American Eagle Outfitters Inc 10-Q for FY2021 Q1
American Eagle Outfitters Inc (AEO)
About this 10-Q
American Eagle Outfitters Inc filed this 10-Q on June 4, 2020, covering the quarter ended May 2, 2020 (FY2021 Q1).
Headline figures
Quarter ended May 2, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $551.69M
- down 37.8% from $886.29M a year earlier
- Net loss
- $257.16M
- compared with net income of $40.75M a year earlier
- Diluted EPS
- -$1.54
- compared with $0.23 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
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Page Number |
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Item 1. |
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Forward Looking Statements |
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5 |
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Consolidated Balance Sheets: May 2, 2020, February 1, 2020 and May 4, 2019 |
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5 |
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Consolidated Statements of Operations: 13 weeks ended May 2, 2020 and May 4, 2019 |
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Consolidated Statements of Comprehensive Income: 13 weeks ended May 2, 2020 and May 4, 2019 |
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Consolidated Statements of Stockholders’ Equity: 13 weeks ended May 2, 2020 and May 4, 2019 |
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Consolidated Statements of Cash Flows: 13 weeks ended May 2, 2020 and May 4, 2019 |
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10 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
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Item 3. |
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33 |
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Item 4. |
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33 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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35 |
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Item 3. |
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Defaults Upon Senior Securities |
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N/A |
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Item 4. |
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Mine Safety Disclosures |
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N/A |
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Item 5. |
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Other Information |
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N/A |
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Item 6. |
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36 |
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2
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:
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the planned opening of approximately 20 Aerie stores during Fiscal 2020; |
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the potential closures of American Eagle and Aerie stores, primarily in North America, during Fiscal 2020; |
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the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally; |
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the success of our business priorities and strategies; |
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the continued validity of our trademarks; |
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our performance during the year-end holiday selling season; |
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the accuracy of the estimates and assumptions we make pursuant to our critical accounting policies and estimates; |
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the payment of a dividend in future periods; |
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the possibility that future access to the debt markets may not be available and at terms or interest rates that are attractive; |
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the availability of sufficient cash flow to fund anticipated capital expenditures, future dividends, and working capital requirements; |
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the possibility that product costs are adversely affected by foreign trade issues (including import tariffs and other trade restrictions with China and other countries), currency exchange rate fluctuations, increasing prices for raw materials, supply chain issues, political instability or other reasons; |
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the possibility of further changes in global economic and financial conditions, and resulting impacts on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits; and |
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the possibility that we may be required to take additional impairment and restructuring charges. |
Our forward-looking statements surrounding the COVID-19 pandemic include, but are not limited to:
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the ongoing impact of the novel strain of coronavirus (COVID-19) on global economic conditions, our customers’ discretionary income and freedom of movement; |
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the current unknown duration of the COVID-19 pandemic; |
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the impact of governmental regulations that have been, and may in the future be, imposed in response to the pandemic, including regulations which could adversely affect our business or cause us to cease our digital business if we are required to close our distribution and fulfillment centers or are otherwise unable acquire or deliver merchandise, or to close our recently reopened retail stores; |
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the deterioration in the economic conditions in the United States, which potentially could have an impact on discretionary consumer spending; |
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the ability of our distribution centers to maintain adequate staffing to meet increased customer demand; |
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the possibility of temporary furloughs of store, field, and corporate associates surrounded by store closures; |
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the reduction to operating expenses, which include delayed merit increases for associates, hiring freezes, and other cost-saving initiatives; |
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the reduction or deferral of inventory receipts to align with lower demand due to store closures; and |
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the planned reduction to capital expenditures across stores, information technology and other projects to a range of $100 million to $125 million for Fiscal 2020. |
3
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
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the risk associated with our inability to anticipate and respond to changing consumer preferences; |
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the risk associated with pricing pressure from existing and new competitors; |
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the risk of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences; |
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the risk that seasonality could cause sales to fluctuate and negatively impact our results of operations; |
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the risk that the COVID-19 global pandemic could have a material adverse effect on our business and results of operations, the nature and extent of which are highly uncertain and unpredictable; |
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the risk that our results could be adversely affected by natural disaster, public health crises (including, without limitation, the recent COVID-19 coronavirus outbreak), political crises, negative global climate patterns, or other catastrophic events; |
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the risk that impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability; |
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the risk that our inability to grow our digital channels and leverage omni-channel capabilities could impact our business, particularly if our stores are closed or our customers have restricted freedom of movement; |
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the risk that failure to define, launch and communicate a brand relevant customer experience could have a negative impact; |
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the risk that our efforts to execute on our key business priorities could have a negative impact; |
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the risk that our efforts to expand internationally expose us to risks inherent in operating in new countries; |
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the risk that failure to protect our reputation could have a material adverse effect; |
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the risk that we are unable to implement and sustain adequate information technology systems; |
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the risk that our inability to safeguard against security breaches with respect to our information technology systems could damage our reputation and adversely impact our profitability; |
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the risk that we may be exposed to costs associated with the loss of customer information; |
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the risk that our international merchandise sourcing strategy subjects us to risks that could impact our business and results of operations; |
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the risk that our product costs may be adversely affect by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, political instability, or other reasons; |
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the risks associated with our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic or attract customers to our stores; |
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the risks associated with leasing substantial amount of space, including increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations; |
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the risk that we rely on key personnel, the loss of whom could have a material adverse effect on our business; |
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the risk that we may be unable to protect our trademarks and other intellectual property rights |
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the risks associated with a complex regulatory, compliance and legal environment; |
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the risk that fluctuations in our tax obligations and effective tax rate could adversely affect us; and |
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the risk that the impact of various legal proceedings, lawsuits, disputes, and claims could have an adverse impact on our business, financial condition, and results of operation. |
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
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May 2, |
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February 1, |
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May 4, |
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(In thousands, except per share amounts) |
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2020 |
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2020 |
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2019 |
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(Unaudited) |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Short-term investments |
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Merchandise inventory |
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Accounts receivable, net |
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Prepaid expenses and other |
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Total current assets |
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Property and equipment, at cost, net of accumulated depreciation |
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Operating lease right-of-use assets |
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Intangible assets net, including goodwill |
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Non-current deferred income taxes |
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Other Assets |
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Total assets |
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$ |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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$ |
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Current portion of operating lease liabilities |
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Accrued income and other taxes |
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Accrued compensation and payroll taxes |
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Dividends payable |
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- |
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- |
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Unredeemed gift cards and gift certificates |
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Other current liabilities and accrued expenses |
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Total current liabilities |
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Non-current liabilities: |
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Long-term debt, net |
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— |
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— |
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Non-current operating lease liabilities |
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Other non-current liabilities |
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Total non-current liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $ issued and outstanding |
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Common stock, $ outstanding, respectively |
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Contributed capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Treasury stock, |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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$ |
