NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company,” “we,” ”us,” and “our”) at October 30, 2021 and October 31, 2020 and for the 13-and 39-week periods ended October 30, 2021 and October 31, 2020 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 the Quarterly Report on 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 Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2021 (the “Fiscal 2020 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.
Founded in 1977, the Company is a leading multi-brand, global specialty retailer that operates under the American Eagle® (“AE” or “American Eagle”) and Aerie® (“Aerie”) brands. The Aerie brand includes OFFLINETM by Aerie, a new sub-brand offering a complete collection of active wear and accessories built for REAL movement and REAL comfort launched in Fiscal 2020 (as defined below).
We also operate Todd Snyder New York, a premium menswear brand, and Unsubscribed, a new brand with a focus on consciously-made, slow fashion launched in Fiscal 2020.
We offer a broad assortment of high quality, on-trend apparel, accessories, and personal care products at affordable prices for men and women under the AE brand, and intimates, apparel, active wear, and swim collections under the Aerie brand. We sell directly to consumers through our retail channel, which includes our stores and concession-based shop-within-shops. We operate stores in the U.S., Canada, Mexico, and Hong Kong. We also have license agreements with third parties to operate American Eagle and Aerie stores throughout Asia, Europe, India, Latin America, and the Middle East.
The Company operates more than 1,000 retail stores in the U.S. and internationally, online at www.ae.com and www.aerie.com, as well www.toddsnyder.com and www.unsubscribed.com (which e-commerce operations we collectively refer to as “AEO Direct”), and more than 200 international store locations managed by third-party operators.
In Fiscal 2021, we acquired AirTerra, a logistics and supply chain platform that solves ecommerce fulfillment and shipping challenges in a unique and innovative way for retailers and brands of all sizes. This acquisition represents the first step in building our supply chain platform, as part our ongoing supply chain transformation strategy of leveraging scale and innovation to help us manage costs and improve service.
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather, and general economic and political conditions. During Fiscal 2020, historic seasonal trends were impacted by consumer behavior due to the coronavirus (“COVID-19”) global pandemic.
COVID-19 Pandemic
Impacts related to the onging COVID-19 pandemic have been significantly negative for the retail industry, our Company, our customers, and our associates. We have experienced and may continue to experience significant disruptions to our business due to the COVID-19 pandemic and the related suggested and mandated social distancing and shelter-in-place orders, which initially resulted in the temporary closure of all our stores and furlough of our associates during the first-half of Fiscal 2020. During Fiscal 2021 and Fiscal 2020, while stores were impacted by negative mall traffic, we focused on our
12
omni-channel capabilities. As of the 13 and 39 weeks ended October 30, 2021, our stores have reopened, although we continue to see residual impacts on foot traffic and in-store revenues.
The impacts of the COVID-19 pandemic on our business are discussed in further detail within these notes to the Consolidated Financial Statements and within Item 2 of this Quarterly Report on Form 10-Q, of which these notes form a part.
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 October 30, 2021, the Company operated in two reportable segments, American Eagle and Aerie.
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 2021” refers to the 52-week period that will end on January 29, 2022. “Fiscal 2020” refers to the 52-week period ended January 30, 2021. “Fiscal 2019” refers to the 52-week period ended February 1, 2020.
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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), 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.
In December 2019, the FASB amended Accounting Standards Codification ("ASC") 740, Income Taxes (issued under ASU 2019-12, Simplifying the Accounting for Income Taxes). This amendment removes certain exceptions to the general principles of ASC 740, and clarifies and amends the existing guidance to improve consistent application. The Company adopted the guidance effective January 31, 2021. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (“ASU 2020-06”), which simplifies accounting for convertible instruments. The new guidance eliminates two of the three models in ASC 470-20, Debt with Conversion and Other Options that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance is effective for fiscal years beginning after December 15, 2021. The Company will adopt ASU 2020-06 at the beginning of Fiscal 2022 using the modified retrospective approach.
In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the “Notes”). The Notes are currently accounted for under the cash conversion model, which is one of the models being eliminated. The adoption of ASU 2020-06 will result in the Notes being accounted for as a single balance in long-term debt, rather than being accounted for as separate debt and equity components.
