AMERICAN EAGLE OUTFITTERS, INC. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations for Fiscal 2020, which can be found in our Fiscal 2020 Form 10-K filed with theSecurities and Exchange Commission onMarch 11, 2021 . In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.
Executive Overview
We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories, and personal care products at affordable prices under our American Eagle® and Aerie® brands.
In the fourth quarter of Fiscal 2020, we revised our reportable segment structure to have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources based on adjusted operating income (loss). See Note 12 to the Consolidated Financial Statements included herein for additional information.
Financial highlights for the thirteen weeks ended
•Record revenue of
•Operating income reached an all-time third quarter high of
•Revenue for Aerie increased 28%, with operating income up 46%; and
•American Eagle revenue increased 21%, with operating income up 68%.
Key Performance Indicators
Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:
Comparable sales - Comparable sales and comparable sales changes provide a
measure of sales growth for stores and channels open at least one year over the
comparable prior year period. In light of store closures and related disruptions
from the COVID-19 pandemic, we have not disclosed comparable sales for Fiscal
2021 or Fiscal 2020.
Omni-channel Sales Performance - Our management utilizes the following quality
of sales metrics in evaluating our omni-channel sales performance: comparable
sales, average unit retail price, total transactions, units per transaction, and
consolidated comparable traffic. We include these metrics in our discussion
within this Management's Discussion and Analysis ("MD&A") when we believe they
enhance the understanding of the matter being discussed. Investors may find them
useful as such. Each of these metrics is defined as follows (except comparable
sales, which is defined separately above):
• Average unit retail price represents the selling price of our goods. It is
the cumulative net sales divided by the net units sold for a period of time.
• Total transactions represents the count of customer transactions over a
period of time (inclusive of Company-owned stores and AEO Direct, unless
specified otherwise).
• Units per transaction represents the number of units sold divided by total
transactions over a period of time (inclusive of Company-owned stores and AEO
Direct, unless specified otherwise).
• Consolidated comparable traffic represents visits to our Company-owned
stores, limited to those stores that qualify to be included in comparable
sales as defined above, including AEO Direct, over a period of time.
29
-------------------------------------------------------------------------------- Gross profit - Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage, and certain promotional costs (collectively, "merchandise costs") and buying, occupancy and warehousing costs. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples. Buying, occupancy and warehousing costs consist of: 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 for our distribution centers, including purchasing, receiving, and inspection costs; and shipping and handling costs related to our e-commerce operations.
The inability to obtain acceptable levels of sales, initial markups, or any significant increase in our use of markdowns could have an adverse effect on our gross profit and consolidated results of operations.
Operating income - Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling, general, and administrative expenses, and our level of capital expenditures for a reasonable period of time. In light of store closures and disruptions from the COVID-19 pandemic, our operating income may not be comparable for Fiscal 2021 versus Fiscal 2020. Cash flow and liquidity - Our management evaluates cash flow from operations, investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow will be sufficient to fund anticipated capital expenditures, dividends, and working capital requirements for the next twelve months.
COVID-19
The ongoing COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis, and we continue to see disruptions and volatility in our business caused by the COVID-19 pandemic. As ofOctober 30, 2021 , all our stores have reopened and remain open. Our stores are operating with restrictive and precautionary measures in place, such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels. We do not believe that our results for the third quarter of Fiscal 2021 are directly comparable to the same period in Fiscal 2020. The unpredictability of the trajectory of the COVID-19 pandemic has significantly diminished visibility into the future operating environment, and we believe that the Company may continue to experience degrees of volatility and business disruptions and remain at risk for periods of closure of our stores, distribution centers, and corporate facilities through the remainder of Fiscal 2021. While trends improved during the first nine months of 2021, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends will continue. Past and future impacts of COVID-19 also have the ability to disrupt the operations of our partners, suppliers, and vendors, which could lead to supply chain disruption, shipping delays, and freight cost increases. We are monitoring the ongoing developments as the COVID-19 vaccines are being distributed and administered, and we will take further actions that are in the best interests of our associates and customers, as needed. For further information about the risks associated with the COVID-19 pandemic, see "Risk Factors" in Part I, Item 1A of our Fiscal 2020 Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Results of Operations
Overview
Our third quarter Fiscal 2021 results reflected another quarter of record revenue and profitability. The work on our value creation plan drove meaningful improvements to our profitability through real estate and inventory optimization, omnichannel and customer focus, and our supply chain initiatives.