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Refer to Notes to Consolidated Financial Statements
5
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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13 Weeks Ended |
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May 2, |
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May 4, |
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(In thousands, except per share amounts) |
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2020 |
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2019 |
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Total net revenue |
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$ |
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$ |
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Cost of sales, including certain buying, occupancy and warehousing expenses |
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Gross profit |
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Selling, general and administrative expenses |
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Impairment and restructuring charges |
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Depreciation and amortization expense |
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Operating (loss) income |
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Other (expense) income, net |
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(Loss) income before income taxes |
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(Benefit) provision for income taxes |
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Net (loss) income |
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$ |
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$ |
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Net (loss) income per basic share |
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$ |
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$ |
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Net (loss) income per diluted share |
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$ |
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$ |
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Weighted average common shares outstanding - basic |
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Weighted average common shares outstanding - diluted |
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Refer to Notes to Consolidated Financial Statements
6
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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13 Weeks Ended |
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May 2, |
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May 4, |
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(In thousands) |
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2020 |
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2019 |
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Net (loss) income |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustments |
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( |
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( |
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Other comprehensive (loss): |
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( |
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( |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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Refer to Notes to Consolidated Financial Statements
7
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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(In thousands, except per share amounts) |
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Shares Outstanding |
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Common Stock |
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Contributed Capital |
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Retained Earnings |
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Treasury Stock |
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Accumulated Other Comprehensive (Loss) |
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Stockholders' Equity |
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Balance at February 2, 2019 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock awards |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock as part of publicly announced programs |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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Repurchase of common stock from employees |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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Adoption of Accounting Standards Codification 842, net of tax |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Reissuance of treasury stock |
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— |
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( |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Cash dividends declared and dividend equivalents ($ |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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Balance at May 4, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Balance at February 1, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Stock awards |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock as part of publicly announced programs |
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( |
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— |
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— |
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— |
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( |
) |
|
|
— |
|
|
|
( |
) |
|
Repurchase of common stock from employees |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Convertible Notes- Equity portion, net of tax |
|
|
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|
|
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|
|
|
|
|
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|
|
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|
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|
Reissuance of treasury stock |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Cash dividends declared and dividend equivalents ($ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at May 2, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Refer to Notes to Consolidated Financial Statements
8
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
13 Weeks Ended |
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|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
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|
|
|
|
|
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|
|
Share-based compensation |
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|
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|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
|
|
|
Loss on impairment of assets |
|
|
|
|
|
|
— |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Merchandise inventory |
|
|
|
|
|
|
( |
) |
|
Operating lease assets |
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Accrued compensation and payroll taxes |
|
|
( |
) |
|
|
( |
) |
|
Accrued and other liabilities |
|
|
( |
) |
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|
|
|
|
Net cash (used for) provided by operating activities |
|
|
( |
) |
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|
|
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|
Investing activities: |
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|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchase of available-for-sale investments |
|
|
( |
) |
|
|
( |
) |
|
Sale of available-for-sale investments |
|
|
|
|
|
|
|
|
|
Other investing activities |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used for) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Repurchase of common stock as part of publicly announced programs |
|
|
( |
) |
|
|
( |
) |
|
Repurchase of common stock from employees |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from convertible notes, net |
|
|
|
|
|
|
— |
|
|
Proceeds from revolving credit facilities |
|
|
|
|
|
|
— |
|
|
Net proceeds from stock options exercised |
|
|
— |
|
|
|
|
|
|
Cash dividends paid |
|
|
— |
|
|
|
( |
) |
|
Other financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by (used for) financing activities |
|
|
|
|
|
|
( |
) |
|
Effect of exchange rates changes on cash |
|
|
( |
) |
|
|
( |
) |
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents - beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period |
|
$ |
|
|
|
$ |
|
|
Refer to Notes to Consolidated Financial Statements
9
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company, “we”, and “our”) at May 2, 2020 and May 4, 2019 and for the 13 week periods ended May 2, 2020 and May 4, 2019 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Fiscal 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2020 (the “Fiscal 2019 Form 10-K”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.
American Eagle Outfitters, Inc. (the “Company,” “we” and “our”), a Delaware corporation, operates under the American Eagle® (“AE”) and Aerie® brands. We also operate Tailgate, a vintage, sports-inspired apparel brand with a college town store concept, and Todd Snyder New York, a premium menswear brand.
Founded in 1977, the Company is a leading multi-brand specialty retailer that operates more than
Our business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, a large portion of total net revenue and operating income occurs in the third and fourth fiscal quarters, reflecting the increased demand during the back-to-school and year-end holiday selling seasons, respectively. The results for the current and prior periods are not necessarily indicative of future financial results.
COVID-19 Pandemic
In March 2020, a novel strain of coronavirus (COVID-19) was declared a global pandemic by the World Health Organization. National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, but not limited to, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), requiring individuals to stay at home, and in most cases, ordering non-essential businesses to close or limit operations. The Company’s business operations and financial performance for the 13 weeks ended May 2, 2020 were materially impacted by COVID-19. These impacts are discussed within these notes to the Consolidated Financial Statements and within Item 2 of this report on Form 10-Q, of which these notes form a part.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to address the COVID-19 pandemic. The income tax related impacts of the CARES Act are discussed within Note 10 to the Consolidated Financial Statements.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At May 2, 2020, and all periods presented, the Company operated in
Fiscal Year
Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2020” refers to the 52-week period that will end on January 30, 2021. “Fiscal 2019” refers to the 52-week period ended February 1, 2020. “Fiscal 2018” refers to the 52-week period ended February 2, 2019.
10
Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) by issuing Accounting Standards Update (“ASU”) 2016-02. ASC 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements.
The standard establishes a right-of-use model (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 and its subsequent amendments effective February 3, 2019. The Company elected this standard’s package of practical expedients, which permits the Company to maintain prior conclusions about lease identification, lease classification, and initial direct costs. The Company elected to use the go-forward practical expedient to not separate lease and non-lease components for all of our leases. The Company also elected to use the short-term lease recognition exemption for all leases that qualify.
Upon adoption, the Company:
|
• |
Recognized operating lease liabilities and operating lease ROU assets of $ |
|
• |
Recognized a transition adjustment of $ |
|
• |
Reclassified $ |
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (“ASU 2018-02”). This guidance permits companies to reclassify the stranded tax effects of the Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. The Company adopted ASU 2018-02 on February 3, 2019. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU simplifies the accounting for goodwill impairments by eliminating the requirement to perform procedures to determine the fair value of the assets and liabilities of the reporting unit for the determination of the fair value of the goodwill and any impairment charge to be recognized. The Company adopted ASU 2017-04 on February 3, 2019. The adoption did not have an impact on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326) (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The Company adopted ASU 2016-13 on February 2, 2020. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
11
Foreign Currency Translation
In accordance with ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies into United States dollars (“USD”) (the Company’s reporting currency) at the exchange rates prevailing at the balance sheet date. The Company translates revenues and expenses denominated in foreign currencies into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the consolidated results of operations, whereas related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income.
We are exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. An unrealized loss of $
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
Short-term investments classified as available-for-sale include certificates of deposit and commercial paper with a maturity greater than three months, but less than one year.
Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-term investments.
Merchandise Inventory
Merchandise inventory is valued at the lower of average cost or net realizable value, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company.
The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.
The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.
Revenue Recognition
The Company recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.
Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages.
12
Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below.
The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned and collection is probable.
The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption below for additional information.
