American Eagle Outfitters 2011 Annual Report Download - page 27

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Table of Contents
impact related to executive transition costs. Income from continuing operations for Fiscal 2010 was $181.9 million, or $0.90 per diluted share, and includes a
$0.12 per diluted share loss from the sale of investment securities related to our ARS liquidation.
Loss from Discontinued Operations
We completed the closure of M+O stores and related e-commerce operations during Fiscal 2010. Accordingly, the after-tax operating results appear in
Loss from Discontinued Operations on the Consolidated Statements of Operations for all periods presented. Loss from Discontinued Operations, net of tax,
was $41.3 million for Fiscal 2010. The Loss from Discontinued Operations for Fiscal 2010 includes pre-tax closure charges of $43.4 million. Included in the
pre-tax charges were $15.4 million of lease-related items, $7.6 million for severance and other employee-related charges, $2.4 million in inventory charges
and a non-cash asset impairment charge of $18.0 million. There was no loss from discontinued operations during Fiscal 2011.
Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.
Net Income
Net income increased to $151.7 million in Fiscal 2011 from $140.6 million in Fiscal 2010. As a percent to net sales, net income was 4.8% and 4.7% for
Fiscal 2011 and Fiscal 2010, respectively. Net income per diluted share was $0.77, compared to $0.70 last year. The increase in net income was attributable to
the factors noted above.
Comparison of Fiscal 2010 to Fiscal 2009
Net Sales
Net sales increased 1% to $2.968 billion compared to $2.940 billion in Fiscal 2009. For Fiscal 2010, comparable stores sales decreased 1%, compared
to a 4% decrease in Fiscal 2009. AE men's and women's comparable store sales both declined in the low-single digits compared to Fiscal 2009. A decrease in
the number of transactions was driven by lower traffic, partially offset by a slight increase in customer conversion.
Gross Profit
Gross profit decreased slightly to $1.171 billion from $1.173 billion in Fiscal 2009. Gross profit as a percent to net sales decreased by 40 basis points to
39.5% from 39.9%. The percentage decrease was attributed to a 50 basis point increase in buying, occupancy and warehousing costs as a percent to net sales,
partially offset by a 10 basis point improvement in merchandise margin as a rate to sales. Buying, occupancy and warehousing expenses increased as a rate to
sales as a result of negative comparable store sales and the impact of new store openings.
Share-based payment expense included in gross profit decreased to approximately $8.4 million compared to $11.6 million in Fiscal 2009.
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 costs from cost of sales, including them in a line item such as selling, general and
administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including
certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expense decreased 2% to $713.2 million compared to $725.3 million in Fiscal 2009. The decrease was due to a
combination of reduced incentive compensation expense recorded in the year, as well as the net savings resulting from our corporate profit initiative.
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