AMERICAN EAGLE OUTFITTERS INC, 10-Q filed on 5/30/2013
Quarterly Report
Document and Entity Information
3 Months Ended
May 4, 2013
May 24, 2013
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
May 04, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
AEO 
 
Entity Registrant Name
AMERICAN EAGLE OUTFITTERS INC 
 
Entity Central Index Key
0000919012 
 
Current Fiscal Year End Date
--02-01 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
192,671,985 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Current assets:
 
 
 
Cash and cash equivalents
$ 383,175 
$ 509,119 
$ 713,443 
Short-term investments
113,041 
121,873 
8,587 
Merchandise inventory
340,508 
332,452 
367,695 
Assets held for sale
4,528 
9,499 
19,039 
Accounts receivable
55,193 
46,321 
37,472 
Prepaid expenses and other
97,512 
73,805 
75,433 
Deferred income taxes
42,649 
58,230 
48,358 
Total current assets
1,036,606 
1,151,299 
1,270,027 
Property and equipment, at cost, net of accumulated depreciation
522,269 
500,134 
562,058 
Intangible assets, at cost, net of accumulated amortization
37,931 
38,136 
39,556 
Goodwill
11,434 
11,484 
11,544 
Non-current deferred income taxes
23,325 
31,282 
16,579 
Other assets
35,479 
23,718 
16,688 
Total assets
1,667,044 
1,756,053 
1,916,452 
Current liabilities:
 
 
 
Accounts payable
161,778 
176,874 
133,861 
Accrued compensation and payroll taxes
27,993 
65,533 
21,970 
Accrued rent
74,034 
77,873 
76,550 
Accrued income and other taxes
7,948 
29,155 
14,333 
Unredeemed gift cards and gift certificates
33,435 
46,458 
30,783 
Current portion of deferred lease credits
14,219 
13,381 
14,945 
Other liabilities and accrued expenses
27,728 
26,628 
25,779 
Total current liabilities
347,135 
435,902 
318,221 
Non-current liabilities:
 
 
 
Deferred lease credits
69,399 
59,571 
73,350 
Non-current accrued income taxes
19,321 
19,011 
31,806 
Other non-current liabilities
24,064 
20,382 
22,544 
Total non-current liabilities
112,784 
98,964 
127,700 
Commitments and contingencies
   
   
   
Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding
   
   
   
Common stock, $0.01 par value; 600,000 shares authorized; 249,566, 249,566 and 249,566 shares issued; 192,617, 192,604 and 195,841 shares outstanding, respectively
2,496 
2,496 
2,496 
Contributed capital
583,795 
627,065 
567,700 
Accumulated other comprehensive income
28,795 
29,297 
30,532 
Retained earnings
1,592,706 
1,553,058 
1,774,205 
Treasury stock, 56,949, 56,962 and 53,725 shares, respectively
(1,000,667)
(990,729)
(904,402)
Total stockholders' equity
1,207,125 
1,221,187 
1,470,531 
Total liabilities and stockholders' equity
$ 1,667,044 
$ 1,756,053 
$ 1,916,452 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Preferred stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000 
5,000 
5,000 
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Common stock, shares authorized
600,000 
600,000 
600,000 
Common stock, shares issued
249,566 
249,566 
249,566 
Common stock, shares outstanding
192,617 
192,604 
195,841 
Treasury stock, shares
56,949 
56,962 
53,725 
Consolidated Statements Of Operations And Retained Earnings (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Total net revenue
$ 679,477 
$ 708,695 
Cost of sales, including certain buying, occupancy and warehousing expenses
415,868 
433,782 
Gross profit
263,609 
274,913 
Selling, general and administrative expenses
182,253 
178,539 
Depreciation and amortization expense
35,539 
32,066 
Operating income
45,817 
64,308 
Other (expense) income, net
(682)
3,507 
Income before income taxes
45,135 
67,815 
Provision for income taxes
17,159 
23,780 
Income from continuing operations
27,976 
44,035 
Loss from discontinued operations, net of tax
 
(4,338)
Net income
27,976 
39,697 
Basic income per common share:
 
 
Income from continuing operations
$ 0.14 
$ 0.22 
Loss from discontinued operations
 
