American Eagle Outfitters Reports Second Quarter Results

American Eagle Outfitters, Inc. (NYSE: AEO) today announced that earnings for the second quarter ended August 1, 2009 were $0.14 per diluted share, which includes a tax benefit of $0.02 per diluted share. In addition, second quarter EPS includes a $0.02 non-cash, non-operating foreign currency loss. This is related to holding U.S. dollars in Canada in anticipation of repatriation, which occurred on August 18, 2009. Second quarter EPS compares to $0.29 per diluted share for the same period last year. In the third quarter, the company expects a tax benefit of approximately $0.05 per share related to the repatriation.

“Although business remained challenging during the second quarter, we are making clear progress on key AE brand initiatives. Most notably, our redesigned denim collection is receiving an extremely favorable response from customers, and posting positive results. Additionally, the women’s assortment has continued to gain traction through the back-to-school season,” said Jim O’Donnell, chief executive officer. “As we look ahead to the holiday season and beyond, I hope to see steady improvements throughout our entire business, across each brand. We continue a relentless focus on strengthening our organization with talent and streamlined processes, as well as our connection to customers. In parallel, operational efficiency and financial discipline remain the governing principles of our business.”

Second Quarter Results
Total sales for the quarter ended August 1, 2009 decreased 5% to $657.6 million, compared to $688.8 million for the quarter ended August 2, 2008. Comparable store sales decreased 10% for the quarter, compared to a 9% decrease last year.

Gross profit for the second quarter was $248.8 million, or 37.8% as a rate to sales, compared to $289.4 million, or 42.0% as a rate to sales last year. The merchandise margin declined by 190 basis points, primarily due to higher markdowns and promotional costs compared to the second quarter last year. As a rate to sales, buying, occupancy and warehousing costs increased by 230 basis points due to the de-leveraging of rent related to new stores and the decline in second quarter comparable store sales.

Selling, general and administrative expense of $167.2 million decreased slightly from $167.9 million last year. Cost control initiatives remain a priority and have resulted in savings in the areas of advertising, travel and services purchased. As a rate to sales, SG&A increased to 25.4% from 24.4% last year, due in part to negative comparable store sales as well as new store growth.

Operating income for the quarter was $46.3 million, compared to $89.4 million last year. The operating margin was 7.0% compared to 13.0% last year.

Other expense of $4.1 million compared to other income of $4.0 million last year. Other expense included a non-cash, non-operating foreign currency loss related to holding U.S. dollars in Canada in anticipation of repatriation. The decline in other income/expense was also the result of a significantly lower rate of return on investments.

Net income was $28.6 million compared to $59.8 million in the second quarter of last year.

AEO Direct
AEO Direct, which includes ae.com, aerie.com, martinandosa.com, and 77kids.com, is an important area of growth and profitability. In the second quarter, sales increased 17%, driven primarily by increased traffic.

Real Estate
In the second quarter, the company opened two AE stores, closed one store and completed the renovation of five stores. The company also opened three aerie stores during the quarter. For the year, the company is planning approximately eight new and 25 remodeled AE stores, and 21 new aerie stores for total square footage growth of 3%.

Capital Expenditures
Capital expenditures were $38 million compared to $84 million in the second quarter of last year. The company expects 2009 capital expenditures to be in the range of $110 to $135 million. Of this amount, approximately one half relates to new and remodeled stores, including a flagship store in Times Square. The remaining half relates to the completion of the current distribution center and headquarters projects, as well as information technology initiatives.

Inventory
Total merchandise inventories at the end of the second quarter were $353 million, compared to $341 million last year, a 3% increase. The increase was the result of new stores and the growth in AEO Direct. Excluding the direct business, on a cost per foot basis, inventory decreased 5%. Looking ahead, for the AE brand, third quarter average weekly inventory on a cost per foot basis is planned down in the high single-digits. aerie inventory is planned to increase due to expanded category offerings, which is critical to the growth of this brand. Consolidated third quarter total average weekly inventory is planned down in the low single-digits on a cost per foot basis.

Cash and Cash Equivalents, Short-term and Long-term Investments
During the quarter, the company generated strong net cash flow, including positive cash from operations, as well as auction rate security redemptions at par totaling $38 million. The company ended the second quarter with total cash and cash equivalents, short-term and long-term investments of $728 million. This included $228 million of investments in auction rate securities, net of impairment.

