American Eagle Outfitters 2004 Annual Report Download - page 30

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16
Part II
Gross Profit
Gross profit as a percent to net sales declined to 38.3% from 39.1%. The percentage decrease was attributed to the
deleveraging of buying, occupancy and warehousing costs offset by an improvement in merchandise margins.
Buying, occupancy and warehousing expenses deleveraged due primarily to the deleveraging of rent expense.
Merchandise margins increased for the period due primarily to an improved markon offset by increased markdowns
as well as an increase in the liquidation of sell-off merchandise. Additionally, a reduction in the sales returns reserve
contributed to the higher merchandise margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent to net sales increased to 24.8% from 23.8% due primarily
to the deleveraging of compensation expense. Compensation expense deleveraged due primarily to the 6.6% decline
in comparable store sales. Additionally, insurance expense and services purchased deleveraged. These increases
were partially offset by the leveraging of communications, advertising and chargecard fees.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percent to net sales increased to 4.2% from 3.8% due primarily to our
store expansion, including new and remodeled stores.
Other Income, Net
Other income, net decreased to $2.0 million from $2.4 million due primarily to lower interest income partially offset
by lower interest expense.
Income from Continuing Operations
Income from continuing operations decreased to $83.1 million, or 5.8% as a percent to net sales, from $99.6 million,
or 7.2% as a percent to net sales. Income from continuing operations per diluted share decreased to $0.57 from
$0.68. The decline in income from continuing operations was attributable to the factors noted above.
Loss from discontinued operations
Loss from discontinued operations increased to $23.5 million, or $0.16 per diluted share, from $11.5 million, or
$0.08 per diluted share. The Fiscal 2003 loss from discontinued operations included a goodwill impairment charge
of $14.1 million, which was not incurred during the prior year.
Liquidity and Capital Resources
The Company's uses of cash are primarily for working capital, the construction of new stores and the remodeling of
existing stores, information technology upgrades, distribution center improvements, the purchase of both short and
long-term investments and the payment of dividends. Historically, these uses of cash have been met through cash
flow from operations.
The following sets forth certain measures of the Company’s liquidity:
January 29, January 31,
2005 2004
(Restated)
Working capital (in 000's) $574,375 $321,721
Current ratio 3.27 2.54