The following table sets forth the approximate consolidated percentage of total net revenue attributable to each merchandise group for each of the periods indicated:
|
|
|
13 Weeks Ended |
|
|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
|
|
2020 |
|
|
2019 |
|
||
|
Men’s apparel and accessories |
|
|
|
% |
|
|
|
% |
|
Women’s apparel and accessories (excluding Aerie) |
|
|
|
% |
|
|
|
% |
|
Aerie |
|
|
|
% |
|
|
|
% |
|
Total |
|
|
|
% |
|
|
|
% |
The following table disaggregates the Company’s total net revenue by geography for each of the periods indicated:
|
|
|
13 Weeks Ended |
|
|||||
|
(In thousands) |
|
May 2, 2020 |
|
|
May 4, 2019 |
|
||
|
Total Net Revenue: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
|
|
|
$ |
|
|
|
Foreign (1) |
|
|
|
|
|
|
|
|
|
Total Net Revenue |
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses
Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs.
Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.
Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales.
13
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased.
Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales. Additionally, selling, general and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales.
Other Income (expense), Net
Other income (expense), net consists primarily of foreign currency transaction gain/loss, interest income/expense and realized investment gains/losses.
Property and Equipment
Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the asset’s estimated useful life.
|
Buildings |
|
|
|
Leasehold improvements |
|
Lesser of |
|
Fixtures and equipment Information technology |
|
Five years Three - five years |
As of May 2, 2020, the weighted average remaining useful life of our assets was approximately
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company’s management evaluates the value of leasehold improvements, store fixtures, and operating lease ROU assets associated with retail stores, which have been open for a period sufficient to reach maturity. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under impairment and restructuring charges.
During the 13 weeks ended May 2, 2020, the Company recorded impairment of property and equipment of $
When the Company closes, remodels, or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense.
Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment.
Intangible Assets, including Goodwill
The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business and Tailgate brand. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 1, 2020. As a result of the impact of the COVID-19 pandemic and the resulting significant decline in the Company’s results of operations during the 13 weeks ended May 2, 2020, an interim indicator of goodwill impairment was present. As a result, the Company performed an interim impairment test as of May 2, 2020 and determined that the fair value of its goodwill continues to be in excess of its carrying value and therefore
Definite-lived intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over
14
The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value.
Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.
Gift Cards
Revenue is not recorded on the issuance of gift cards. The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue.
The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During the 13 weeks ended May 2, 2020 and May 4, 2019, the Company recorded approximately $
Construction Allowances
As part of certain lease agreements for retail stores, the Company receives construction allowances from lessors, which are generally comprised of cash amounts. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.
Self-Insurance Liability
The Company uses a combination of insurance and self-insurance mechanisms for certain losses related to employee medical benefits and worker’s compensation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped by stop loss contracts with insurance companies. However, any significant variation of future claims from historical trends could cause actual results to differ from the accrued liability.
Leases
The Company leases all store premises, some of its office space and certain information technology and office equipment. These leases are generally classified as operating leases.
Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes and certain other expenses.
Most leases include one or more options to renew. The exercise of lease renewal options is at the Company’s discretion and is not reasonably certain at lease commencement. When measuring operating lease ROU assets and operating lease liabilities, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.
Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of operating lease ROU assets and operating lease liabilities.
When determining the present value of future payments for an operating lease that does not have a readily determinable implicit rate, the Company uses its incremental borrowing rate as of the date of initial possession of the leased asset.
For leases that qualify for the short-term lease exemption, the Company does not record an operating lease liability or operating lease ROU asset. Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.
15
During the 13 weeks ended May 2, 2020, the Company recorded impairment of operating lease ROU assets of $
Deferred lease credits represent the unamortized portion of construction allowances received from lessors related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from its lessor as part of the negotiated lease terms. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.
Co-branded Credit Card
The Company offers a co-branded credit card and a private label credit card under the AE and Aerie brands. These credit cards are issued by a third party bank (the “Bank”) in accordance with a credit card agreement (the “Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the Agreement. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations.
Customer Loyalty Program
In 2017, the Company launched a highly digitized loyalty program called AEO ConnectedTM (the “Program”). This Program integrates the credit card rewards program and the AEREWARDS® loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Customers earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 45 days from the issuance date of the reward. Rewards not redeemed during the 45-day redemption period are forfeited. Additional rewards are also given for key items such as jeans and bras.
Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606. The portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments s recorded in revenue.
The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606.
Sales Return Reserve
Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages.
The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and other and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.
16
Income Taxes
The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.
The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.
The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance requires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.
Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.
Segment Information
In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified
3. Cash and Cash Equivalents and Short-Term Investments
The following table summarizes the fair market values for the Company’s cash and short-term investments, which are recorded on the Consolidated Balance Sheets:
|
(In thousands) |
|
May 2, 2020 |
|
|
February 1, 2020 |
|
|
May 4, 2019 |
|
|||
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Money market securities |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Commercial paper |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
4. Fair Value Measurements
ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
17
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
• |
Level 1 — Quoted prices in active markets. |
|
• |
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly. |
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company’s cash equivalents and short-term investments are Level 1 financial assets and are measured at fair value on a recurring basis, for all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents and short-term investments.
Long-Term Debt
As of May 2, 2020, the fair value of the Company's $
The fair value of the Company's convertible notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of these convertible notes was measured using a using a secondary market quoted price, which considers market related conditions, and is therefore within Level 2 of the fair value hierarchy.
Refer to Note 8 to the Consolidated Financial Statements for additional information regarding long-term debt and other credit arrangements.
Non-Financial Assets
The Company’s non-financial assets, which include intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur and the Company is required to evaluate the non-financial asset for impairment, a resulting impairment would require that the non-financial asset be recorded at the estimated fair value.
Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During the 13 weeks ended May 2, 2020, the Company recorded asset impairment charges of $
The fair value of the impaired assets was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest and a real estate market participant discount rate for the ROU assets. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.
18
5. Earnings per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding:
|
|
|
13 Weeks Ended |
|
|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and non-vested restricted stock* |
|
|
— |
|
|
|
|
|
|
Diluted number of common shares outstanding |
|
|
|
|
|
|
|
|
|
Anti-Dilutive Shares* |
|
|
|
|
|
|
|
|
*
The Company has the right to settle its convertible notes in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the notes in cash and any conversion value above the principal in stock. Because of this repayment policy, only the conversion spread portion of the amount owed is reflected as dilutive in our weighted average diluted shares outstanding. The Company uses the average of the closing prices of its common stock (NYSE: AEO) as reported on the New York Stock Exchange for the most recent quarter to calculate the conversion spread. For the period of issuance of the convertible notes through May 2, 2020, the average closing price of our stock was below the conversion price per share of $
Dilutive and anti-dilutive shares relate to share based compensation. Refer to Note 8 and 9 to the Consolidated Financial Statements for additional information regarding our convertible notes and share-based compensation, respectively.
6. Property and Equipment
Property and equipment consists of the following:
|
|
|
May 2, |
|
|
February 1, |
|
|
May 4, |
|
|||
|
(In thousands) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
|||
|
Property and equipment, at cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: Accumulated depreciation and impairment |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Property and equipment, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7. Intangible Assets, including Goodwill
Intangible assets consist of the following:
|
|
|
May 2, |
|
|
February 1, |
|
|
May 4, |
|
|||
|
(In thousands) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
|||
|
Goodwill, gross |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accumulated impairment (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Goodwill, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, at cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Trademarks, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net, including goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
19
8. Long-Term Debt, Net
Our long-term debt consisted of the following at each of May 2, 2020, February 1, 2020, and May 4, 2019:
|
(In thousands) |
May 2, 2020 |
|
February 1, 2020 |
|
May 4, 2019 |
|
|||
|
Convertible notes principal |
$ |
|
|
|
- |
|
|
- |
|
|
Less: unamortized discount |
|
( |
) |
|
- |
|
|
- |
|
|
Convertible notes, net |
$ |
|
|
|
- |
|
|
- |
|
|
Revolving credit facility borrowings |
|
|
|
|
- |
|
|
- |
|
|
Total long-term debt, net |
$ |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes- Equity portion, net of tax |
|
|
|
|
- |
|
|
- |
|
Convertible notes
In April 2020, the Company issued $
Beginning
The Company has the right to settle conversions in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the notes in cash and any conversion value above the principal in stock. Because of this repayment policy, only the conversion spread portion of the amount owed is reflected as dilutive in earning per share.