Third Quarter 2009 Guidance
Based on management’s current view of sales trends, the company expects third quarter earnings to be in a range of $0.22 to $0.25 per share, compared to earnings of $0.30 per share last year. This guidance includes a tax benefit of approximately $0.05 per share associated with the repatriation of earnings from Canada. The guidance excludes the possibility of additional impairments or losses related to investment securities.

Conference Call Information
At 9:00 a.m. Eastern Time on August 27, 2009 the company’s management team will host a conference call to review the financial results. To listen to the call, please dial (877) 407-0789 or internationally dial (201) 689-8562. The conference call will be simultaneously broadcast over the Internet at www.ae.com. A replay will be available beginning August 27, 2009 at 12:00 p.m. Eastern Time. To listen to the replay, dial (877) 660-6853, or internationally dial (201) 612-7415, reference account 3055 and confirmation code 322154. An audio replay of the conference call will also be available at www.ae.com.

About American Eagle Outfitters, Inc.
American Eagle Outfitters, Inc., through its subsidiaries, (“AEO, Inc.”) offers high-quality, on-trend clothing, accessories and personal care products at affordable prices. The American Eagle Outfitters® brand targets 15 to 25 year old girls and guys, with 954 stores in the U.S. and Canada and online at www.ae.com. aerie® by american eagle offers Dormwear® and intimates collections for the AE® girl, with 133 standalone stores in the U.S. and Canada and online at www.aerie.com. MARTIN + OSA® provides clothing and accessories in the tradition of hip, classic American style for 28 to 40 year old men and women at its 28 stores and online at www.martinandosa.com. The latest brand, 77kids™ by american eagle™, is available online only at www.77kids.com. 77kids offers “kid cool,” durable clothing and accessories for kids ages two to 10. AE.COM®, the online home of the brands of AEO, Inc. ships to more than 60 countries worldwide.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements, which represent our expectations or beliefs concerning future events, specifically regarding third quarter sales and earnings. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors beyond the company's control. Such factors include, but are not limited to the risk that the Company’s third quarter sales and earnings expectations may not be achieved and the risks described in the Risk Factor Section of the company's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if future changes make it clear that projected results expressed or implied will not be realized.

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
					August 1,				January 31,				August 2,
					2009				2009				2008
					(unaudited)								(unaudited)
ASSETS
		Cash and cash equivalents		$	500,263			$	473,342			$	353,390
		Short-term investments			2,525				10,511				26,936
		Merchandise inventory			352,819				294,928				341,463
		Accounts and note receivable			40,799				41,471				26,697
		Prepaid expenses and other			62,432				59,660				64,009
		Deferred income taxes			45,605				45,447				46,839
		Total current assets			1,004,443				925,359				859,334
		Property and equipment, net			745,086				740,240				718,639
		Goodwill, net			11,181				10,706				11,370
		Long-term investments			225,559				251,007				308,699
		Non-current deferred income taxes			1,981				15,001				27,338
		Other assets, net			22,064				21,363				19,944
		Total Assets		$	2,010,314			$	1,963,676			$	1,945,324
LIABILITIES AND STOCKHOLDERS' EQUITY
		Accounts payable		$	151,978			$	152,068			$	145,507
		Notes payable			75,000				75,000				75,000
		Accrued compensation and payroll taxes			29,970				29,417				27,157
		Accrued rent			66,637				64,695				62,970
		Accrued income and other taxes			16,093				6,259				12,159
		Unredeemed gift cards and gift certificates			20,920				42,299				29,771
		Current portion of deferred lease credits			17,639				13,726				13,988
		Other current liabilities			18,845				18,299				19,163
		Total current liabilities			397,082				401,763				385,715
		Deferred lease credits			98,067				88,314				81,598
		Non-current accrued income taxes			25,036				39,898				43,875
		Other non-current liabilities			20,272				24,670				28,819
		Total non-current liabilities			143,375				152,882				154,292
		Commitments and contingencies			-				-				-
		Preferred stock			-				-				-
		Common stock			2,486				2,485				2,485
		Contributed capital			526,487				513,574				506,104
		Accumulated other comprehensive income (loss)			15,567				(14,389	)			26,111
		Retained earnings			1,692,990				1,694,161				1,663,156
		Treasury Stock			(767,673	)			(786,800	)			(792,539	)
		Total stockholders' equity			1,469,857				1,409,031				1,405,317
		Total Liabilities and Stockholders' Equity		$	2,010,314			$	1,963,676			$	1,945,324
		Current Ratio			2.53				2.30				2.23

