American Eagle Outfitters 2004 Annual Report Download - page 28

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14
Part II
This table shows, for the periods indicated, the percentage relationship to net sales of the listed items included in the
Company's Consolidated Statements of Operations.
For the Fiscal Years Ended
January 29,
2005
January 31,
2004
(Restated)
February 1,
2003
(Restated)
Net sales 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
occupancy and warehousing expenses
53.3 61.7 60.9
Gross profit 46.7 38.3 39.1
Selling, general and administrative expenses 23.8 24.8 23.8
Depreciation and amortization expense 3.6 4.2 3.8
Operating income 19.3 9.3 11.5
Other income, net 0.2 0.1 0.2
Income before income taxes 19.5 9.4 11.7
Provision for income taxes 7.6 3.6 4.5
Income from continuing operations 11.9% 5.8% 7.2%
As a result of the Bluenotes’ disposition during Fiscal 2004, the Company’s operations are now conducted in one
reportable segment. Prior to the disposition, Bluenotes was presented as a separate reportable segment. The
American Eagle segment includes the Company's 846 U.S. and Canadian retail stores and the Company's e-
commerce operation, ae.com.
Comparison of Fiscal 2004 to Fiscal 2003
Net Sales
Net sales increased 31.1% to $1.881 billion from $1.435 billion. The sales increase was due to a 21.4% comparable
store sales increase as well as a 7.1% increase in gross square feet, consisting primarily of the addition of 41 net new
stores. The comparable store sales increase was driven by a higher average unit retail price, resulting primarily from
fewer markdowns and an increase in the number of transactions per average store. Additionally, both the number of
units sold per average store and the number of units sold per transaction increased during the year. Comparable store
sales percentages increased in the mid-twenties in the women’s business over last year and the men’s comparable
store sales percentage increased in the high teens.
A store is included in comparable store sales in the thirteenth month of operation. However, stores that have a gross
square footage increase of 25% or greater due to a remodel are removed from the comparable store sales base, but
are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month
following the remodel.
Gross Profit
Gross profit as a percent to net sales increased to a record rate of 46.7% from 38.3% last year. The percentage
increase was primarily attributed to an improvement in merchandise margins. Merchandise margins increased
significantly for the period due primarily to lower markdowns as well as an improved markon, reflecting better
sourcing and a continuation of our cost control initiatives, including reduced freight costs and lower sell-offs.
Buying, occupancy and warehousing expenses declined as a percent to net sales due primarily to the leveraging of
rent expense.