The effective interest rate for the notes is
Interest expense for the convertible notes was:
|
|
13 Weeks Ended |
|
||||
|
(In thousands) |
May 2, 2020 |
|
May 4, 2019 |
|
||
|
Accrued interest for interest payments |
$ |
|
|
$ |
- |
|
|
Amortization of discount |
|
|
|
|
- |
|
|
Total interest expense |
$ |
|
|
$ |
- |
|
The following table discloses conversion amounts if the notes were all converted as of the end of the period:
|
(In thousands, except per share amounts) |
May 2, 2020 |
|
|
|
Number of shares convertible |
|
|
|
|
Conversion price per share |
$ |
|
|
|
Value in excess of principal if converted |
$ |
- |
|
Revolving credit facilities
In January 2019, the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) for , syndicated, asset-based revolving credit facilities (the “Credit Facilities”). The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $
20
All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.
As of May 2, 2020 the Company was in compliance with the terms of the Credit Agreement and has $
The current interest rate for borrowings under the Credit Facilities is the one month LIBOR, plus an adjusted spread based on leverage as reflected in the Credit Facilities. The weighted average interest rate is
9. Share-Based Compensation
The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires companies to measure and recognize compensation expense for all share-based payments at fair value.
Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 weeks ended May 2, 2020 and May 4, 2019 was $
Stock Option Grants
The Company grants both time-based and performance-based stock options.
|
|
|
|
|
|
|
Weighted- Average |
|
|
Weighted- Average Remaining Contractual |
|
|
Aggregate |
|
|||
|
|
|
Options |
|
|
Exercise Price |
|
|
Term |
|
|
Intrinsic Value |
|
||||
|
|
|
(In thousands) |
|
|
|
|
|
|
(In years) |
|
|
(In thousands) |
|
|||
|
Outstanding - February 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - May 2, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
Vested and expected to vest - May 2, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
Exercisable - May 2, 2020 (1) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
(1) |
|
Cash received from the exercise of stock options was $
As of May 2, 2020, there was $
The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
||
|
|
|
May 2, |
|
May 4, |
|
||
|
Black-Scholes Option Valuation Assumptions |
|
2020 |
|
2019 |
|
||
|
Risk-free interest rate (1) |
|
|
|
% |
|
|
% |
|
Dividend yield |
|
|
|
% |
|
|
% |
|
Volatility factor (2) |
|
|
|
% |
|
|
% |
|
Weighted-average expected term (3) |
|
|
|
|
|
||
|
(1) |
|
21
|
(2) |
|
|
(3) |
|
Restricted Stock Grants
Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over
Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
The grant date fair value of all restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant.
A summary of the Company’s restricted stock activity is presented in the following tables:
|
|
|
Time-Based Restricted Stock Units |
|
|
Performance-Based Restricted Stock Units |
|
||||||||||
|
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||||||||||
|
|
|
May 2, 2020 |
|
|
May 2, 2020 |
|
||||||||||
|
(Shares in thousands) |
|
Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
|
Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
||||
|
Nonvested - February 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
Vested |
|
|
— |
|
|
$ |
— |
|
|
|
( |
) |
|
$ |
|
|
|
Cancelled |
|
|
( |
) |
|
$ |
|
|
|
|
( |
) |
|
$ |
|
|
|
Nonvested - May 2, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
As of May 2, 2020, there was $
As of May 2, 2020, the Company had
10. Income Taxes
On March 27, 2020, the U.S. government enacted the CARES Act to address the COVID-19 pandemic. One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended May 2, 2020 was
22
The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended May 2, 2020. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $
11. Legal Proceedings
The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
12. Impairment and Restructuring Charges
The following table represents impairment and restructuring charges for the 13 weeks ended May 2, 2020 and May 4, 2019. All amounts were recorded within impairment and restructuring charges on the Consolidated Statements of Operations.
|
|
|
13 weeks ended |
|
|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Impairment charges (1) |
|
$ |
|
|
|
$ |
— |
|
|
Severance and related employee costs |
|
|
|
|
|
|
|
|
|
Total impairment and restructuring charges |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
A roll-forward of restructuring liabilities recognized in accrued compensation and other liabilities and accrued expenses in the Consolidated Balance Sheet is as follows:
|
|
|
13 Weeks Ended |
|
|
|
|
|
May 2, |
|
|
|
(In thousands) |
|
2020 |
|
|
|
Accrued liability as of February 1, 2020 |
|
$ |
|
|
|
Add: Costs incurred, excluding non-cash charges |
|
|
|
|
|
Less: Cash payments and adjustments |
|
|
( |
) |
|
|
|
|
|
|
|
Accrued liability as of May 2, 2020 |
|
$ |
|
|
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our Fiscal 2019 Management’s Discussion and Analysis of Financial Condition and Results of Operations which can be found in our Fiscal 2019 Form 10-K.
In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.
Key Performance Indicators
Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:
Comparable sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In light of store closures related to COVID-19, we have not disclosed comparable sales this quarter as the periods are not comparable. In fiscal years following those with 53 weeks, including Fiscal 2018, the prior year period is shifted by one week to compare similar calendar weeks.
A store is included in comparable sales in its thirteenth month of operation. When stores have a gross footage increase of 25% or greater due to a remodel, they are removed from the comparable sales base, but are included in total sales. These stores are returned to the comparable sales base in the thirteenth month following the remodel.
Sales from company-owned stores, as well as e-commerce sales (AEO Direct), are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle and Aerie brand comparable sales disclosures represent sales from stores and AEO Direct. AEO Direct sales are included in the individual American Eagle and Aerie brand comparable sales metrics for the following reasons:
|
• |
Our approach to customer engagement is “omni-channel” which provides a seamless customer experience through both traditional and non-traditional channels, including four wall store locations, web, mobile/tablet devices and apps, social networks, email, in-store displays and kiosks. Additionally, we fulfill online orders at stores through our buy online, ship from store capability, maximizing store inventory exposure to digital traffic and accept digital returns in stores; and |
|
• |
Shopping behavior has continued to evolve across multiple channels that work in tandem to meet customer needs. Management believes that presenting a brand level performance metric that includes all channels (i.e., stores and AEO Direct) is the most appropriate, given customer behavior. |
Our management considers comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including store payroll, store supplies, rent, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital.