$ (0.02)
Net income per basic share
$ 0.14 
$ 0.20 
Diluted income per common share:
 
 
Income from continuing operations
$ 0.14 
$ 0.22 
Loss from discontinued operations
 
$ (0.02)
Net income per diluted share
$ 0.14 
$ 0.20 
Cash dividends per common share
 
$ 0.11 
Weighted average common shares outstanding-basic
192,710 
194,890 
Weighted average common shares outstanding-diluted
196,718 
197,252 
Retained earnings, beginning
1,553,058 
1,771,464 
Net income
27,976 
39,697 
Cash dividends and dividend equivalents
 
(21,945)
Reissuance of treasury stock
11,672 
(15,011)
Retained earnings, ending
$ 1,592,706 
$ 1,774,205 
Consolidated Statements Of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Net income
$ 27,976 
$ 39,697 
Other comprehensive income:
 
 
Foreign currency translation (loss) gain
(502)
1,873 
Other comprehensive (loss) income
(502)
1,873 
Comprehensive income
$ 27,474 
$ 41,570 
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Operating activities:
 
 
Net income
$ 27,976 
$ 39,697 
Loss from discontinued operations, net of tax
 
4,338 
Income from continuing operations
27,976 
44,035 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Depreciation and amortization
35,926 
32,591 
Share-based compensation
5,289 
21,299 
Provision for deferred income taxes
23,446 
(2,772)
Tax benefit from share-based payments
7,890 
4,422 
Excess tax benefit from share-based payments
(8,101)
(2,643)
Foreign currency transaction loss (gain)
640 
(145)
Changes in assets and liabilities:
 
 
Merchandise inventory
(8,375)
426 
Accounts receivable
(8,942)
2,570 
Prepaid expenses and other
(20,497)
(379)
Other assets
(12,524)
(426)
Accounts payable
(15,811)
(46,766)
Unredeemed gift cards and gift certificates
(12,981)
(14,260)
Deferred lease credits
10,752 
1,149 
Accrued compensation and payroll taxes
(37,537)
(20,577)
Accrued income and other taxes
(24,103)
(9,527)
Accrued liabilities
(1,732)
9,327 
Total adjustments
(66,660)
(25,711)
Net cash (used for) provided by operating activities
(38,684)
18,324 
Investing activities:
 
 
Capital expenditures for property and equipment
(45,657)
(24,054)
Acquisition of intangible assets
(295)
(220)
Purchase of available-for-sale securities
(15,217)
(3,051)
Sale of available-for-sale securities
23,778 
20,119 
Net cash used for investing activities
(37,391)
(7,206)
Financing activities:
 
 
Payments on capital leases
(2,564)
(923)
Repurchase of common stock as part of publicly announced programs
(33,051)
 
Repurchase of common stock from employees
(23,291)
(4,100)
Net proceeds from stock options exercised
1,523 
12,165 
Excess tax benefit from share-based payments
8,101 
2,643 
Cash dividends paid
 
(21,524)
Net cash used for financing activities
(49,282)
(11,739)
Effect of exchange rates changes on cash
(587)
960 
Cash flows of discontinued operations
 
 
Net cash used for operating activities
 
(5,664)
Net cash used for investing activities
 
(777)
Net cash used for financing activities
   
   
Effect of exchange rates changes on cash
   
   
Net cash used for discontinued operations
 
(6,441)
Net decrease in cash and cash equivalents
(125,944)
(6,102)
Cash and cash equivalents-beginning of period
509,119 
719,545 
Cash and cash equivalents-end of period
383,175 
713,443 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for income taxes
33,023 
34,782 
Cash paid during the period for interest
$ 100 
$ 33 
Interim Financial Statements
Interim Financial Statements

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at May 4, 2013 and April 28, 2012 and for the 13 week periods ended May 4, 2013 and April 28, 2012 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Fiscal 2012 Annual Report. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.

As used in this report, all references to “we,” “our” and the “Company” refer to American Eagle Outfitters, Inc. and its wholly owned subsidiaries. “American Eagle Outfitters,” “American Eagle,” “AEO” and the “AE Brand” refer to our American Eagle Outfitters stores. “aerie” refers to our aerie® by American Eagle® stores. “AEO Direct” refers to our e-commerce operations, ae.com and aerie.com. “77kids” refers to the 77kids by american eagle® stores and related e-commerce operations which the Company exited in Fiscal 2012.

