to a shift of new store openings into 2011.
In the first quarter, the company opened five AE stores, two aerie stores, completed the remodeling of three AE stores and closed five AE stores. For the year, we now expect to open 14 new AE stores, complete 25 to 35 AE store remodels and close an additional 10 to 20 AE stores. In addition, we plan to open nine new aerie stores and seven 77kids stores. As previously announced, we plan to close the 28 MARTIN+OSA stores. As a result, total gross square footage in 2010 is expected to be down 1-2% versus 2009.