Omi-channel sales performance – Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within Item 7 of this report when we believe they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):
|
• |
Average unit retail price represents the average selling price of one unit of our goods. It is the cumulative net sales divided by the net units sold for a period of time. |
|
• |
Total transactions represents the count of customer transactions over a period of time (inclusive of company-owned stores and AEO Direct, unless specified otherwise). |
|
• |
Units per transaction represent the number of units sold divided by total transactions over a period of time (inclusive of company-owned stores and AEO Direct, unless specified otherwise). |
|
• |
Consolidated comparable traffic represents visits to our company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time |
24
Gross profit — Gross profit measures whether we are optimizing profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage, and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs. Design costs consist of compensation, rent, depreciation, travel, supplies and samples.
Buying, occupancy and warehousing costs consist of: compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation.
The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.
Operating income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are comparable sales, gross profit, our ability to control selling, general and administrative expenses, and our level of capital expenditures.
Cash flow and liquidity — Our management evaluates cash flow from operations, investing and financing in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow and our current liquidity will be sufficient to fund anticipated capital expenditures, dividends and working capital requirements.
Results of Operations
Overview
Our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.
Prior to the impact of the COVID-19 pandemic, our comparable period sales performance from February 2, 2020 through early March 2020 was consistent with our comparable period sales performance for the fourth quarter of Fiscal 2019. Commencing in early March, we experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19 and government actions to combat it. In response, we closed our stores to the public after the close of business on March 17, 2020, however we continued to operate our digital business. Accordingly, our results for the first quarter of Fiscal 2020 were significantly impacted.
Since the first day that stores were closed to the public, our digital sales growth has accelerated, significantly exceeding our expectations. In order to support online demand and utilize in-store inventory, we continued to leverage our store network for buy-online/ship-from-store capabilities, where possible. Despite our strength in digital sales, we have historically generated the majority of our revenue through stores and there can be no assurance that the current performance in our digital sales growth will continue. As a result, our results for the first quarter of Fiscal 2020 were significantly negatively impacted and are not comparable to prior year.
Since May 2, 2020, we have started to open stores and call back employees where state and local governments have lifted stay-at-home orders. We are taking the following precautions as we open the stores which include sanitation stations and masks for all customers to provide a safe and secure environment. Plexiglas health guard partitions have also been installed at the registers along with the implementation of enhanced cleaning routines and protocols.
We are taking precautionary measures and appropriately adjusting our operational needs due to the impact of COVID-19, including taking a series of actions to preserve financial strength as follows:
|
• |
a suspension of our share repurchase program and deferred payment of the first quarter Fiscal 2020 cash dividend; |
|
• |
temporary furloughs of store, field and corporate associates beginning April 5, 2020, largely reflecting the continued uncertainty around the duration of store closures; |
|
• |
reductions to operating expenses, which include delayed merit increases for associates, a hiring freeze and other cost saving initiatives; |
25
|
• |
cuts to inventory receipts to align with lower demand due to store closures; and |
|
• |
planned reductions to capital expenditures across stores, information technology and other projects to a range of $100 million to $125 million for Fiscal 2020. |
In addition, we have had productive discussions with our vendors to reduce purchases and extend payment terms, as well as with our landlords regarding the extension of payment terms and rent concessions.
As of May 2, 2020, we had approximately $886 million in cash and cash equivalents and short-term investments which includes the proceeds from our convertible notes issuance and Credit Facility borrowings, each discussed in greater detail below. We expect to be able to fund our medium-term future cash requirements through current cash holdings. Taking into account the measures described above, we believe that our on-hand liquidity would enable us to continue operations beyond Fiscal 2020, if necessary, even if the majority of our retail locations remained closed during the duration of that period.
While our digital business, including buy-online/ship-from-store capabilities, continues to operate, and subsequent to May 2, 2020 we have begun to reopen retail stores, we are unable to accurately predict the impact that the COVID-19 pandemic will have on our consolidated operations and financial results going forward due to:
|
• |
the currently unknown duration of the COVID-19 pandemic; |
|
• |
the impact of governmental regulations that have been, and may in the future be, imposed in response to the pandemic, including regulations which could adversely affect our business or cause us to cease our digital business if we are required to close our distribution and fulfillment centers or are otherwise unable acquire or deliver merchandise, or to close our recently reopened retail stores; |
|
• |
potential changes in consumer behavior and shopping patterns, including traffic through stores once they reopen; |
|
• |
the deterioration in the economic conditions in the United States, which potentially could have an impact on discretionary consumer spending; |
|
• |
the ability of our distribution centers to maintain adequate staffing to meet increased customer demand; |
|
• |
the impact on our landlords and our resulting ability of us to keep our stores open; and |
|
• |
the impact of COVID-19 on our and our vendors’ supply chain, including impacts on adequate inventory levels and supply chain costs, and on our third-party delivery service providers. |
This results of operations section contains non-GAAP financial measures (“non-GAAP” or “adjusted”), comprised of earnings per share information excluding non-GAAP items. This financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and is not necessarily comparable to similar measures presented by other companies. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP financial statements. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.
|
|
|
13 Weeks Ended |
|
|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
|
|
2020 |
|
|
2019 |
|
||
|
Net (loss) income per diluted share - GAAP Basis |
|
$ |
(1.54 |
) |
|
$ |
0.23 |
|
|
Add: Impairment (1) |
|
|
0.69 |
|
|
|
— |
|
|
Add: Restructuring charges(2) |
|
|
0.01 |
|
|
|
0.01 |
|
|
Net (loss) income per diluted share - Adjusted or Non- GAAP Basis |
|
$ |
(0.84 |
) |
|
$ |
0.24 |
|
|
(1) |
13 weeks ended May 2, 2020: Pre-tax impairment charges of $155.6 million. Of the total, $84.1 million related to the impairment of the operating lease ROU assets of 272 stores. We recorded $51.5 million related to the impairment of certain corporate and store property and equipment. We also recorded $18.0 million of impairment of certain cost and equity method investments. |
|
(2) |
13 weeks ended May 2, 2020: $2.0 million of corporate severance charges. |
13 weeks ended May 4, 2019: $1.5 million of severance and closure costs for our company-owned and operated stores in China.
26
The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations.
|
|
|
13 Weeks Ended |
|
|
||||||
|
|
|
May 2, |
|
|
|
May 4, |
|
|
||
|
|
|
2020 |
|
|
|
2019 |
|
|
||
|
Total net revenue |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
Cost of sales, including certain buying, occupancy and warehousing expenses |
|
94.9 |
|
|
|
63.3 |
|
|
||
|
Gross profit |
|
5.1 |
|
|
|
36.7 |
|
|
||
|
Selling, general and administrative expenses |
|
34.1 |
|
|
|
26 |
|
|
||
|
Impairment and restructuring charges |
|
28.2 |
|
|
|
|
0.2 |
|
|
|
|
Depreciation and amortization expense |
|
7.7 |
|
|
|
5.1 |
|
|
||
|
Operating (loss) income |
|
|
(64.9 |
) |
|
|
5.4 |
|
|
|
|
Other (expense) income, net |
|
|
(0.6 |
) |
|
|
|
0.5 |
|
|
|
(Loss) Income before income taxes |
|
|
(65.5 |
) |
|
|
5.9 |
|
|
|
|
(Benefit) provision for income taxes |
|
|
(18.9 |
) |
|
|
1.3 |
|
|
|
|
Net (loss) Income |
|
|
(46.6 |
) |
% |
|
|
4.6 |
|
% |
The following table shows our consolidated store data:
|
|
|
13 Weeks Ended |
|
|||||
|
|
|
May 2, |
|
|
May 4, |
|
||
|
|
|
2020 |
|
|
2019 |
|
||
|
Number of stores: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
1,095 |
|
|
|
1,055 |
|
|
Opened |
|
|
3 |
|
|
|
11 |
|
|
Closed |
|
|
(5 |
) |
|
|
(5 |
) |
|
End of period |
|
|
1,093 |
|
|
|
1,061 |
|
|
Total gross square feet at end of period (in '000) |
|
|
6,822 |
|
|
|
6,662 |
|
|
International licensed/franchise stores at end of period (1) |
|
|
215 |
|
|
|
235 |
|
|
(1) |
International licensed/franchise stores are not included in the consolidated store data or the total gross square feet calculation. |
Our operations are conducted in one reportable segment, consisting of 938 American Eagle retail stores which include 175 Aerie side-by-side locations, 148 Aerie stand-alone locations and AEO Direct. Additionally, there were 5 Tailgate and 2 Todd Snyder stand-alone locations.