The Company’s 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.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At May 4, 2013, the Company operated in one reportable segment.

In Fiscal 2012, the Company announced plans to exit the 77kids business, which included all 22 stores and related e-commerce operations. These Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented. Refer to Note 12 to the Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2013” refers to the 52 week period ending February 1, 2014. “Fiscal 2012” refers to the 53 week period ended February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, respectively.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to provide additional information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income. Because the standard only affects the presentation of comprehensive income and does not impact what is included in comprehensive income, ASU 2013-02 did not have an impact on the Company’s Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar (“CAD”) is the functional currency for our Canadian business and the Mexican Peso is the functional currency for our Mexican business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into United States dollars (“USD”) (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.

Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes royalty revenue generated from its Country License Agreements based on a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of total net revenue when earned.

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

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. 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 operation. Gross profit is the difference between total net revenue and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

 

Other (Expense) Income, Net

Other (expense) income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, Investments – Debt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”). There was no net impairment loss for investment securities recognized in earnings during the 13 weeks ended May 4, 2013 or April 28, 2012.

Cash and Cash Equivalents and Short-term Investments

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

As of May 4, 2013, short-term investments include treasury bills and term-deposits with a maturity of greater than three months, but less than one year.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time at which title and risk of loss for the merchandise transfers to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.

 

The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

Property and Equipment

Property and equipment is recorded on the basis of cost, including costs to prepare the asset for use, with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

Buildings

   25 years

Leasehold improvements

   Lesser of 10 years or the term of the lease

Fixtures and equipment

   5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded.

The Company had $4.5 million, $9.5 million and $19.0 million of long-lived assets held-for-sale as of May 4, 2013, February 2, 2013 and April 28, 2012, respectively. The $19.0 million of long-lived assets held for sale as of April 28, 2012 includes $9.0 million of merchandise inventory related to 77kids in addition to other long-lived corporate assets. There were no inventory balances for 77kids included in assets held-for-sale as of May 4, 2013 or February 2, 2013.

These long-lived corporate assets held-for-sale are recorded at their estimated net realizable value, less disposal costs. The Company believes it is probable that these assets will be sold within one year.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment and Note 12 for additional information regarding 77 kids as a discontinued operation.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 2, 2013. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in the 13 weeks ended May 4, 2013 or April 28, 2012.

 

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

Gift Cards

The value of a gift card is recorded as a current liability upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During both of the 13 weeks ended May 4, 2013 and April 28, 2012, the Company recorded $1.9 million of revenue related to gift card breakage.

Deferred Lease Credits

Deferred lease credits represent the unamortized portion of construction allowances received from landlords related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Co-branded Credit Card and Customer Loyalty Program

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”). These credit cards are issued by a third-party bank (the “Bank”), and the Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE or aerie purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. These rewards can be redeemed for a discount on a purchase of merchandise. Rewards not redeemed during the one-month redemption period are forfeited. The Company determined that rewards earned using the Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified three operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

 

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Cash and Cash Equivalents and Short-term Investments
Cash and Cash Equivalents and Short-term Investments

3. Cash and Cash Equivalents and Short-term Investments

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded on the Consolidated Balance Sheets:

 

(In thousands)    May 4,
2013
     February 2,
2013
     April 28,
2012
 

Cash and cash equivalents:

        

Cash

   $ 302,188       $ 257,191       $ 625,398   

Money-market

     54,954         221,929         51,915   

Commercial paper

     20,000         29,999         19,999   

Treasury bills

     6,033         —           16,131   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 383,175       $ 509,119       $ 713,443   

Short-term investments:

        

Treasury bills

   $ 103,144       $ 109,305       $ 3,087   

Term-deposits

     9,897         12,568         —     

State and local government ARS

     —           —           5,500   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 113,041       $ 121,873       $ 8,587   
  

 

 

    

 

 

    

 

 

 

Total

   $ 496,216       $ 630,992       $ 722,030   
  

 

 

    

 

 

    

 

 

 

Proceeds from the sale of investments were $23.8 million and $20.1 million for the 13 weeks ended May 4, 2013 and April 28, 2012, respectively. The purchase of investments was $15.2 million and $3.1 million for the 13 weeks ended May 4, 2013 and April 28, 2012, respectively.