Additionally, during the 13 and 39 weeks endedOctober 31, 2020 , our consolidated results of operations were materially impacted by the effects of COVID-19. Commencing inMarch 2020 , we experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19 and government actions to combat it. In response, we closed our stores to the public after the close of business onMarch 17, 2020 ; however, we continued to operate our digital business. Subsequent toMay 1, 2020 , we began to reopen our stores, and as ofOctober 31, 2020 , nearly all of our stores 30
--------------------------------------------------------------------------------
had reopened; however, we continued to experience reduced customer traffic in reopened store locations. Accordingly, our results for the third quarter of Fiscal 2020 were significantly impacted.
As ofOctober 30, 2021 , we had approximately$740.7 million in cash and cash equivalents, which includes the proceeds from our Notes issuance, discussed in greater detail below and in Note 8 to the Consolidated Financial Statements. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity. Absent the impacts of the COVID-19 pandemic, our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results. The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations: 13 Weeks Ended 39 Weeks Ended October 30, October 31, October 30, October 31, 2021 2020 2021 2020 Total net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 55.7 59.8 57.1 71.3 Gross profit 44.3 40.2 42.9 28.7 Selling, general and administrative expenses 24.6 26.5 24.9 27.8 Impairment, restructuring and COVID-19 related charges - 0.6 - 7.1 Depreciation and amortization expense 3.2 3.8 3.4 4.9 Operating income (loss) 16.5 9.3 14.6 (11.1 ) Interest expense, net 0.7 0.8 0.7 0.7 Other (income) expense, net (0.2 ) (0.2 ) (0.2 ) - Income (loss) before income taxes 16.0 8.7 14.1 (11.8 ) Provision (benefit) for income taxes 4.1 3.1 3.6 (3.2 ) Net income (loss) 11.9 % 5.6 % 10.5 % (8.6 ) %
The following table shows our consolidated store data:
13 Weeks Ended 39 Weeks Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Number of stores:
Beginning of period 1,090 1,098 1,078 1,095
Opened 31 10 62 29
Closed - (3 ) (19 ) (19 )
End of period 1,121 1,105 1,121 1,105
Total gross square feet at end of period
(in '000) 6,924 6,858 6,924 6,858
International licensed/franchise stores
at end of
period (1) 256 225 256 225
(1) International licensed/franchise stores are not included in the
consolidated store data or the total gross square feet calculation.
Our operations consist of 897 American Eagle retail stores, which include 181
Aerie side-by-side locations and 1 OFFLINE side-by-side locations; 216 Aerie
stand-alone locations (including 8 OFFLINE stand-alone locations and 5 OFFLINE
side-by-side location); and AEO Direct. Additionally, there are three Todd
Snyder stand-alone locations and four Unsubscribed locations.
Non-GAAP Information
This results of operations section contains net income (loss) per diluted share
presented on an adjusted or non GAAP basis, which is a non-GAAP financial
measure ("non-GAAP" or "adjusted"). This financial measure is not based on any
standardized methodology prescribed by U.S. generally accepted accounting
principles ("GAAP") and is not necessarily comparable to similar measures
presented by other companies. Non-GAAP information is provided as a supplement
to, not as a substitute for, or as superior to, measures of financial
performance prepared in accordance with GAAP. We believe that this non-GAAP
information is useful as an additional means for investors to evaluate our
operating performance, when reviewed in conjunction with our GAAP consolidated
financial statements, and provides a higher degree of transparency. These
amounts are not determined in accordance with GAAP and, therefore, should not be
used exclusively in evaluating
31--------------------------------------------------------------------------------
our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.
13 Weeks Ended
October 30, October 31,
2021 2020
Net income per diluted share - GAAP Basis $ 0.74 $ 0.32
Add: Incremental COVID-19 related expenses and
Restructuring(1) - 0.02
Add: Convertible Debt(2) 0.02
0.01
Net income per diluted share - Adjusted or Non-
GAAP Basis $ 0.76
$ 0.35
(1) 13 weeks ended
related expenses consisting of personal protective equipment and supplies
for our associates and customers and
(2) Amortization of the non-cash discount on the Notes.
