American Eagle Outfitters 2006 Annual Report Download

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Table of contents

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    AMERICAN EAGLE OUTFITTERS, INC. ANNUAL REPORT 2006

  • Page 3
    ... strengthened the ever-important connection with our customer and our ability to deliver on-trend assortments with a high quality-to-price value ratio. 2006 was our third consecutive year of record profitability and industry-leading performance. AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006 01

  • Page 4
    ... look ahead, we are confident that American Eagle is well-positioned to sustain strong performance. We are excited about our growth strategies and continue to invest in talent and strengthen our operations with new systems and upgraded facilities. 02 AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006

  • Page 5
    .... We ended 2006 with sales per foot productivity of $524, an 11% increase from the prior year. Our 2007 plans call for approximately 10% growth in total square footage, including roughly 45-50 new AE stores and 45 remodels, at least 15 new aerie stores, and 12 MARTIN + OSA stores. Building powerful...

  • Page 6
    ...girls and guys come to be informed, inspired and entertained. We continue to improve ae.com by adding new features and functionality, exclusive offers and products, as well as entertaining, interactive content that creates a deeper brand experience. 04 AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006

  • Page 7
    ... year-old AE girl. Customers have responded enthusiastically to aerie, which is offered in all AE stores and three aerie stand-alone stores. Based on positive results, we are accelerating our real estate strategy for aerie, planning at least 15 stand-alone stores and five new side-by-side locations...

  • Page 8
    ... others that we are refining. Based on the response from customers, we are confident that the brand, demographic and store environment are right on-target. We had five MARTIN + OSA stores at the end of last year, and plan to open 12 more in 2007. 06 AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006

  • Page 9
    ... brand by channel, and we want to maximize the customer experience for each. Further, we hope to create a relationship with our customers even beyond the stores and ae.com with innovative, authentic programs that reï¬,ect what's important to them. AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006 07

  • Page 10
    ... process. Going forward, our position as an early adopter of advanced retailing technologies will continue to be a key factor in our performance and a source of competitive strength. American Eagle has a strong commitment to operational excellence. 08 AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006

  • Page 11
    .... We also get involved in issues that matter to our customers and associates by offering small grants of gift cards or cash to support their personal charitable events and volunteer efforts. We are passionate about giving back to our communities. AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006 09

  • Page 12
    ...team will deliver profitable growth to our shareholders for years to come. I thank you for your support of American Eagle and look forward to sharing our achievements with you in the future. Sincerely, James V. O'Donnell Chief Executive Officer 10 AMERICAN EAGLE OUTFITTERS ANNUAL REPORT 2006

  • Page 13
    ... immaterial. All amounts presented include shipping and handling amounts billed to customers. (4) The comparable store sales increase for the period ended February 3, 2007 is compared to the corresponding 53 week period last year. (5) All amounts presented exclude gift card service fee income, which...

  • Page 14
    ... Thorn Hill Drive, Warrendale, PA (Address of principal executive offices) Registrant's telephone number, including area code: (724) 776-4857 Securities registered pursuant to Section 12(b) of the Act: Common Shares, $0.01 par value (Title of class) New York Stock Exchange (Name of each exchange on...

  • Page 15
    ..., a new sportswear concept targeting 25 to 40 year-old women and men, in the fall of 2006. MARTIN + OSA carries apparel, accessories and footwear, using denim and sport inspiration to design fun and sport back into sportswear. As used in this report, all references to "we," "our," and the "Company...

  • Page 16
    ..., expansion of sizes and styles, unique online content and targeted marketing strategies. MARTIN + OSA During Fiscal 2006, we opened five MARTIN + OSA stores. MARTIN + OSA, a new sportswear concept targeting 25 to 40 year-old women and men, carries apparel, accessories and footwear, designed using...

  • Page 17
    ... operated 911 stores in the United States and Canada under the American Eagle Outfitters and MARTIN + OSA brands as shown below: United States, including the Commonwealth of Puerto Rico - 839 stores Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida...

  • Page 18
    ... sales events. Our customers in the U.S. and Canada may also pay for their purchases with American Express®, Discover®, MasterCard®, Visa®, bank debit cards, cash or check. AE gift cards can be purchased in our American Eagle stores in the U.S. and Canada, as well as through ae.com. MARTIN + OSA...

  • Page 19
    ... senior management, as well as its ability to attract and retain qualified key personnel and skilled employees in the future. Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in our management. AMERICAN EAGLE OUTFITTERS PAGE...

  • Page 20
    ...000 square foot expansion of this distribution center. This expanded facility will be used to support new and existing growth initiatives, including ae.com, aerie and MARTIN + OSA. All of our stores in the United States and Canada are leased. The store leases generally have initial terms of 10 years...

  • Page 21
    ... who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 70,000. The following information reflects the December 2006 three-for-two stock split. For the Quarters Ended Market Price High...

  • Page 22
    ...share amounts, ratios and other financial information) February 3, 2007 January 28, 2006 January 29, 2005 January 31, 2004 February 1, 2003 Period Summary of Operations (2) Net sales (3) Comparable store sales increase (decrease) (4) Gross profit Gross profit as a percentage of net sales Operating...

  • Page 23
    ...of improvements and expansion at our distribution centers; the completion of the construction of our new corporate headquarters and data center; the success of our new brand concept, MARTIN + OSA; the success of our new intimates sub-brand, aerie by American Eagle; the expected payment of a dividend...

  • Page 24
    ...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...

  • Page 25
    ... Canada, the expansion of our Ottawa, Kansas distribution center, the purchase and construction of our new Pittsburgh, Pennsylvania home office, information technology upgrades at our home office and investments in our new MARTIN + OSA stores. Additionally, during Fiscal 2006, we repurchased shares...