Fair Value Measurements
Fair Value Measurements

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures (“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 for identical assets or liabilities.

 

   

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

   

Level 3 — Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of May 4, 2013 and April 28, 2012, the Company held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and short-term investments.

 

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of May 4, 2013 and April 28, 2012:

 

     Fair Value Measurements at May 4, 2013  
(In thousands)    Carrying
Amount
     Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 302,188       $ 302,188       $  —         $  —     

Money-market

     54,954         54,954         —           —     

Commercial paper

     20,000         20,000         —           —     

Treasury bills

     6,033         6,033         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 383,175       $ 383,175       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 103,144       $ 103,144       $ —         $ —     

Term-deposits

     9,897         9,897         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 113,041       $ 113,041       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 496,216       $ 496,216       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at April 28, 2012  
(In thousands)    Carrying
Amount
     Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level
3)
 

Cash and cash equivalents:

           

Cash

   $ 625,398       $ 625,398       $  —         $ —     

Money-market

     51,915         51,915         —           —     

Commercial paper

     19,999         19,999         —           —     

Treasury bills

     16,131         16,131         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 713,443       $ —         $ —     

Short-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $  5,500   

Treasury bills

     3,087         3,087         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 3,087       $ —         $ 5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 722,030       $ 716,530       $ —         $ 5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company uses a discounted cash flow model to value its Level 3 investments. There were no Level 3 investments at May 4, 2013. At April 28, 2012, the assumptions in the Company’s model for Level 3 investments, included a recovery period of two months, a discount factor for yield of 0.1% and illiquidity of 0.5%. These assumptions are subjective. They are based on the Company’s current judgment and its view of current market conditions. The use of different reasonable assumptions would not result in a material change to the valuation.

As a result of the discounted cash flow analysis, no impairment loss was recorded for the 13 weeks ended April 28, 2012.

 

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the 13 weeks ended April 28, 2012 is as follows:

 

     Level 3 (Unobservable inputs)  
(In thousands)    Total      Auction-Rate
Municipal
Securities
 

Carrying value at January 28, 2012

   $ 5,500       $ 5,500   

Settlements

     —           —     
  

 

 

    

 

 

 

Balance at April 28, 2012

   $ 5,500       $ 5,500   
  

 

 

    

 

 

 

Non-Financial Assets

The Company’s non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. As a result of the Company’s annual goodwill impairment test performed as of February 2, 2013, the Company concluded that its goodwill was not impaired.

Earnings per Share
Earnings per Share

5. Earnings per Share

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended  
(In thousands)    May 4,      April 28,  
   2013      2012  

Weighted average common shares outstanding:

     

Basic number of common shares outstanding

     192,710         194,890   

Dilutive effect of stock options and non-vested restricted stock

     4,008         2,362   
  

 

 

    

 

 

 

Diluted number of common shares outstanding

     196,718         197,252   
  

 

 

    

 

 

 

Equity awards to purchase approximately 1.0 million shares of common stock during the 13 weeks ended May 4, 2013 and approximately 7.7 million shares of common stock during the 13 weeks ended April 28, 2012, respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would be anti-dilutive.

There were approximately 0.8 million shares for the 13 weeks ended May 4, 2013 and approximately 0.9 million shares for the 13 weeks ended April 28, 2012 of restricted stock units that were outstanding, but not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive. Additionally, approximately 0.6 million shares of restricted stock units for the 13 weeks ended May 4, 2013 were not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on the Company’s performance compared to pre-established annual performance goals.

Refer to Note 9 to the Consolidated Financial Statements for additional information regarding share-based compensation.