Comparison of the 13 weeks ended
Total Net Revenue Total net revenue increased 24%, or$242.5 million , to$1.274 billion compared to$1.032 billion last year. As discussed above, the COVID-19 pandemic negatively affected our financial results for the 13 weeks endedOctober 31, 2020 ; however, all our stores have reopened and we experienced increased store traffic, transactions, and transaction value, driving a 29% increase in store revenue and 10% increase in AEO Direct revenue for the third quarter of Fiscal 2021. American Eagle
Total net revenue for the 13 weeks ended
Aerie
Total net revenue for the 13 weeks ended
Gross Profit
Gross profit increased$149.7 million to$564.5 million compared to$414.8 million last year. As a percentage of total net revenue, gross margin increased to 44.3%, compared to 40.2% last year. This quarter's gross margin reflected higher merchandise margins, primarily due to inventory optimization, higher full-priced sales and markdown improvement, partially offset by higher freight costs related to the global supply chain disruptions. Additionally, both rent and delivery expense improved, as a percent of total net revenue. For the 13 weeks endedOctober 31, 2020 , gross margin was significantly impacted by disruptions related to COVID-19, which reflected a reduction in store revenue and higher delivery and distribution center costs primarily due to a strong digital business, partly offset by lower rent expenses. There was$3.5 million and$4.5 million of share-based payment expense included in gross profit for the 13-week periods endedOctober 30, 2021 andOctober 31, 2020 , respectively, comprised of both time- and performance-based awards. 32 -------------------------------------------------------------------------------- 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 and others 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 ("SG&A") expenses increased 15%, or $40.6
million , to $313.9 million from $273.3 million last year. As a percentage of
total net revenue, SG&A expenses decreased 190 basis points to 24.6%, compared
to 26.5% last year.
The 13 weeks ended October 30, 2021 reflected increased SG&A expenses primarily
related to increased store payroll, as a result of improved store traffic, as
well as increased advertising, partially offset by lower incentive compensation.
The 13 weeks ended October 31, 2020 were significantly impacted by disruptions
related to COVID-19, resulting in lower operating expenses due to store closures
and other cost reductions.
There was $4.4 million and $4.5 million of share-based payment expense included
in SG&A expenses for the 13-week periods ended October 30, 2021 and October 31,
2020 , respectively, comprised of both time- and performance-based awards.
Impairment, Restructuring and COVID-19 Related Charges
There were no impairment, restructuring and COVID-19 related charges recorded for the 13 weeks endedOctober 30, 2021 . For the 13 weeks endedOctober 31, 2020 , impairment, restructuring and COVID-19 related charges were$7.0 million , or 0.6% as a percentage of total net revenue. These charges consisted of$6.0 million of incremental COVID-19 related expenses, including personal protective equipment and supplies for our associates and customers and$1.0 million of severance costs. For further information, refer to Note 13 to the Consolidated Financial Statements. Based on the uncertainty of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future periods.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 5%, or$2.0 million , to$40.9 million for the 13 weeks endedOctober 30, 2021 , compared to$39.0 million for the 13 weeks endedOctober 31, 2020 . As a percentage of total net revenue, depreciation and amortization expense was 3.2% for the 13 weeks endedOctober 30, 2021 compared to 3.8% for the 13 weeks endedOctober 31, 2020 .
Interest Expense, Net
Interest expense, net increased$0.7 million to$8.6 million for the 13 weeks endedOctober 30, 2021 , compared to$7.9 million for the 13 weeks endedOctober 31, 2020 . The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income.
Other (Income), Net
Other income, net was$3.1 million for the 13 weeks endedOctober 30, 2021 , compared to$2.2 million for the 13 weeks endedOctober 31, 2020 . The increase was primarily attributable to foreign currency fluctuations and changes in other non-operating items. 33
--------------------------------------------------------------------------------
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks endedOctober 30, 2021 was 25.5% compared to 35.3% for the 13 weeks endedOctober 31, 2020 . The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the CARES Act, which impacted the 13 weeks endedOctober 31, 2020 . The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which theU.S. federal corporate income tax rate was 35%, as opposed to the currentU.S. federal corporate income tax rate of 21%, which resulted in a higher rate applicable to the 13 weeks endedOctober 31, 2020 .
Net Income (Loss)
Net income increased$94.1 million to$152.2 million for the 13 weeks endedOctober 30, 2021 , or 11.9% as a percentage of total net revenue, as compared to$58.1 million , or 5.6% as a percentage of total net revenue, for the 13 weeks endedOctober 31, 2020 . Net income per share increased to$0.74 per diluted share for the 13 weeks endedOctober 30, 2021 , which included$0.02 of amortization of the non-cash discount on the Notes, compared to$0.32 per diluted share, including$0.02 of incremental COVID-19 related expenses and restructuring, and$0.01 of amortization of the non-cash discount on the Notes, for the 13 weeks endedOctober 31, 2020 . The change in net income (loss) was attributable to the factors identified above.