  • Page 26
    ...higher realized average unit retail price. Comparable store sales percentages increased in the high-teens in the men's business over Fiscal 2004 and the women's comparable store sales percentage increased in the mid-teens. PAGE 22 ANNUAL REPORT 2006 Gross Profit Gross profit increased 22% to $1.078...

  • Page 27
    ... new corporate headquarters; the construction of a new data center to support our information technology needs; development of MARTIN + OSA; and development of aerie by American Eagle. In the future, we expect that our uses of cash will also include new brand concept development. Our growth strategy...

  • Page 28
    ... Statements related to these guarantees. Our management believes that it is unlikely that we will be required to perform under the guarantees. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements. PAGE 26 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS PAGE...

  • Page 29
    ... any operating income generated by our Canadian businesses. As of February 3, 2007, a 10% change in the Canadian foreign exchange rate would have resulted in an increase or decrease in net income of approximately $4.3 million during Fiscal 2006. PAGE 28 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS...

  • Page 30
    ... and our report dated April 2, 2007 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania April 2, 2007 AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) February 3, 2007 January 28, 2006 Assets Current assets...

  • Page 31
    ...2005 AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended (In thousands) February 3, 2007 January 28, 2006 January 29, 2005 (In thousands, except per share amounts) Net sales Cost of sales, including certain buying, occupancy and warehousing expenses...

  • Page 32
    ... as part of publicly announced programs Repurchase of common stock from employees Cash paid for fractional shares in connection with three-for-two stock split Net proceeds from stock options exercised Excess tax benefit from share-based payments Cash dividends paid Net cash (used for) provided by...

  • Page 33
    ...a leading retailer that operates under the American Eagle Outfitters and MARTIN + OSA brands. American Eagle Outfitters designs, markets and sells its own brand of laidback, current clothing targeting 15 to 25 year-olds, providing high-quality merchandise at affordable prices. The Company opened its...

  • Page 34
    ..., 2006, and the Company will adopt EITF No. 06-3 beginning in the first quarter of Fiscal 2007. The Company presents sales taxes collected from customers on a net basis within accrued income and other taxes on its Consolidated Balance Sheets, and will include disclosure of this accounting policy in...

  • Page 35
    ...$16.2 million at that time. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company recognized its derivative on the balance sheet at fair value at the end of each period. Changes in the fair value of AMERICAN EAGLE OUTFITTERS PAGE 41 In accordance...

  • Page 36
    ...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...

  • Page 37
    ... of an Enterprise and Related Information ("SFAS No. 131"), the Company has identified four operating segments (American Eagle U.S. retail stores, American Eagle Canadian retail stores, ae.com and MARTIN + OSA) that reflect the basis used internally to review performance and allocate resources...

  • Page 38
    ...-line basis over the requisite service period of the award (or to an employee's eligible retirement date, if earlier). Performance-based restricted stock awards are recognized as compensation expense based on the fair PAGE 46 ANNUAL REPORT 2006 Net Income, as reported Add: stock option compensation...

  • Page 39
    ... are earned if the Company meets established performance goals. The remaining 7% of the restricted stock awards are time-based and vest over three years. PAGE 48 ANNUAL REPORT 2006 Stock Option Grants A summary of the Company's stock option activity under all plans for Fiscal 2006 follows: For the...

  • Page 40
    ... costs related to the Company's new home office building in Pittsburgh, Pennsylvania. During the three months ended October 28, 2006, the Company received approximately $2.0 million of the proceeds. During the fourth quarter, prior to the PAGE 50 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS PAGE...

  • Page 41
    ...) February 3, 2007 January 28, 2006 Net unrealized losses on available-for-sale securities, net of tax Foreign currency translation adjustment Accumulated other comprehensive income $ (811) 22,525 $21,714 $ (799) 22,827 $22,028 PAGE 52 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS PAGE 53

  • Page 42
    ... costs to sell. Additionally, a $0.3 million loss was recorded in cost of sales during Fiscal 2006 to record the obligation related to the remaining lease term at a former NLS distribution sub-center location. These losses were partially PAGE 54 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS PAGE 55

  • Page 43
    ... guidance to companies to determine how the American Jobs Creation Act of 2004 (the PAGE 56 ANNUAL REPORT 2006 The Company maintains a profit sharing and 401(k) plan (the "Retirement Plan"). Under the provisions of the Retirement Plan, full-time employees and part-time employees are automatically...

  • Page 44
    ... information regarding our repurchase program. On March 8, 2007, shares of the Company's common stock began trading on the New York Stock Exchange under the symbol "AEO." Prior to March 8, 2007, shares of the Company's common stock traded on the NASDAQ Stock Market. AMERICAN EAGLE OUTFITTERS...

  • Page 45
    ... Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC'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...

  • Page 46
    ...," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Code of Ethics," and "Board Committees" in our Proxy Statement relating to our 2007 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information appearing...

  • Page 47
    ...) Executive Vice President and Chief Financial Officer, AE Brand (Principal Financial Officer and Principal Accounting Officer) Chairman of the Board and Director Director Director Director Director Director Director Director Director PAGE 64 ANNUAL REPORT 2006 AMERICAN EAGLE OUTFITTERS...

  • Page 48
    ... the registrant's internal control over financial reporting. April 4, 2007 /s/ James V. O'Donnell James V. O'Donnell Chief Executive Officer (Principal Executive Officer) 5. I, Joan Holstein Hilson, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of American Eagle Outfitters, Inc...

  • Page 49
    ... of Technology JANICE E. PAGE Executive Vice President and Director of Store Operations, Real Estate and Construction LEANN NEALZ Vice President, Retail Distribution - East DAVID MCNULTY New York Stock Exchange (Trading Symbol: AEO) INVESTOR CONTACT Vice President, Planning and Allocation...