Subsequently, the adoption of ASU 2020-06 is expected to reduce reported interest expense and, correspondingly, increase reported net income. Additionally, the dilutive effect of the Notes will increase to approximately 48 million dilutive shares, or an incremental 14 million shares compared to the dilutive effect of the Notes as of October 30, 2021, which will reflect the assumed conversion of all outstanding Notes. We do not anticipate a material impact to diluted earnings per share, as a result of a reduction in interest expense offset by the increase in diluted shares from the adoption of ASU 2020-06.
13
Foreign Currency Translation
In accordance with ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies into U.S. 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 (loss) 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. During the 13 weeks ended October 30, 2021, an unrealized loss of $2.2 million is included in accumulated other comprehensive (loss) income primarily due to the decline in the US dollar to Canadian dollar. During the 39 weeks ended October 30, 2021, an unrealized gain of $1.7 million is included in accumulated other comprehensive income (loss), primarily related to the rise in the USD to Mexican peso and USD to Canadian dollar exchange rates.
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.
Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents.
Receivables
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of certain of our customers to make required payments for products or services delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical and expected future receivables and reserve trends, and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’s reserves have approximated actual experience.
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 current 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.
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. The useful lives of our major classes of assets are as follows:
|
Buildings
|
|
25 years
|
|
Leasehold improvements
|
|
Lesser of 10 years or the term of the lease
|
|
Fixtures and equipment
Information technology
|
|
Five years
Three - five years
|
14
As of October 30, 2021, the weighted average remaining useful life of our assets was approximately 7.0 years.
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 right-of-use (“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, restructuring and COVID-19 related charges.
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 and to Note 13 to the Consolidated Financial Statements for additional information regarding impairment charges for the 39 weeks ended October 31, 2020.
Intangible Assets, including Goodwill
The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, and other immaterial acquisitions. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment at least annually or more frequently if an impairment indicator exists, by comparing the estimated fair value of each reporting unit to its carrying value. As a result of the Company’s annual goodwill impairment test as of January 30, 2021, the Company concluded that its goodwill was not impaired.
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 15 to 25 years.
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. No definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended October 30, 2021 and October 31, 2020.
Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets, including goodwill.
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 (as defined below) 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 October 30, 2021 and October 31, 2020, the Company recorded approximately $1.7 million and $1.6 million, respectively, of revenue related to gift card breakage. During the 39 weeks ending October 30, 2021 and October 31, 2020, the Company recorded $6.1 million and $4.9 million, respectively, of revenue related to gift card breakage.
15
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 adopted ASC Topic 842, Leases (“ASC 842”), in Fiscal 2019. The standard establishes a 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.
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.
Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.
16
No operating lease ROU asset impairments were recorded for the 13 or 39 weeks ended October 30, 2021. There was no operating lease ROU impairment recorded for the 13 weeks ended October 31, 2020. During the 39 weeks ended October 31, 2020, the Company recorded impairment of operating lease ROU assets of $84.1 million. Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the impairment of these assets.
Leases Modifications and COVID-19
The FASB staff issued a Q&A document in April 2020 providing guidance on how to apply the lease modification guidance in ASC 842 to rent concessions arising from COVID-19, allowing companies to elect accounting for the concessions as if enforceable rights and obligations existed, regardless of whether they are explicitly stated in the lease contract. Per the FASB staff Q&A guidance, entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.
|
|
•
|
For concessions in the form of rent forgiveness, the Company invoked the accounting elections provided by the FASB staff; savings were recorded as a credit to variable rent in the period the amendments became fully executed.
|
|
|
•
|
For concessions in the form of deferred payments, the Company did not apply the FASB accounting elections; rent expense was recorded in accordance with ASC 842 and the unpaid amount remained accrued as part of the current operating lease liability.
|
|
|
•
|
All other forms of rent concessions followed our normal accounting policy for lease modifications, adhering to the guidance set forth in ASC 842.
|
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.
For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below.
Customer Loyalty Program
In June 2020, the Company launched a highly-digitized loyalty program called Real Rewards by American Eagle and Aerie™ (the “Program”). The Program features both shared and unique benefits for loyalty members and credit card holders. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Members earn rewards in the form of discount savings certificates. Prior to the Program’s launch in June 2020, we also offered additional rewards for key items such as jeans and bras under our previous program, AEO Connected™. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.
Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (“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 reward, and the impact of adjustments is 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.
17
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 (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.
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 (loss).
Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.
Revenue Recognition
The Company recognizes revenue pursuant to 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.
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 above.
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 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 above for additional information.
18
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.
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, equipment 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.
