American Eagle Outfitters 2004 Annual Report Download - page 29

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Part II
The Company's 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. Other retailers may exclude a portion of
these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. See
Note 2 of the Consolidated Financial Statements for a description of the Company's accounting policy regarding cost
of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent to net sales decreased to 23.8% from 24.8% due to our
strong comparable store sales results, as well as our cost control initiatives. During the period, we leveraged direct
salaries, advertising, leasing costs, asset write-offs related to store closings, communications, travel and services
purchased. These improvements were partially offset by the deleveraging of incentive compensation, which was not
incurred in the prior year, as well as the deleveraging of holiday packaging.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percent to net sales decreased to 3.6% from 4.2% due primarily to the
comparable store sales increase.
Other Income, Net
Other income, net increased to $4.1 million from $2.0 million due primarily to increased investment income resulting
from higher cash and investment balances this year compared to last year as well as improved investment rates.
Income from Continuing Operations
Income from continuing operations increased 170% to a record of $224.2 million, or 11.9% as a percent to net sales,
from $83.1 million, or 5.8% as a percent to net sales last year. Income from continuing operations per diluted share
increased to $1.49 from $0.57 last year. The increase in income from continuing operations was attributable to the
factors noted above.
Loss from Discontinued Operations
Loss from discontinued operations for Fiscal 2004 decreased to $10.9 million, or $0.07 per diluted share, from $23.5
million, or $0.16 per diluted share last year. The Fiscal 2004 loss from discontinued operations represents the
Bluenotes loss from operations of $6.1 million, as well as a $4.8 million loss recorded on the disposition. The Fiscal
2003 loss from discontinued operations represents Bluenotes’ loss from operations for the period, including a
goodwill impairment charge of $14.1 million.
Comparison of Fiscal 2003 to Fiscal 2002
Net Sales
Net sales increased 3.8% to $1.435 billion from $1.383 billion. The sales increase was due to an 11.1% increase in
gross square feet, consisting primarily of the addition of 52 net new stores, offset by a comparable store sales decline
of 6.6%. The comparable store sales decrease was driven by a lower average unit retail price as well as a decline in
the number of transactions per average store, while the number of units sold per average store increased compared to
a year ago. Comparable store sales in the women's business declined in the mid single-digits for the period while the
men's comparable store sales decreased in the low double-digits.