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(unaudited)
				13 Weeks Ended
				August 1,			% of				August 2,		% of
				2009			Sales				2008		Sales
Net sales			$	657,596			100.0	%		$	688,815		100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses				408,763			62.2	%			399,431		58.0	%
Gross profit				248,833			37.8	%			289,384		42.0	%
Selling, general and administrative expenses				167,175			25.4	%			167,898		24.4	%
Depreciation and amortization				35,341			5.4	%			32,059		4.6	%
Operating income				46,317			7.0	%			89,427		13.0	%
Other (expense) income, net				(4,147	)		-0.6	%			3,975		0.6	%
Income before income taxes				42,170			6.4	%			93,402		13.6	%
Provision for income taxes				13,598			2.1	%			33,571		4.9	%
Net income			$	28,572			4.3	%		$	59,831		8.7	%
Net income per basic common share			$	0.14						$	0.29
Net income per diluted common share			$	0.14						$	0.29
Weighted average common shares outstanding - basic				206,010							204,929
Weighted average common shares outstanding - diluted				209,015							207,504
				26 Weeks Ended
				August 1,			% of				August 2,		% of
				2009			Sales				2008		Sales
Net sales			$	1,269,582			100.0	%		$	1,329,117		100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses				799,824			63.0	%			776,065		58.4	%
Gross profit				469,758			37.0	%			553,052		41.6	%
Selling, general and administrative expenses				325,867			25.7	%			337,537		25.4	%
Depreciation and amortization				70,235			5.5	%			61,609		4.6	%
Operating income				73,656			5.8	%			153,906		11.6	%
Other (expense) income, net				(6,455	)		-0.5	%			10,433		0.8	%
Income before income taxes				67,201			5.3	%			164,339		12.4	%
Provision for income taxes				16,662			1.3	%			60,613		4.6	%
Net income			$	50,539			4.0	%		$	103,726		7.8	%
Net income per basic common share			$	0.25						$	0.51
Net income per diluted common share			$	0.24						$	0.50
Weighted average common shares outstanding - basic				205,742							204,962
Weighted average common shares outstanding - diluted				207,974							207,890
Total gross square footage at end of period:				6,430,960							6,092,855
Store count at end of period:				1,114							1,054

AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
				For the 26 Weeks Ended
				August 1,				August 2,
				2009				2008
Operating activities:
Net income			$	50,539			$	103,726
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				71,268				62,501
Share-based compensation				9,865				12,909
Provision for deferred income taxes				5,980				(583	)
Tax benefit from share-based payments				7,258				241
Excess tax benefit from share-based payments				(1,405	)			(279	)
Foreign currency transaction loss				5,685				12
Other-than-temporary impairment				225				-
Realized loss on sale of investment securities				2,749				-
Changes in assets and liabilities:
Merchandise inventory				(54,539	)			(55,671	)
Accounts and note receivable				840				5,183
Prepaid expenses and other				(2,174	)			(28,593	)
Other assets, net				(187	)			457
Accounts payable				1,311				(12,050	)
Unredeemed gift cards and gift certificates				(21,696	)			(24,694	)
Deferred lease credits				12,848				11,354
Accrued compensation and payroll taxes				(366	)			(22,296	)
Accrued income and other taxes				(5,306	)			(11,704	)
Accrued liabilities				(1,989	)			(1,595	)
Total adjustments				30,367				(64,808	)
Net cash provided by operating activities			$	80,906			$	38,918
Investing activities:
Capital expenditures				(72,967	)			(157,486	)
Purchase of investments				-				(49,929	)
Sale of investments				49,914				374,937
Other investing activities				(685	)			(958	)
Net cash (used for) provided by investing activities			$	(23,738	)		$	166,564
Financing activities:
Payments on capital leases				(971	)			(798	)
Net proceeds from issuance of notes payable				-				75,000
Repurchase of common stock from employees				(195	)			(3,409	)
Net proceeds from stock options exercised				4,763				1,668
Excess tax benefit from share-based payments				1,405				279
Cash dividends paid				(41,360	)			(40,919	)
Net cash (used for) provided by financing activities			$	(36,358	)		$	31,821
Effect of exchange rates on cash				6,111				26
Net increase in cash and cash equivalents			$	26,921			$	237,329
Cash and cash equivalents - beginning of period				473,342				116,061
Cash and cash equivalents - end of period			$	500,263			$	353,390