Property and Equipment
Property and Equipment

6. Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    May 4,     February 2,     April 28,  
   2013     2013     2012  

Property and equipment, at cost

   $ 1,452,191      $ 1,417,933      $ 1,444,394   

Less: Accumulated depreciation

     (929,922     (917,799     (882,336
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 522,269      $ 500,134      $ 562,058   
  

 

 

   

 

 

   

 

 

 
Intangible Assets
Intangible Assets

7. Intangible Assets

Intangible assets consist of the following:

 

(In thousands)    May 4,     February 2,     April 28,  
   2013     2013     2012  

Trademarks, at cost

   $ 44,561      $ 44,272      $ 44,362   

Less: Accumulated amortization

     (6,630     (6,136     (4,806
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 37,931      $ 38,136      $ 39,556   
  

 

 

   

 

 

   

 

 

 
Other Credit Arrangements
Other Credit Arrangements

8. Other Credit Arrangements

In Fiscal 2012, the Company entered into a five-year, $150.0 million syndicated, unsecured, revolving credit agreement (the “Credit Agreement”). The primary purpose of the Credit Agreement is to provide additional access to capital for general corporate purposes, growth initiatives and the issuance of letters of credit.

The Credit Agreement contains financial covenants that require the Company to maintain certain coverage and leverage ratios, and various customary affirmative and negative covenants such as the ability to incur additional debt not otherwise permitted under the Credit Agreement.

The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate (“LIBOR” as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly.

Under the Credit Agreement, the Company is also required to pay a commitment fee ranging from 0.175% to 0.30%, based on the defined leverage ratio, on the unused portion of the total lender commitments.

As of May 4, 2013, the Company was in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in letters of credit and no borrowings.

The Credit Agreement replaced uncommitted demand lines in the aggregate amount of $110.0 million USD and $25.0 million CAD.

Additionally, the Company has borrowing agreements with two separate financial institutions under which it may borrow an aggregate of $135.0 million USD for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions.

As of May 4, 2013, the Company had outstanding trade letters of credit of $28.1 million.

Share-Based Compensation
Share-Based Compensation

9. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires companies to measure and recognize compensation expense for all share-based payments at fair value. Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 weeks ended May 4, 2013 and April 28, 2012 was $5.3 million ($3.3 million, net of tax) and $21.3 million ($13.1 million, net of tax), respectively.

Stock Option Grants

The Company grants both time-based and performance-based stock options under its 2005 Stock Award and Incentive Plan. Time-based stock option awards vest over the requisite service period of the award or to an employee’s eligible retirement date, if earlier. Performance-based stock option awards vest over one year and are earned if the Company meets pre-established performance goals.

 

A summary of the Company’s stock option activity for the 13 weeks ended May 4, 2013 follows:

 

           Weighted-
Average
     Weighted-
Average
Remaining
Contractual
     Aggregate  
   Options     Exercise Price      Term      Intrinsic Value  
     (In thousands)            (In years)      (In thousands)  

Outstanding—February 2, 2013

     4,629      $ 16.29         

Granted

     376      $ 22.55         

Exercised (1)

     (107   $ 14.29         

Cancelled

     (12   $ 22.15         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding—May 4, 2013

     4,886      $ 16.80         3.4       $ 16,531   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest—May 4, 2013

     4,807      $ 16.80         3.3       $ 16,053   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable—May 4, 2013 (2)

     2,443      $ 13.26         3.6       $ 8,751   

 

(1) Options exercised during the 13 weeks ended May 4, 2013 had exercise prices ranging from $4.24 to $19.28.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted-average exercise price of vested options compared to the Company’s stock price at May 4, 2013.

The weighted-average grant date fair value of stock options granted during the 13 weeks ended May 4, 2013 was $3.42. The aggregate intrinsic value of options exercised during the 13 weeks ended May 4, 2013 and April 28, 2012 was $0.5 million and $13.1 million, respectively.

Cash received from the exercise of stock options was $1.5 million for the 13 weeks ended May 4, 2013 and $12.2 million for the 13 weeks ended April 28, 2012. The actual tax benefit realized from stock option exercises totaled $8.1 million for the 13 weeks ended May 4, 2013 and $2.6 million for the 13 weeks ended April 28, 2012.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     13 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   May 4,     April 28,  
   2013     2012  

Risk-free interest rate (1)

     0.3     0.6

Dividend yield

     2.0     2.8

Volatility factor (2)

     34.4     41.2

Weighted-average expected term (3)

     2.5 years        4.0 years   

Expected forfeiture rate (4)

     8.0     8.0

 

(1) Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.
(2) Based on a combination of historical volatility of the Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

As of May 4, 2013, there was $1.8 million of unrecognized compensation expense related to non-vested time-based stock option awards that is expected to be recognized over a weighted average period of 1.5 years.