Comparison of the 39 weeks ended
Total Net Revenue Total net revenue increased 42%, or$1.036 billion , to$3.503 billion compared to$2.467 billion last year. The COVID-19 pandemic and the associated closures of our retail stores beginningMarch 17, 2020 negatively affected our financial results for the 39 weeks endedOctober 31, 2020 .
American Eagle
Total net revenue for the 39 weeks ended
Aerie
Total net revenue for the 39 weeks endedOctober 30, 2021 for the Aerie brand was$947.9 million compared to$653.2 million for the 39 weeks endedOctober 31, 2020 . Gross Profit Gross profit increased$794.8 million to$1.503 billion compared to$708.3 million last year. Our gross margin percentage increased to 42.9% of revenue from 28.7% of revenue last year. The increase in gross margin reflected higher merchandise margins across brands, primarily due to higher full-priced sales and lower promotions, as well as improved rent and delivery expense, as a percent of total net revenue. The 39 weeks endedOctober 31, 2020 were significantly impacted by disruptions related to COVID-19, which resulted in a decline in revenue from retail store closures, higher markdowns, and promotions to clear through spring and summer merchandise, and inventory provisions. There was$11.6 million of share-based payment expense included in gross profit for both of the 39-week periods endedOctober 30, 2021 andOctober 31, 2020 , comprised of both time- and performance-based awards. 34 -------------------------------------------------------------------------------- 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 and others 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
SG&A expenses for the 39 weeks endingOctober 30, 2021 increased 27%, or$187.1 million , to$872.3 million from$685.2 million last year. As a percentage of total net revenue, SG&A expenses decreased 290 basis points to 24.9%, compared to 27.8% last year. The 39 weeks endedOctober 30, 2021 reflected increased SG&A expenses primarily related to the reopening of our stores, including increased store payroll and variable selling expenses, as well as increased advertising, services and compensation costs. The 39 weeks endedOctober 31, 2020 were significantly impacted by the disruption related to COVID-19, including the impact of lower store salaries from furloughs that took effect in earlyApril 2020 related to the retail store closures.
There was
Impairment, Restructuring and COVID-19 Related Charges
There were no impairment, restructuring and COVID-19 related charges recorded for the 39 weeks endedOctober 30, 2021 . Impairment, restructuring and COVID-19 related charges were$177.2 million , or 7.1% as a percentage of total net revenue, for the 39 weeks endedOctober 31, 2020 . During the 39 weeks endedOctober 31, 2020 , the Company recorded asset impairment charges of$153.6 million . Included in this amount are retail store impairment charges of$109.6 million , of which$84.1 million relates to operating lease ROU assets and$25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded$26.0 million of impairment related charges to certain corporate property and equipment, as well as$18.0 million of impairment charges related to certain cost and equity method investments. Additionally, there was$19.8 million of incremental COVID-19 related expenses and$3.7 million of severance costs. For further information, refer to Note 13 to the Consolidated Financial Statements. Based on the uncertainty of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future periods.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased 1%, or$1.1 million , to$119.7 million for the 39 weeks endedOctober 30, 2021 , compared to$120.8 million for the 39 weeks endedOctober 31, 2020 . As a percentage of total net revenue, depreciation and amortization expense was 3.4% for the 39 weeks endedOctober 30, 2021 compared to 4.9% for the 39 weeks endedOctober 31, 2020 . The decrease in expense was primarily attributable to asset impairment recorded in Fiscal 2020. Interest Expense, Net Interest expense, net increased$9.4 million to$26.0 million for the 39 weeks endedOctober 30, 2021 , compared to$16.6 million for the 39 weeks endedOctober 31, 2020 . The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income, partially offset by no interest expense incurred for borrowings on our revolving credit facilities during the 39 weeks endedOctober 30, 2021 .
Other (Income), Net
Other income, net was$6.4 million for the 39 weeks endedOctober 30, 2021 . Other income, net was$0.8 million for the 39 weeks endedOctober 31, 2020 . The increase was primarily attributable to foreign currency fluctuations and changes in other non-operating items. 35
--------------------------------------------------------------------------------
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 39 weeks endedOctober 30, 2021 was 24.9% compared to the effective tax benefit rate of 26.8% for the 39 weeks endedOctober 31, 2020 . The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the enactment of the CARES Act, which impacted the 39 weeks endedOctober 31, 2020 . The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which theU.S. federal corporate income tax rate was 35%, as opposed to the currentU.S. federal corporate income tax rate of 21%, which resulted in a higher benefit rate applicable to the 39 weeks endedOctober 31, 2020 . The effective tax rate for the 39 weeks endedOctober 30, 2021 was also impacted by higher excess tax benefits on share-based payments.
