American Eagle Outfitters Inc. (AEO) posted fiscal 2010 first-quarter adjusted earnings of 17 cents per share before the opening bell on Wednesday. The result came in ahead of the year-ago earnings of 11 cents per share and matched the Zacks Consensus Estimate.
The adjusted quarterly earnings excluded a loss of 12 cents per share on American Eagle’s underperforming Martin+Osa chain. The company announced the closure of 28 stores and online business of Martin+Osa in March this year.
American Eagle also offered lackluster guidance and expects adjusted earnings of 12 cents to 16 cents per share in the current quarter. The guidance is below the Zacks Consensus Estimate of 21 cents per share, which dipped by a penny in just the past week as 5 of 27 covering analysts lowered expectations. Shares of the company have dropped more than 16% in Wednesday trading on the New York Stock Exchange.
American Eagle’s net sales in the first quarter grew 8% to $659.5 million from $612.0 million in the year-ago quarter. The growth was primarily driven by a 5% year-over-year growth in same-store sales (excluding Martin+Osa). During the quarter, American Eagle opened seven, remodeled three and closed five stores. In fiscal 2010, the company plans to open 30, remodel 25 – 35 and close 10 – 20 stores.
Quarterly gross profit recorded growth of 12.5% year-over-year to $248.4 million, while gross margin expanded 160 basis points (bps) to 37.7%. The growth was mainly attributable to lower markdowns coupled with the leveraging impact of higher sales on fixed expenses. However, operating income slipped 52.2% year-over-year to $13.1 million, primarily due to an $18.0 million impairment charge related to closure of Martin+Osa coupled with a 14.2% increase in selling, general and administrative expenses to $181.2 million.
American Eagle exited the quarter with cash and cash equivalents of $535.2 million, compared to $418.8 million in the year-ago period. During the quarter, the company deployed $71.8 million towards share buybacks and $19.1 million towards capital expenditure.
We currently have a Neutral recommendation on the stock.
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