Restricted Stock Grants

Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years; however, they may be accelerated to vest over one year if the Company meets pre-established performance goals in the year of grant. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

 

Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

The grant date fair value of all restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
     13 Weeks Ended      13 Weeks Ended  
     May 4, 2013      May 4, 2013  
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested—February 2, 2013

     1,386      $ 13.91         2,086      $ 14.91   

Granted

     846        22.47         814        21.01   

Vested

     (966     13.55         (566     17.39   

Cancelled

     (37     14.84         (4     14.65   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested—May 4, 2013

     1,229      $ 20.05         2,330      $ 16.78   

As of May 4, 2013, there was $21.3 million of unrecognized compensation expense related to non-vested time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.7 years. Additionally, there was $23.0 million of unrecognized compensation expense related to performance-based restricted stock unit awards which will be recognized as achievement of performance goals that is probable over a one to three year period.

As of May 4, 2013, the Company had 17.8 million shares available for all equity grants.

Income Taxes
Income Taxes

10. Income Taxes

The provision for income taxes from continuing operations 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 from continuing operations based on actual operating results for the 13 weeks ended May 4, 2013 was 38.0% compared to 35.1% for the 13 weeks ended April 28, 2012. The lower effective income tax rate for the 13 weeks ended April 28, 2012 was primarily due to state income tax settlements and proceeds on the sale of certain ARS investments for which no income tax expense was recognized.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as the result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended May 4, 2013 or April 28, 2012. Over the next twelve months the Company does not anticipate any significant changes to unrecognized tax benefits

Legal Proceedings
Legal Proceedings

11. Legal Proceedings

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), management records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position or results of operations of the Company.

Discontinued Operations
Discontinued Operations

12. Discontinued Operations

During Fiscal 2012, the Company exited the 77kids business which included all 22 stores and related e-commerce operations. These Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented.

Additionally, the third party purchaser assumed certain liabilities associated with the 77kids business and paid the Company an amount equal to 65% of the cost of the acquired inventory. A $9.0 million inventory balance for 77kids has been recorded as a component of assets held-for-sale on the Company’s Consolidated Balance Sheets as of April 28, 2012. There were no inventory balances for 77kids included in assets held-for-sale as of May 4, 2013 or February 2, 2013.

In connection with the exit of the 77kids business, the Company is secondarily liable for obligations under the lease agreements for 21 store leases assumed by the third party purchaser. These obligations will remain in effect until the leases expire through 2022, unless the Company otherwise is released by the applicable landlord. In the event that the third party purchaser does not fulfill its obligations under any of the leases and the Company is required to make any such payments, the Company would seek full reimbursement from the third party purchaser in accordance with the asset purchase agreement. The third party purchaser has provided a stand-by letter of credit to the Company in order to secure payment of obligations under the leases.

In accordance with ASC 460, Guarantees (“ASC 460”), as we became secondarily liable under the leases at the time that we transferred them to the third party, no amounts have been accrued in our Consolidated Financial Statements related to these guarantees.

The table below presents the significant components of 77kids’ results included in Loss from Discontinued Operations on the Consolidated Statement of Operations for the 13 weeks ended April 28, 2012:

 

     13 Weeks
Ended
 
(In thousands)    April 28,
2012
 

Total net revenue

   $ 10,398   

Loss from discontinued operations, before income taxes

     (7,048

Income tax benefit

     2,710   
  

 

 

 

Loss from discontinued operations, net of tax

   ($ 4,338

Loss per common share from discontinued operations:

  

Basic

     (0.02

Diluted

     (0.02

There were no assets or liabilities included in the Consolidated Balance Sheets for 77kids as of May 4, 2013 or February 2, 2013. The major classes of assets and liabilities included in the Consolidated Balance Sheet for 77kids as of April 28, 2012 are as follows:

 

(In thousands)    April 28,
2012
 

Current assets

   $ 10,077   

Non-current assets

     15,647   
  

 

 

 

Total assets (1)

