American Eagle initiates third quarter guidance

26 Aug '10

5 min read

AEO Direct
The company's direct business includes ae.com, aerie.com and 77kids.com. In the second quarter, sales decreased 9%. This compares to a 17% sales increase last year which was promotionally driven.

Corporate Profit Initiative
The company's corporate profit initiative, aimed at strengthening profitability, is comprehensive and affects every function and discipline across the organization. Key elements of the plan are as follows:

• Sales and merchandise margin optimization—includes strengthening merchandising strategies, a reduction in inventories, implementation of new merchandise allocation technology and refinement of store presentation models.
• Organizational streamlining—involves workforce reductions and process improvements to increase efficiencies and create a more productive environment.
• Expense reductions—entails the elimination of projects which were low-value to our customers and continued improvement of non-merchandise buying practices.
• Evaluation of stores and facilities—targets 50 to 100 closures of underperforming stores over the next two to five years.

Inventory
Total merchandise inventory at the end of the second quarter was $349 million compared to $353 million last year. Second quarter ending inventory per foot increased 1%, with clearance inventory down at the end of the quarter.

Looking forward, third quarter average weekly inventory per square foot is planned down in the mid single-digits.

Capital Expenditures
For the second quarter, capital expenditures were $20 million compared to $38 million last year. The company continues to expect capital expenditures to be in the range of $90 to $110 million.

Real Estate
In the second quarter, the company opened one AE store, five aerie and five 77kids stores. In addition, 10 AE store remodels were completed. Store closings in the quarter included five AE stores and 28 MARTIN+OSA stores. For additional year-to-date and fiscal 2010 information, please refer to the accompanying real estate table.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments
The company ended the second quarter with total cash and cash equivalents of $426 million, as well as $172 million of investments in auction rate securities, net of impairment.
Third Quarter 2010 Outlook

Month-to-date August comparable store sales are up approximately 1%, which is consistent with our plan for the back-to-school selling period. For the third quarter, the company expects comparable store sales to be flat to down in the low single-digits. This assumes a more conservative view of traffic following peak back-to-school shopping. Based upon this view, our third quarter 2010 earnings from continuing operations guidance is $0.23 to $0.26 per diluted share.

This compares to earnings from continuing operations for the third quarter 2009 of $0.32 per diluted share, which included a tax benefit of $0.07 per diluted share associated with the repatriation of earnings from Canada. The third quarter 2010 guidance excludes potential investment security charges.

American Eagle Outfitters Inc

More American Eagle Outfitters Inc News... More Apparel/Garments News - United States Of America...