Comparison of the 13 weeks ended May 2, 2020 to the 13 weeks ended May 4, 2019
Total Net Revenue
Total net revenue decreased 38%, or $334.6 million, to $551.7 million compared to $886.3 million last year. The COVID-19 pandemic and the associated closures of our retail stores since March 17, 2020 negatively affected our financial results for the first quarter ended May 2, 2020.
By brand, including the respective AEO Direct sales, American Eagle brand revenue decreased 45% compared to a 5% increase last year. Aerie brand revenue decreased 2%, compared to a 28% increase last year.
Gross Profit
Gross profit decreased 91% or $296.6 million, to $28.3 million compared to $324.9 million last year. Our gross margin percentage declined to 5.1% of revenue from 36.7% of revenue last year. This reflected the decline in revenue from retail store closures; higher markdowns and promotions to clear through spring and summer merchandise, inventory provisions, and the impact of fixed buying, occupancy and warehousing costs as a result of the revenue decline due to the impact of COVID-19 on our business.
27
There was $2.6 million and $2.5 million of share-based payment expense included in gross profit for the periods ended May 2, 2020 and May 4, 2019, respectively, comprised of both time and performance-based awards.
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased 18% or $42.5 million to $188.2 million from $230.7 million last year. As a percentage of total net revenue, SG&A expenses increased 810 basis points to 34.1%, compared to 26.0% last year, primarily due to lower store salaries from furloughs that took effect in early April related to the retail store closures resulting from COVID-19.
There was $1.4 million and $2.5 million of share-based payment expense included in SG&A expenses for the periods ended May 2, 2020 and May 4, 2019, respectively, comprised of both time and performance-based awards.
Impairment and Restructuring Charges
Impairment and restructuring charges were $155.6 million, or 28.2% as a percentage of total net revenue, for the 13 weeks ended May 2, 2020. These charges consisted of $153.6 million of impairment charges and $2.0 million of severance costs. For further information regarding impairment and restructuring charges, refer to Note 12 to the Consolidated Financial Statements. Restructuring charges were $1.5 million, or 0.2% as a percentage of total net revenue for the 13 weeks ended May 4, 2019. These charges were primarily the result of severance and closure costs for our company-owned and operated stores in China.
Our evaluation of store impairment considers the use of prospective financial information, as well as certain real estate assumptions. Given the current volatility in the retail real estate market we acknowledge that certain real estate assumptions could change in future periods. Further based on the uncertainty from the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our operations going forward, including, among other things, the length of time that such disruptions continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and restructuring charges in future periods.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased 5% or $2.1 million, to $42.7 million for the 13 weeks ended May 2, 2020, compared to $44.8 million for the 13 weeks ended May 4, 2019. As a percentage of total net revenue, depreciation and amortization expense was 7.7% for the 13 weeks ended May 2, 2020 compared to 5.1% for the 13 weeks ended May 4, 2019.
Other (Expense) Income, Net
Other (expense) was $3.1 million for the 13 weeks ended May 2, 2020. Other income was $4.2 million for the 13 weeks ended May 4, 2019. The decrease was primarily attributable to increased interest expense related to our long-term debt.
28
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended May 2, 2020 was 28.8% compared to 21.7% for the 13 weeks ended May 4, 2019. The increase in the effective income tax rate this year is primarily a result of the provisions of the CARES Act which permit the carry back of current year losses to a tax year where the U.S. federal corporate income tax rate was 35%, offset by an incremental rate increase on the revaluation of deferred tax assets and liabilities for current year activity and an increase to the valuation allowances recorded in the current year. We recorded our income tax expense, deferred tax assets and related liabilities based on management’s best estimates.
Net Income (Loss)
Net income decreased $297.9 million, to a net loss of $257.2 million for the 13 weeks ended May 2, 2020, or (46.6%) as a percentage of total net revenue, as compared to net income of $40.8 million, or 4.6% as a percentage of total net revenue for the 13 weeks ended May 4, 2019. Net income per share decreased to a net loss of $1.54 per diluted share for the 13 weeks ended May 2, 2020, which included $0.70 of impairment and restructuring charges, compared to net income of $0.23 per diluted share, including $0.01 of restructuring charges, for the 13 weeks ended May 4, 2019. The change in net income was attributable to the factors noted above.
International Operations
We have agreements with multiple third party operators to expand our brands internationally. Through these agreements, a series of franchised, licensed or other brand-dedicated American Eagle stores have opened and will continue to open in areas including Europe, the Middle East, Central and South America, Northern Africa and parts of Asia. These agreements do not involve a significant capital investment or operational involvement from us. We continue to increase the number of countries in which we enter into these types of arrangements as part of our strategy to expand internationally. As of May 2, 2020, we had 215 stores operated by our third party operators in 25 countries. International third party operated stores are not included in the consolidated store data or the total gross square feet calculation.
As of May 2, 2020, we had 103 company-owned stores in Canada, 47 in Mexico, 9 in Hong Kong and 6 in Puerto Rico.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
• |
Level 1 — Quoted prices in active markets. |
|
• |
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly. |
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of May 2, 2020, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash and cash equivalents and short-term investments.
29
In accordance with ASC 820, the following table represents the fair value hierarchy of our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of May 2, 2020:
|
|
|
Fair Value Measurements at May 2, 2020 |
|
|||||||||||||
|
(In thousands) |
|
Carrying Amount |
|
|
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
149,205 |
|
|
$ |
149,205 |
|
|
|
— |
|
|
|
— |
|
|
Money market securities |
|
|
350,054 |
|
|
|
350,054 |
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
296,509 |
|
|
|
296,509 |
|
|
|
— |
|
|
|
— |
|
|
Certificates of Deposit |
|
|
60,000 |
|
|
|
60,000 |
|
|
|
— |
|
|
|
— |
|
|
Total cash and cash equivalents |
|
$ |
855,769 |
|
|
$ |
855,769 |
|
|
|
— |
|
|
|
— |
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
— |
|
|
|
— |
|
|
Commercial Paper |
|
|
14,956 |
|
|
|
14,956 |
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
|
29,956 |
|
|
|
29,956 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
885,725 |
|
|
$ |
885,725 |
|
|
|
— |
|
|
|
— |
|
Long-Term Debt
As of May 2, 2020, the fair value of the Company's $330 million in outstanding borrowings under its revolving credit facility approximated the carrying value.