Interest Expense, Net
Interest expense, net primarily consists of interest expense related to the Notes and borrowings under the revolving credit facility, as well as interest income from cash, cash equivalents, and short-term investments.
Other (Income), Net
Other (income), net consists primarily of gains and losses resulting from foreign currency transactions.
Segment Information
The Company has identified two operating segments (American Eagle and Aerie) that also represent our reportable segments. For additional information regarding the Company’s segment and geographic information, refer to Note 12 to the Consolidated Financial Statements.
3. Cash and Cash Equivalents
The following table summarizes the fair market values for the Company’s cash and cash equivalents, which are recorded on the Consolidated Balance Sheets:
|
(In thousands)
|
|
October 30,
2021
|
|
|
January 30,
2021
|
|
|
October 31,
2020
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
364,769
|
|
|
$
|
524,970
|
|
|
$
|
317,027
|
|
|
Interest bearing deposits
|
|
|
375,899
|
|
|
|
275,507
|
|
|
|
325,319
|
|
|
Money market securities
|
|
|
—
|
|
|
|
—
|
|
|
|
50,010
|
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
50,000
|
|
|
|
—
|
|
|
Total cash and cash equivalents
|
|
$
|
740,668
|
|
|
$
|
850,477
|
|
|
$
|
692,356
|
|
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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.
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 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.
Long-Term Debt
As of October 30, 2021, the Company had no outstanding borrowings under its revolving credit facilities and had repaid the outstanding borrowings of $330 million under its revolving credit facilities as of October 31, 2020.
In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025. The fair value of the Notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, 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. There were no asset impairment charges recorded during the 13 or 39 weeks ended October 30, 2021. There were no asset impairment charges recorded during the 13 weeks ended October 31, 2020. During the 39 weeks ended October 31, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). This impairment was primarily driven by store closures due to the COVID-19 pandemic. We also recorded $26.0 million of impairment related charges to certain corporate property and equipment, as well as $18.0 million of impairment charges related to certain cost and equity method investments. The assets were adjusted to their fair value and the loss on impairment was recorded within impairment, restructuring and COVID-19 related charges in the Consolidated Statements of Operations. The fair value of the impaired assets, after the recorded loss, was approximately $163.4 million.
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.
20
5. Earnings per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding:
|
|
|
13 Weeks Ended
|
|
|
39 Weeks Ended
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding
|
|
|
167,637
|
|
|
|
166,185
|
|
|
|
168,062
|
|
|
|
166,385
|
|
|
Dilutive effect of convertible notes
|
|
|
33,687
|
|
|
|
16,382
|
|
|
|
34,616
|
|
|
|
—
|
|
|
Dilutive effect of stock options and non-vested
restricted stock
|
|
|
3,689
|
|
|
|
1,830
|
|
|
|
4,354
|
|
|
|
—
|
|
|
Diluted number of common shares outstanding
|
|
|
205,013
|
|
|
|
184,397
|
|
|
|
207,032
|
|
|
|
166,385
|
|
|
Anti-Dilutive Shares*
|
|
|
286
|
|
|
|
1,423
|
|
|
|
172
|
|
|
|
9,250
|
|
*For the 39 weeks ended October 31, 2020, there were 1.4 million potentially dilutive equity awards and 7.8 million potentially dilutive shares from the Company’s convertible senior notes that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive. For all other periods, anti-dilutive shares relate to stock options and unvested restricted stock.
The Company has the right to settle the 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 common stock. Because of this repayment policy election, 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 daily closing prices of its common stock (NYSE: AEO) as reported on the New York Stock Exchange to calculate the conversion spread. The Notes could have a potential dilutive effect in future periods.
Refer to Notes 8 and 9 to the Consolidated Financial Statements for additional information regarding the Notes and share-based compensation, respectively.