Net Income (Loss)
Net income increased$582.0 million to$369.2 million for the 39 weeks endedOctober 30, 2021 , or 10.5% as a percentage of total net revenue, as compared to a net loss of$212.8 million , or (8.6%) as a percentage of total net revenue, for the 39 weeks endedOctober 31, 2020 . The change in net income (loss) was attributable to the factors identified above.
International Operations
We have agreements with multiple third-party operators to expand our brands internationally. Through these agreements, a series of franchised, licensed, or other brand-dedicated American Eagle stores have opened and will continue to open inAsia ,Europe ,India ,Latin America , and theMiddle East . These agreements do not involve a significant capital investment or operational involvement from us. We continue to increase the number of countries in which we enter into these types of arrangements as part of our strategy to expand internationally. As ofOctober 30, 2021 , we had 256 stores operated by our third-party operators in 30 countries. International third-party operated stores are not included in the consolidated store data or the total gross square feet calculation.
As of
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
• Level 1 - Quoted prices in active markets.
• Level 2 - Inputs other than Level 1 that are observable, either directly or
indirectly.
• Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
As of
36--------------------------------------------------------------------------------
In accordance with ASC 820, the following table represents the fair value hierarchy of our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of:
Fair
Value Measurements at
Quoted Market
Prices in Active
Markets for Significant
Identical Significant Other Unobservable
Assets Observable Inputs Inputs
(In thousands) Carrying Amount (Level 1) (Level 2) (Level 3)
Cash and cash
equivalents:
Cash $ 364,769 $ 364,769 $ - $ -
Interest bearing
deposits 375,899 375,899 - -
Total cash and cash
equivalents $ 740,668 $ 740,668 - -
The fair value of the Notes is not required to be measured at fair value on a
recurring basis. Upon issuance, the fair value of the Notes was measured using
two approaches that consider market related conditions, including market
benchmark rates and a secondary market quoted price, and is therefore within
Level 2 of the fair value hierarchy.
Liquidity and Capital Resources
Our uses of cash have historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion, and the return of value to shareholders through the repurchase of common stock and the payment of dividends. Additionally, our uses of cash have included the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts. Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to$400 million , which will expire inJanuary 2024 . InApril 2020 , the Company issued$415 million aggregate principal amount of 3.75% convertible senior notes due in 2025 in a private placement to qualified institutional buyers. Interest is payable semi-annually. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding our long-term debt. As ofOctober 30, 2021 , we had approximately$740.7 million in cash and cash equivalents, which includes the proceeds from the Notes. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity. Subsequent toOctober 30, 2021 , we entered into an agreement to acquireQuiet Logistics, Inc. and strategic equity investments for$350 million in cash, subject to certain adjustments. This transaction is expected to close in the fourth quarter of Fiscal 2021. Refer to Note 14 to the Consolidated Financial Statements for information regarding the subsequent event.
The following sets forth certain measures of our liquidity:
October 30, January 30, October 31,
2021 2021 2020
Working Capital (in thousands)
2.04 1.77 1.69
Working capital increased $241.8 million compared to January 30, 2021 and $292.5
million compared to October 31, 2020 . The $292.5 million increase in our working
capital, compared to October 31, 2020 , is driven by a $179.8 million increase in
inventory, a $103.9 million increase in accounts receivable, a $48.3 million
increase in cash and short-term investments, a $46.6 million decrease in current
operating lease liabilities, and a $22.8 million decrease due to dividends
payable, offset by a $64.3 million decrease in prepaid expenses, a $18.1 million
increase in accrued income and other taxes, and a $10.0 million increase in
accounts payable.
37--------------------------------------------------------------------------------
Cash Flows provided by (used for) Operating Activities
Net cash provided by operating activities totaled$133.7 million for the 39 weeks endedOctober 30, 2021 , compared to net cash used for operating activities of$10.4 million for the 39 weeks endedOctober 31, 2020 . For the 39 weeks endedOctober 30, 2021 , our major source of cash from operations was merchandise sales and our primary outflow was for the payment of operational costs. For the period endedOctober 31, 2020 , our major source of cash from operations was merchandise sales and our primary outflow of cash for operations was for the payment of operational costs.