The fair value of the Company's convertible notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of these convertible notes was measured using a secondary market quoted price, which considers market related conditions, and is therefore within Level 2 of the fair value hierarchy.
Liquidity and Capital Resources
Our uses of cash have historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion and the return of value to shareholders through the repurchase of common stock. Additionally, our uses of cash include the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts. The rapid expansion of the COVID-19 global pandemic, the related economic impact, and the closure of our retail stores, resulted in a decline in net sales and earnings for the 13 week period ended May 2, 2020, which had a corresponding impact on our liquidity and uses of cash.
Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $400 million, which will expire in January 2024. In March 2020 we provided notice to the lender to borrow $330 million under the Credit Facility. We elected to draw down available funds to ensure that we maintain financial flexibility in light of the spread of COVID-19. Furthermore, in April 2020, we issued $415 million aggregate principal amount of convertible senior notes due in 2025.
As discussed in the overview, we are focused on preserving our liquidity and managing our cash flows through certain actions to enhance our ability to meet short-term liquidity needs. We have taken a series of actions to reinforce our liquidity and financial flexibility, including:
|
• |
a suspension of our share repurchase program and deferred payment of the first quarter Fiscal 2020 cash dividend; |
|
• |
temporary furloughs of store, field, and corporate associates that began on April 5, 2020, largely reflecting the continued uncertainty surrounding the duration of store closures; |
30
|
• |
reductions to operating expenses, which include delayed merit increases for associates, a hiring freeze, and other cost-saving initiatives; |
|
• |
cuts to inventory receipts to align with lower demand due to store closures; and |
|
• |
planned reductions to capital expenditures across stores, information technology and other projects to a range of $100 million to $125 million for Fiscal 2020. |
As of May 2, 2020, we had approximately $886 million in cash and cash equivalents and short-term investments, which includes the proceeds from our convertible notes and Credit Facility borrowings. We expect to be able to fund our medium-term future cash requirements through current cash holdings. Taking into account the measures described above, we believe that our on-hand liquidity would enable us to continue operations beyond Fiscal 2020, if necessary, even if the majority of our retail locations remained closed during the duration of that period.
The following sets forth certain measures of our liquidity:
|
|
|
May 2, |
|
|
February 1, |
|
|
May 4, |
|
|||
|
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|||
|
Working Capital (in thousands) |
|
$ |
896,711 |
|
|
$ |
296,174 |
|
|
$ |
300,806 |
|
|
Current Ratio |
|
|
2.35 |
|
|
|
1.39 |
|
|
|
1.46 |
|
During the 13 weeks ended May 2, 2020, working capital increased $600.5 million compared to February 1, 2020 and increased $595.9 million compared to the 13 weeks ended May 4, 2019. The largest increase came from cash and short-term investments of $468.8 due to the proceeds from our convertible notes and Credit Facility borrowings. Compared to February 1, 2020, the remaining $131.7 million increase in working capital was driven by a $108.6 million decrease in accounts payable, a $21.9 million decrease in accrued compensation, and a $24.5 million decrease in inventory, partially offset by a $29.2 million increase in current operating lease liabilities, a $22.8 million due to dividends payable, and a $4.6 million increase in accrued expenses.
Cash Flows (used for) provided by Operating Activities
Net cash used for operating activities totaled ($209.9) million for the 13 weeks ended May 2, 2020, compared to cash flows from operating activities of $7.7 million for the 13 weeks ended May 4, 2019. Our primary outflow was for the payment of operational costs. For the period ended May 4, 2019, our major source of cash from operations was merchandise sales and our primary outflow of cash for operations was for the payment of operational costs.
Cash Flows (used for) provided by Investing Activities
Net cash used for investing activities totaled $9.1 million for the 13 weeks ended May 2, 2020, compared to net cash provided by investing activities of $10.4 million for the 13 weeks ended May 4, 2019. Investing activities for the 13 weeks ended May 2, 2020 primarily consisted of $25.0 million of short-term investment sales, offset by $33.9 million of capital expenditures for property and equipment. We anticipate our capital expenditures for the remainder of Fiscal 2020 to be lower compared to prior years as we manage spending to help mitigate the negative impact of COVID-19 on our business. Investing activities for the 13 weeks ended May 4, 2019 primarily included $47.1 million of net short-term investment sales, partially offset by $36.6 million of capital expenditures for property and equipment.
Cash Flows provided by (used for) Financing Activities
Net cash provided by financing activities totaled $714.6 million for the 13 weeks ended May 2, 2020, compared to net cash used for financing activities of $46.6 million for the 13 weeks ended May 4, 2019. Cash provided by financing activities for the 13 weeks ended May 2, 2020 consisted primarily of $406.1 million of net proceeds from the issuance of convertible senior notes and the $330.0 million of borrowings on our Credit Facilities, partially offset by $20.0 million used for purchases of 1.7 million shares of common stock under publicly-announced programs in early-March 2020, and $1.4 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments. We borrowed on our Credit Facilities and issued convertible notes to strengthen our cash position and provide us with additional financial flexibility during the remainder of the ongoing COVID-19 pandemic.
Cash used for financing activities for the 13 weeks ended May 4, 2019 consisted primarily of $23.6 million for cash dividends paid at a quarterly rate of $0.1375 per share, $20.0 million used for purchases of 0.9 million shares of common stock under
31
publically announced programs, and $3.5 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments.
Credit Facilities
In January 2019, we entered into a Credit Agreement for five-year, syndicated, asset-based revolving Credit Facilities. The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities expire January 30, 2024.
All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.
As of May 2, 2020 the Company was in compliance with the terms of the Credit Agreement and had $330.0 million in borrowings and $7.9 million outstanding in stand-by letters of credit. The current interest rate for borrowings under the Credit Facilities is the one month LIBOR, plus an adjusted spread based on leverage as reflected in the Credit Facilities.
Capital Expenditures for Property and Equipment
Capital expenditures for the 13 weeks ended May 2, 2020 were $33.9 million, and included $14.2 million related to investments in our stores, including three new AEO stores (two American Eagle stores and one Aerie stand-alone store), one remodeled and refurbished stores, and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($8.3 million), e-commerce ($9.1 million) and other home office projects ($2.3 million).
In order to preserve financial liquidity in response to the uncertainty created by the impact of COVID-19, the company has reduced its Fiscal 2020 capital spending plans to a range of $100 to $125 million, prioritizing strategic omni-channel, store and supply-chain investments aimed at further strengthening its competitive position.
Stock Repurchases
In early March 2020, as part of our publicly-announced share repurchase program, we repurchased 1.7 million shares for $20.0 million, at a weighted average price of $11.63 per share. As previously announced, to preserve cash liquidity in response to the uncertainty created by the impact of COVID-19, the company suspended the stock repurchase program. During the 13 weeks ended May 4, 2019, as part of our publicly-announced share repurchase program, we repurchased 0.9 million shares for $20.0 million, at a weighted average price of $21.69 per share.
As of May 2, 2020 3.6 million shares remained under the share repurchase program authorized by the Company’s Board of Directors (our “Board”) in April 2016 that expires on January 30, 2021. During Fiscal 2019, our Board authorized the repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024, bringing our total share repurchases authorization to 33.6 million shares.