6. Property and Equipment
Property and equipment consists of the following:
|
|
|
October 30,
|
|
|
January 30,
|
|
|
October 31,
|
|
|
(In thousands)
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
|
Property and equipment, at cost
|
|
$
|
2,394,148
|
|
|
$
|
2,250,974
|
|
|
$
|
2,255,676
|
|
|
Less: Accumulated depreciation and impairment
|
|
|
(1,728,740
|
)
|
|
|
(1,627,166
|
)
|
|
|
(1,605,279
|
)
|
|
Property and equipment, net
|
|
$
|
665,408
|
|
|
$
|
623,808
|
|
|
$
|
650,397
|
|
7. Intangible Assets, including Goodwill
Intangible assets consist of the following:
|
|
|
October 30,
|
|
|
January 30,
|
|
|
October 31,
|
|
|
(In thousands)
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
|
Goodwill, gross
|
|
$
|
20,585
|
|
|
$
|
17,463
|
|
|
$
|
17,331
|
|
|
Accumulated impairment (1)
|
|
|
(4,196
|
)
|
|
|
(4,196
|
)
|
|
|
(4,196
|
)
|
|
Goodwill, net
|
|
$
|
16,389
|
|
|
$
|
13,267
|
|
|
$
|
13,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, at cost
|
|
$
|
93,504
|
|
|
$
|
92,663
|
|
|
$
|
72,194
|
|
|
Accumulated amortization
|
|
|
(40,561
|
)
|
|
|
(35,598
|
)
|
|
|
(34,465
|
)
|
|
Trademarks, net
|
|
$
|
52,943
|
|
|
$
|
57,065
|
|
|
$
|
37,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net, including goodwill
|
|
$
|
69,332
|
|
|
$
|
70,332
|
|
|
$
|
50,864
|
|
21
|
(1)
|
Accumulated impairment includes $1.7 million recorded in Fiscal 2019 and $2.5 million recorded in Fiscal 2016.
|
8. Long-Term Debt, Net
Our long-term debt consisted of the following at each of October 30, 2021, January 30, 2021, and October 31, 2020:
|
(In thousands)
|
October 30,
2021
|
|
|
January 30,
2021
|
|
|
October 31,
2020
|
|
|
Convertible senior notes principal
|
$
|
412,025
|
|
|
$
|
415,025
|
|
|
$
|
415,025
|
|
|
Less: unamortized discount
|
|
75,776
|
|
|
|
89,735
|
|
|
|
93,944
|
|
|
Total long-term debt, net
|
$
|
336,249
|
|
|
$
|
325,290
|
|
|
$
|
321,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes - Equity portion, net of tax
|
|
58,454
|
|
|
|
68,330
|
|
|
|
68,330
|
|
Convertible notes
In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025 in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended. The Notes have a stated interest rate of 3.75%, payable semi-annually. The Company may redeem the Notes, in whole or in part, at any time beginning in April 2023. The Company used the net proceeds from the offering for general corporate purposes.
The Company does not have the right to redeem the Notes prior to April 17, 2023. On or after April 17, 2023 and prior to the 40th scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the Notes, at its option, for cash, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30-consecutive-trading-day period. Beginning January 2025, noteholders may convert their Notes for approximately 117.1 shares of common stock per $1,000 principal amount of the Notes, equivalent to a conversion price of approximately $8.54 per share.
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 common stock. Because of this repayment policy, only the conversion spread portion of the amount owed is reflected as dilutive in earnings per share.
The effective interest rate for the Notes is 10.0% and the Company calculated the effective yield using a market approach. The remaining amortization period of the discount is 3.50 years as of October 30, 2021.
Interest expense for the Notes was:
|
|
13 Weeks Ended
|
|
|
39 Weeks Ended
|
|
|
(In thousands)
|
October 30,
2021
|
|
|
October 31,
2020
|
|
|
October 30,
2021
|
|
|
October 31,
2020
|
|
|
Accrued interest for interest payments
|
$
|
3,863
|
|
|
$
|
3,848
|
|
|
$
|
11,611
|
|
|
$
|
7,966
|
|
|
Amortization of discount
|
|
4,569
|
|
|
|
4,113
|
|
|
|
13,953
|
|
|
|
8,308
|
|
|
Total interest expense
|
$
|
8,432
|
|
|
$
|
7,961
|
|
|
$
|
25,564
|
|
|
$
|
16,274
|
|
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)
|
October 30,
2021
|
|
|
Number of shares convertible
|
|
48,258
|
|
|
Conversion price per share
|
|
8.54
|
|
|
Value in excess of principal if converted
|
|
952,555
|
|
22
Revolving credit facilities
In January 2019, the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) for five-year, 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 $400 million, subject to customary borrowing base limitations. The Credit Facilities expire on 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 October 30, 2021, the Company was in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. No loans were outstanding under the Credit Agreement as of October 30, 2021. As of October 31, 2020, the Company had repaid $330.0 million of outstanding loans under its Credit Facilities.