Cash Flows used for Investing Activities
Net cash used for investing activities totaled$148.8 million for the weeks endedOctober 30, 2021 , compared to net cash used for investing activities of$38.1 million for the 39 weeks endedOctober 31, 2020 . Investing activities for the 39 weeks endedOctober 30, 2021 primarily consisted of$144.4 million of capital expenditures for property and equipment. Investing activities for 39 the weeks endedOctober 31, 2020 primarily included$92.6 million of capital expenditures for property and equipment, offset by$55.0 million of net short-term investment sales.
Cash Flows (used for) provided by Financing Activities
Net cash used for financing activities totaled$94.8 million for the weeks endedOctober 30, 2021 , compared to net cash provided by financing activities of$379.9 million for the 39 weeks endedOctober 31, 2020 . Cash used for financing activities for the 39 weeks endedOctober 30, 2021 consisted primarily of$83.6 million for cash dividends paid at quarterly rates of$0.1375 for the 13 weeks endedMay 2, 2021 and$0.18 for the 13 weeks endedJuly 31, 2021 andOctober 30, 2021 , and$24.0 million for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments, partially offset by$13.1 million of proceeds from stock option exercises. Cash provided by financing activities for the 39 weeks endedOctober 31, 2020 consisted primarily of$406.1 million of net proceeds from the issuance of convertible senior notes. This was partially offset by$20.0 million used for purchases of 1.7 million shares of common stock under publicly-announced programs in earlyMarch 2020 , and$5.4 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments. Credit Facilities InJanuary 2019 , we entered into a Credit Agreement for five-year, syndicated, asset-based revolving Credit Facilities. The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to$400 million , subject to customary borrowing base limitations. The Credit Facilities expireJanuary 30, 2024 . All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.
As of
Capital Expenditures for Property and Equipment
Capital expenditures for the 39 weeks ended
38
--------------------------------------------------------------------------------
For Fiscal 2021, we expect capital expenditures to be in the range of $250
million to $275 million related to the continued support of our expansion
efforts, investments in our stores, information technology upgrades to support
growth, and investments in e-commerce. We expect to be able to fund our capital
expenditures through current cash holdings and cash generated from operations.
Stock Repurchases
During Fiscal 2019, our Board authorized the repurchase of 30.0 million shares of common stock under a new share repurchase program, which expires onFebruary 3, 2024 , bringing our total share repurchases authorization to 30.0 million shares. In Fiscal 2020, to preserve cash liquidity in response to the uncertainty created by COVID-19, the Company suspended its publicly-announced share repurchase program. The Company unsuspended its share repurchase program at the beginning of Fiscal 2021, but did not repurchase any shares under this program during the 39 weeks endedOctober 30, 2021 . In early 2020, prior to the suspension of our share repurchase program, we repurchased 1.7 million shares for$20.0 million , at a weighted average price of$11.63 per share. During the 39 weeks endedOctober 30, 2021 andOctober 31, 2020 , we repurchased approximately 0.8 million and 0.4 million shares, respectively, from certain employees at market prices totaling$24.0 million and$5.4 million , respectively. These shares were repurchased for the payment of taxes, in connection with the vesting of share-based payments, as permitted under our equity incentive plans. The aforementioned repurchased shares have been recorded at cost in treasury stock in the Consolidated Balance Sheet.
Dividends
During the 13 weeks endedJuly 31, 2021 , our Board of Directors ("Board") raised our annual dividend rate from$0.55 per share ($0.1375 per share on a quarterly basis) to$0.72 per share ($0.18 per share on a quarterly basis), a 31% increase. Additionally, our Board declared a quarterly cash dividend of$0.18 per share onSeptember 9, 2021 , which was paid onOctober 22, 2021 . Subsequent to the third quarter of Fiscal 2021, our Board declared a$0.18 per share dividend, payable onDecember 29, 2021 , to the stockholders of record at the close of business onDecember 10, 2021 . The Company maintains the right to defer the record and payment dates of its dividends, depending upon, among other factors, the progression of the COVID-19 pandemic, business performance, and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes inU.S. taxation, and other relevant factors.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and in the Notes to our Consolidated Financial Statements for the year endedJanuary 30, 2021 contained in our Fiscal 2020 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
© Edgar Online, source