During the 13 weeks ended May 2, 2020 and May 4, 2019, we repurchased approximately 0.1 million and 0.2 million shares, respectively, from certain employees at market prices totaling $1.4 million and $3.5 million, respectively. These shares were repurchased for the payment of taxes, in connection with the vesting of share-based payments, as permitted under our equity incentive plans. The aforementioned shares repurchased have been recorded as treasury stock.
Dividends
During the 13 weeks ended May 2, 2020, our Board declared a quarterly cash dividend of $0.1375 per share on March 26, 2020, originally payable on May 14, 2020 to stockholders of record at the close of business on April 30, 2020; as part of our efforts to carefully manage the impact of COVID-19 on our liquidity, our first quarter dividend payment was delayed. It will now be paid on April 23, 2021, to stockholders of record at the close of business on April 9, 2021. The Company maintains the right to defer the record and payment dates of its dividends, depending upon, among other factors, the progression of the COVID-19 outbreak, business performance and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.
32
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended February 1, 2020 contained in our Fiscal 2019 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are primarily exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. An unrealized loss of $21.9 million is included in accumulated other comprehensive income during the 13 weeks ended May 2, 2020. Our market risk profile as of May 2, 2020 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal 2019 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the management of American Eagle Outfitters, Inc. (the “Management”), including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Quarterly Report on Form 10-Q, as of May 2, 2020, the Company performed an evaluation under the supervision and with the participation of our Management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. We believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed within Item 1A of our Fiscal 2019 Form 10-K. The information presented below updates, and should be read in conjunction with the risk factors and information disclosed in our Fiscal 2019 Form 10-K and any other filings that we make with the SEC. Except as presented below, there have been no material changes to our risk factors as disclosed in the Fiscal 2019 Form 10-K and in our subsequent filings with the SEC.
The novel coronavirus (COVID-19) pandemic has had, and is expected to continue to have, an adverse effect on our business and results of operations.
In late 2019, COVID-19 was first detected in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. We continue to operate our e-commerce business, and had to temporarily close our corporate offices and American Eagle and Aerie physical stores. As of May 4, 2020, we have begun to reopen stores where the state and local governments have lifted stay-at-home orders. Furthermore, we furloughed a significant number of our store, field and corporate associates effective as of April 5, 2020, due to the uncertainty surrounding the length of our store closures. Staffing our distribution centers has been made more difficult and expensive because of the impact of the pandemic and the increased demand for e-commerce fulfillment, and this difficulty may continue so long as the pandemic remains a threat. We are undertaking extensive measures to ensure the safety of our customers and associates once our stores re-open, but given the uncertainty around the virus, our ability to staff our stores and store traffic may be significantly impacted for the immediate future. Due to the uncertainty of COVID-19, we will continue to assess the situation, including government imposed restrictions, market by market.
We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration of the COVID-19 pandemic and the impact of governmental regulations that might be imposed in response to the pandemic, which could, among other things, require that we close our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our e-commerce business, regarding the length of time that COVID-19 disruptions will continue. These disruptions will largely depend on the duration of the COVID-19 pandemic and the governmental regulations that may be imposed in response to the pandemic, the extent of which is currently unknowable. The regulations could, among other things, require that we close our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our e-commerce business. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions, have resulted in temporary store closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our operations. In addition, we expect to be impacted by the deterioration in the economic conditions in the United States, which potentially could have an impact on discretionary consumer spending. To the extent that our target customer demographic is disproportionately impacted by unemployment or otherwise as a result of the COVID-19 pandemic, our business may be further adversely affected. While it is premature to accurately predict the ultimate impact of these developments, we expect our results for the remainder of the COVID-19 pandemic to be adversely impacted in a significant manner.
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To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in Risk Factors under Item 1A and Management’s Discussion and Analysis of Financial Condition and Results of Operation under Item 7 of our Annual Report on Form 10-K for the year ended February 1, 2020, filed with the SEC on March 12, 2020, including risks relating to change in consumer demand or shopping patterns, our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, our ability to comply with the covenants contained in the agreements that govern our indebtedness, availability of adequate capital, our ability to execute our strategic plans, our real estate portfolio, disruptions to our supply chain and third party delivery service providers, our ability to access to adequate quantities of product and materials, tariffs, and regulatory restrictions.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of our common stock during the 13 weeks ended May 2, 2020.
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Total |
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Total Number of |
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Maximum Number of |
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Number of |
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Average |
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Shares Purchased as |
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Shares that May |
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||||
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Shares |
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Price Paid |
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Part of Publicly |
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Yet Be Purchased |
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Period |
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Purchased |
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Per Share |
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Announced Programs |
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Under the Program |
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(1) |
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(2) |
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(1) |
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(1) (3) |
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||||
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Month #1 (February 2, 2020 through February 29, 2020) |
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— |
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|
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— |
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|
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— |
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35,364,260 |
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Month #2 (March 1, 2020 through April 4, 2020) |
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|
1,833,984 |
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|
$ |
11.69 |
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1,720,351 |
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33,643,909 |
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Month #3 (April 5, 2020 through May 2, 2020) |
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— |
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|
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— |
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|
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— |
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|
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33,643,909 |
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Total |
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|
1,833,984 |
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|
$ |
11.69 |
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1,720,351 |
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33,643,909 |
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(1) |
During the 13 weeks ended May 2, 2020 there were 1.7 million shares repurchased as part of our publicly announced share repurchase program and there were 0.1 million shares repurchased for the payment of taxes in connection with the vesting of share-based payments. |
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(2) |
Average price paid per share excludes any broker commissions paid. |
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(3) |
During Fiscal 2016, our Board authorized the public repurchase 25.0 million shares of our common stock. The authorization of the repurchase of the remaining 3.6 million shares that may yet be repurchased under the Fiscal 2016 authorization expires on January 30, 2021. During Fiscal 2019, our Board authorized the public repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024, bringing our total repurchase authorization to 33.6 shares. |
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ITEM 6. EXHIBITS.
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Exhibit 4.1 |
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Exhibit 4.2 |
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Exhibit 10.1 |
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Exhibit 10.2 |
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* Exhibit 31.1 |
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Certification by Jay L. Schottenstein pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
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* Exhibit 31.2 |
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Certification by Michael A. Mathias pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
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** Exhibit 32.1 |
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** Exhibit 32.2 |
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* Exhibit 101 |
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The following materials from the Company’s Annual Report on Form 10-Q for the quarter ended May 2, 2020, formatted as inline eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets as of May 2, 2020, February 1, 2020 and May 4, 2019, (ii) Consolidated Statements of Operations for the 13 weeks ended May 2, 2020 and May 4, 2019, (iii) Consolidated Statements of Comprehensive Income for the 13 weeks ended May 2, 2020 and May 4, 2019, (iv) Consolidated Statements of Stockholders’ Equity for the 13 weeks ended May 2, 2020 and May 4, 2019, and (v) Consolidated Statements of Cash Flows for the 13 weeks ended May 2, 2020 and May 4, 2019 |
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* Exhibit 104 |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2020, formatted in inline XBRL |
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* |
Filed with this report. |
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** |
Furnished with this report. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 4, 2020
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American Eagle Outfitters, Inc. (Registrant) |
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By: |
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/s/ Jay L. Schottenstein |
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Jay L. Schottenstein |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
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/s/ Michael A. Mathias |
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Michael A. Mathias |
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Executive Vice President, Chief Financial Officer |
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(Principal Financial Officer) |
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37