9. Share-Based Compensation
The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the Company 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 and 39 weeks ended October 30, 2021 was $7.9 million ($5.9 million, net of tax) and $29.4 million ($22.2 million, net of tax), respectively, and for the 13 and 39 weeks ended October 31, 2020 was $9.0 million ($5.7 million, net of tax) and $24.7 million ($17.9 million, net of tax), respectively.
Stock Option Grants
The Company has granted time-based stock option awards. Time-based stock option awards vest over the requisite service period of the award or to an employee’s retirement eligible date, if earlier. A summary of the Company’s stock option activity for the 39 weeks ended October 30, 2021 follows:
|
|
|
|
|
|
|
Weighted-
Average
|
|
|
Weighted-
Average
Remaining
Contractual
|
|
|
Aggregate
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding - January 30, 2021
|
|
|
3,940
|
|
|
$
|
14.87
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
478
|
|
|
$
|
31.46
|
|
|
|
|
|
|
|
|
|
|
Exercised (1)
|
|
|
(771
|
)
|
|
$
|
16.33
|
|
|
|
|
|
|
|
|
|
|
Outstanding - October 30, 2021
|
|
|
3,647
|
|
|
$
|
16.74
|
|
|
|
4.5
|
|
|
$
|
29,226
|
|
|
Vested and expected to vest - October 30, 2021
|
|
|
2,503
|
|
|
$
|
16.59
|
|
|
|
3.2
|
|
|
$
|
14,678
|
|
|
Exercisable - October 30, 2021 (2)
|
|
|
1,788
|
|
|
$
|
16.28
|
|
|
|
1.7
|
|
|
$
|
13,345
|
|
|
(1)
|
Options exercised during the 39 weeks ended October 30, 2021 ranged in price from $8.62 to $21.41.
|
|
(2)
|
Options exercisable represent “in-the-money” vested options based upon the weighted-average exercise price of vested options compared to the Company’s stock price on October 30, 2021.
|
Cash received from the exercise of stock options was $13.1 million for the 39 weeks ended October 30, 2021. The actual tax benefit realized from share-based payments totaled $4.3 million for the 39 weeks ended October 30, 2021. There were no stock options exercised during the 39 weeks ended October 31, 2020.
As of October 30, 2021, there was $7.5 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of 2.0 years.
23
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:
|
|
|
39 Weeks Ended
|
|
39 Weeks Ended
|
|
|
|
October 30,
|
|
October 31,
|
|
Black-Scholes Option Valuation Assumptions
|
|
2021
|
|
2020
|
|
Risk-free interest rate (1)
|
|
0.9%
|
|
0.3 - 0.6%
|
|
Dividend yield
|
|
1.6%
|
|
3.5 - 6.0%
|
|
Volatility factor (2)
|
|
50.7%
|
|
43.1 - 48.7%
|
|
Weighted-average expected term (3)
|
|
4.5 years
|
|
4.4 years
|
|
(1)
|
Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.
|
|
(2)
|
Based on historical volatility of the Company’s common stock.
|
|
(3)
|
Represents the period of time that options are expected to be outstanding. The weighted average expected option terms were determined based on historical experience.
|
Restricted Stock Grants
Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.
Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three-year 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 time-based restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A Monte-Carlo simulation was utilized to determine the fair value for performance-based restricted stock awards.
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
|
|
|
|
|
October 30, 2021
|
|
|
October 30, 2021
|
|
|
(Shares in thousands)
|
|
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
Nonvested - January 30, 2021
|
|
|
3,698
|
|
|
$
|
12.42
|
|
|
|
1,868
|
|
|
$
|
17.44
|
|
|
Granted
|
|
|
699
|
|
|
$
|
32.47
|
|
|
|
337
|
|
|
$
|
39.54
|
|
|
Vested
|
|
|
(1,478
|
)
|
|
$
|
14.90
|
|
|
|
(418
|
)
|
|
$
|
22.22
|
|
|
Cancelled
|
|
|
(200
|
)
|
|
$
|
13.49
|
|
|
|
(324
|
)
|
|
$
|
17.72
|
|
|
Nonvested - October 30, 2021
|
|
|
2,719
|
|
|
$
|
16.15
|
|
|
|
1,463
|
|
|
$
|
21.10
|
|
As of October 30, 2021, there was $30.8 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.9 years. Based on current probable performance, there is $9.3 million of unrecognized compensation expense related to performance-based restricted stock unit awards, which will be recognized as achievement of performance goals is probable over a one- to three-year period.
