American Eagle Outfitters Inc.’s (AEO) fiscal 2010 second-quarter adjusted earnings slipped to 13 cents per share from the year-ago earnings of 18 cents, but edged past the Zacks Consensus Estimate of 12 cents. The adjusted quarterly earnings excluded a loss of 8 cents per share on American Eagle’s underperforming Martin+Osa chain. The company completed the closure of 28 stores and the online business of Martin+Osa in the second quarter.
During the quarter, American Eagle’s net sales edged up 0.7% year-over-year to $651.5 million, but missed the Zacks Consensus Estimate of $660.0 million. The slight increase in sales was mainly attributable to the opening of new stores, partially offset by a 1% year-over-year decline in same-store sales. In the reported quarter, American Eagle opened 11, remodeled 10 and closed 33 stores, including the Martin+Osa chain.
American Eagle’s gross profit fell 5.6% year-over-year to $239.7 million, while gross margin contracted 250 basis points (bps) to 36.8%. The reduction was mainly caused by higher markdowns coupled with the de-leveraging impact of lower same-store sales on fixed expenses.
Selling, general and administrative expenses, as a percentage of sales, rose 50 bps year-over-year to 25.4% due to the timing of contract-based equity grants and severance payments. Consequently, operating income declined 36.0% year-over-year to $38.2 million, while operating margin slipped 340 bps to 5.9%.
American Eagle ended the quarter with cash and cash equivalents of $425.5 million, compared to $500.3 million in the year-ago period. During the first half of the current fiscal year, the company generated $21.9 million of cash from operations and received $27.9 million from sale of investments. The company also utilized $192.3 million of cash towards share buybacks, $39.3 million towards capital expenditure and $30.0 million towards debt repayment.
Moving forward, American Eagle anticipates adjusted earnings in the third quarter of fiscal 2010 to range between 23 cents and 26 cents per share, assuming same-store sales to be flat-to-down in low-single-digits. The guidance is in line with the Zacks Consensus Estimate of 26 cents per share, which dipped a penny in just the past week as 3 of 22 covering analysts lowered expectations.
For the entire fiscal 2010, the Zacks Consensus Estimate on American Eagle’s earnings is currently pegged at 97 cents per share, which moved down a penny over the past week as 3 of 25 covering analysts reduced projections. We presently have a long-term Neutral recommendation on the company’s shares.
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