American Eagle Outfitters 2008 Annual Report Download - page 25

$265 million in capital expenditures. These expenditures related primarily to our new and remodeled stores in the
U.S. and Canada, as well as headquarters, point-of-sale and distribution center projects.
The following table shows, for the periods indicated, the percentage relationship to net sales of the listed items
included in our Consolidated Statements of Operations.
January 31,
2009
February 2,
2008
February 3,
2007
For the Fiscal Years Ended
Net sales ....................................... 100.0% 100.0% 100.0%
Cost of sales, including certain buying, occupancy and
warehousing expenses ............................ 60.7 53.4 52.0
Gross profit ..................................... 39.3 46.6 48.0
Selling, general and administrative expenses ............. 24.8 23.4 23.8
Depreciation and amortization expense ................. 4.4 3.6 3.2
Operating income . ................................ 10.1 19.6 21.0
Other income, net . ................................ 0.6 1.2 1.5
Other-than-temporary impairment charge................ 0.8 — —
Income before income taxes ......................... 9.9 20.8 22.5
Provision for income taxes .......................... 3.9 7.7 8.6
Income from continuing operations .................... 6.0% 13.1% 13.9%
Our operations are conducted in one reportable segment, which includes our 954 U.S. and Canadian AE retail
stores, 116 aerie by American Eagle retail stores, 28 MARTIN + OSA retail stores and AEO Direct.
Comparison of Fiscal 2008 to Fiscal 2007
Net Sales
Net sales decreased 2% to $2.989 billion from $3.055 billion. The decrease resulted primarily from a 10%
decrease in comparable store sales despite an increase in sales from our e-commerce operation and an increase in
gross square feet due to new and remodeled stores.
During Fiscal 2008, our AE Brand average transaction value was flat compared to Fiscal 2007. This was driven
by a mid-single digit increase in units per transaction offset by a mid-single digit decline in average unit retail price.
Comparable store sales were essentially flat in the AE Brand men’s business and declined in the high teens in the AE
Brand women’s business compared to Fiscal 2007.
Gross Profit
Gross profit decreased 17% to $1.174 billion from $1.423 billion in Fiscal 2007. Gross margin as a percent to
net sales decreased by 730 basis points to 39.3% from 46.6% last year. The percentage decrease was attributed to a
560 basis point decrease in the merchandise margin rate and a 170 basis point increase in buying, occupancy and
warehousing costs as a percent to net sales. Merchandise margin decreased for the period due primarily to increased
markdowns as well as an increase in merchandise costs.
Buying, occupancy and warehousing expenses increased 170 basis points as a percent to net sales. This was
primarily due to a 160 basis point increase in rent as a percent to net sales, driven by new store openings and the
negative comparable store sales, as well as higher utilities. These increases were partially offset by lower
distribution and warehousing service costs due to bringing our AEO Direct fulfillment and Canadian distribution
services in-house. Share-based payment expense included in gross profit decreased to approximately $5.7 million
compared to $6.2 million last year.
Our 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
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