As of October 30, 2021, the Company had 7.6 million shares available for all equity grants.
24
10. 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 October 30, 2021 was 25.5% compared to 35.3% for the 13 weeks ended October 31, 2020. The effective income tax rate for the 39 weeks ended October 30, 2021 was 24.9% compared to the effective tax benefit rate of 26.8% for the 39 weeks ended October 31, 2020. The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which impacted the 13 weeks ended October 31, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current U.S. federal corporate income tax rate of 21%, which resulted in a higher rate applicable to the 13 weeks ended October 31, 2020.
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 October 30, 2021. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $0.6 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.
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. Segment Reporting
In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified two operating segments (American Eagle and Aerie) that also represent our reportable segments and reflect the Chief Operating Decision Maker’s (defined as our CEO) internal view of analyzing results and allocating resources. Historically, all operating segments were aggregated as permitted by ASC 280 as one reportable segment. In the fourth quarter of Fiscal 2020, we revised our reportable segment structure to have two reportable segments, American Eagle and Aerie.
Our CEO analyzes segment results and allocates resources based on adjusted operating income (loss), which is a non-GAAP measure. Adjusted operating income (loss) is defined as operating income (loss) excluding impairment, restructuring and COVID-19 related charges. Adjusted operating income (loss) may not be comparable to similarly titled measures of other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of our ongoing operating results and provides a higher degree of transparency. The following includes a reconciliation from consolidated operating income (loss), the most directly comparable GAAP operating performance measure presented on the Consolidated Financial Statements, to our non-GAAP adjusted operating income (loss) on a consolidated basis.
25
|
(in thousands)
|
American Eagle
|
|
|
Aerie
|
|
|
Corporate(1)
|
|
|
Total(2)
|
|
|
13 weeks ended October 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
940,992
|
|
|
$
|
315,049
|
|
|
$
|
18,037
|
|
|
$
|
1,274,078
|
|
|
Operating income (loss)
|
$
|
261,225
|
|
|
$
|
52,021
|
|
|
$
|
(103,559
|
)
|
|
$
|
209,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
13,298
|
|
|
$
|
24,867
|
|
|
$
|
20,036
|
|
|
$
|
58,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended October 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
775,961
|
|
|
$
|
246,748
|
|
|
$
|
8,908
|
|
|
$
|
1,031,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
155,259
|
|
|
$
|
35,738
|
|
|
$
|
(95,446
|
)
|
|
$
|
95,551
|
|
|
Impairment, restructuring, and COVID-19 related charges
|
|
—
|
|
|
|
—
|
|
|
|
6,955
|
|
|
|
6,955
|
|
|
Adjusted operating income (loss)
|
$
|
155,259
|
|
|
$
|
35,738
|
|
|
$
|
(88,491
|
)
|
|
$
|
102,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
10,488
|
|
|
$
|
6,399
|
|
|
$
|
14,302
|
|
|
$
|
31,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 weeks ended October 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,513,700
|
|
|
$
|
947,851
|
|
|
$
|
41,297
|
|
|
$
|
3,502,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
611,650
|
|
|
$
|
191,341
|
|
|
$
|
(291,880
|
)
|
|
$
|
511,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
36,093
|
|
|
$
|
48,164
|
|
|
$
|
60,148
|
|
|
$
|
144,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 weeks ended October 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
1,791,042
|
|
|
$
|
653,240
|
|
|
$
|
22,537
|
|
|
$
|
2,466,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
1,113
|
|
|
$
|
47,011
|
|
|
$
|
(323,052
|
)
|
|
$
|
(274,928
|
)
|
|
Impairment, restructuring, and COVID-19 related charges
|
|
90,926
|
|
|
|
18,215
|
|
|
|
68,045
|
|
|
|
177,186
|
|
|
Adjusted operating income (loss)
|
$
|
92,039
|
|
|
$
|
65,226
|
|
|
$
|
(255,007
|
)
|
|
$
|
(97,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
25,361
|
|
|
$
|
23,807
|
|
|
$
|
43,423
|
|
|
$
|
92,591
|
|
|
|
(1)
|
Corporate includes revenue and operating results of the Todd Snyder and Unsubscribed brands, and AirTerra, which are not material to disclose as separate reportable segments. Corporate operating costs represents certain costs that are not directly attributable to another reportable segment.
|
|
|
(2)
|
The difference between Operating income (loss) and Income (loss) before income taxes includes the following items, which are not allocated to our reportable segments:
- For the 13 weeks ended October 30, 2021, interest expense, net of $8.6 million and other (income), net of ($3.1)million. For the 39 weeks ended October 30, 2021, interest expense, net of $26.0 million and other (income), net of ($6.4) million.
- For the 13 weeks ended October 31, 2020, interest expense, net of $7.9 million and other (income), net of ($2.2) million. For the 39 weeks ended October 31, 2020, interest expense, net of $16.6 million and other (income), net of ($0.8) million.
|
We do not allocate assets to the reportable segment level and therefore our CEO does not use segment asset information to make decisions.
The following table present summarized geographical information:
26
|
|
|
13 Weeks Ended
|
|
|
39 Weeks Ended
|
|
|
(In thousands)
|
|
October 30,
2021
|
|
|
October 31,
2020
|
|
|
October 30,
2021
|
|
|
October 31,
2020
|
|
|
Total net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,104,441
|
|
|
$
|
898,241
|
|
|
$
|
3,044,407
|
|
|
$
|
2,167,145
|
|
|
Foreign (1)
|
|
$
|
169,637
|
|
|
$
|
133,376
|
|
|
$
|
458,441
|
|
|
|
299,674
|
|
|
Total net revenue
|
|
$
|
1,274,078
|
|
|
$
|
1,031,617
|
|
|
$
|
3,502,848
|
|
|
$
|
2,466,819
|
|
|
|
(1)
|
Amounts represent sales from American Eagle and Aerie international retail stores, e-commerce sales that are billed and/or shipped to foreign countries, and international license royalty revenue.
|
13. Impairment, Restructuring and COVID-19 Related Charges
The following table represents impairment, restructuring and COVID-19 related charges for the 13 and 39 weeks ended October 31, 2020. There were no impairment, restructuring and COVID-19 related charges for the 13 and 39 weeks ended October 30, 2021. All amounts were recorded within impairment, restructuring and COVID-19 related charges on the Consolidated Statements of Operations.
|
|
|
13 Weeks Ended
|
|
|
39 Weeks Ended
|
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
(In thousands)
|
|
2020
|
|
|
2020
|
|
|
Impairment charges (1)
|
|
$
|
—
|
|
|
$
|
153,617
|
|
|
Incremental COVID-19 related expenses (2)
|
|
|
5,951
|
|
|
|
19,836
|
|
|
Severance and related employee costs
|
|
|
1,004
|
|
|
|
3,733
|
|
|
Total impairment, restructuring and COVID-19 related charges
|
|
$
|
6,955
|
|
|
$
|
177,186
|
|
(1) During the 39 weeks ended October 31, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded $26.0 million of impairment related charges to certain corporate property and equipment, as well as $18.0 million of impairment charges related to certain cost and equity method investments.
(2) Incremental COVID-19 related expenses consist of personal protective equipment and supplies for our associates and customers.
A roll-forward of restructuring liabilities recognized in accrued compensation and payroll taxes and other current liabilities and accrued expenses in the Consolidated Balance Sheet is as follows:
|
|
|
39 Weeks Ended
|
|
|
|
|
October 30,
|
|
|
(In thousands)
|
|
2021
|
|
|
Restructuring liability as of January 30, 2021
|
|
$
|
2,812
|
|
|
Add: Costs incurred, excluding non-cash charges
|
|
|
—
|
|
|
Less: Cash payments and adjustments
|
|
|
(2,421
|
)
|
|
|
|
|
|
|
|
Restructuring liability as of October 30, 2021
|
|
$
|
391
|
|
14. Subsequent Events
Subsequent to October 30, 2021, the Company entered into a stock purchase agreement to acquire all of the issued and outstanding shares of capital stock of Quiet Logistics, Inc. (“Quiet Logistics”) and certain equity interests in Locus Robotics Corp. and Axlehire, Inc., for $350 million in cash, subject to certain adjustments. The Company expects to finance the purchase price with cash on hand. The closing is subject to customary closing conditions and is expected to occur in the fourth quarter of Fiscal 2021. Quiet Logistics will be a wholly-owned subsidiary of the Company.
27
Quiet Logistics is a supply chain platform that utilizes state-of-the-art technology and robotics and has provided cost-effective in-market fulfillment services for the Company, as well as for numerous other leading consumer brands.
28