   $ 25,724   
  

 

 

 

Total current liabilities

   $ 6,166   

Total non-current liabilities

     2,686   
  

 

 

 

Total liabilities

   $ 8,852   
  

 

 

 

 

(1) Current assets primarily relate to merchandise inventory classified as an asset held-for-sale on the Company’s Consolidated Balance Sheets. Non-current assets relate primarily to property and equipment at cost, net of, accumulated depreciation.
Acquisitions and Dispositions
Acquisitions and Dispositions

13. Acquisitions and Dispositions

Effective February 4, 2013, the Company mutually terminated its store license agreement (the “Agreement”) with Dickson Concepts (International) Limited (“Dickson”) for Hong Kong, Macau, China and other designated territories in Asia (the “Territory”).

Pursuant to an amendment to the Agreement, the Company paid to Dickson $10.0 million USD to terminate their right to open additional stores in the Territory, beyond the six existing American Eagle Outfitters stores in Hong Kong and China (the “Six Stores”).

A separate agreement, dated February 4, 2013 (the “Termination Agreement”), terminates all of Dickson’s remaining rights under the Agreement. Under the Termination Agreement, the Company will acquire the Six Stores and related assets operated by Dickson. It is anticipated that the Company will pay Dickson approximately $11.0 million USD under the Termination Agreement, subject to adjustments. The Company entered into the Termination Agreement in order to further support its long-term global expansion strategy.

This transaction is expected to close, following completion of customary conditions, in the second quarter of Fiscal 2013. The $10.0 million USD amount paid to Dickson for the termination of their rights is recorded as a long-term asset within other assets on the Company’s Consolidated Balance Sheet as of May 4, 2013.

Summary of Significant Accounting Policies (Policies)

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At May 4, 2013, the Company operated in one reportable segment.

In Fiscal 2012, the Company announced plans to exit the 77kids business, which included all 22 stores and related e-commerce operations. These Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented. Refer to Note 12 to the Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2013” refers to the 52 week period ending February 1, 2014. “Fiscal 2012” refers to the 53 week period ended February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, respectively.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to provide additional information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income. Because the standard only affects the presentation of comprehensive income and does not impact what is included in comprehensive income, ASU 2013-02 did not have an impact on the Company’s Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar (“CAD”) is the functional currency for our Canadian business and the Mexican Peso is the functional currency for our Mexican business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into United States dollars (“USD”) (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.

Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes royalty revenue generated from its Country License Agreements based on a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of total net revenue when earned.

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

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. 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 operation. Gross profit is the difference between total net revenue and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, InvestmentsDebt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”). There was no net impairment loss for investment securities recognized in earnings during the 13 weeks ended May 4, 2013 or April 28, 2012.

Cash and Cash Equivalents and Short-term Investments

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

As of May 4, 2013, short-term investments include treasury bills and term-deposits with a maturity of greater than three months, but less than one year.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time at which title and risk of loss for the merchandise transfers to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.

 

The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

Property and Equipment

Property and equipment is recorded on the basis of cost, including costs to prepare the asset for use, with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

Buildings

   25 years

Leasehold improvements

   Lesser of 10 years or the term of the lease

Fixtures and equipment

   5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded.

The Company had $4.5 million, $9.5 million and $19.0 million of long-lived assets held-for-sale as of May 4, 2013, February 2, 2013 and April 28, 2012, respectively. The $19.0 million of long-lived assets held for sale as of April 28, 2012 includes $9.0 million of merchandise inventory related to 77kids in addition to other long-lived corporate assets. There were no inventory balances for 77kids included in assets held-for-sale as of May 4, 2013 or February 2, 2013.

These long-lived corporate assets held-for-sale are recorded at their estimated net realizable value, less disposal costs. The Company believes it is probable that these assets will be sold within one year.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment and Note 12 for additional information regarding 77 kids as a discontinued operation.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 2, 2013. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in the 13 weeks ended May 4, 2013 or April 28, 2012.

 

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

Gift Cards

The value of a gift card is recorded as a current liability upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During both of the 13 weeks ended May 4, 2013 and April 28, 2012, the Company recorded $1.9 million of revenue related to gift card breakage.

Deferred Lease Credits

Deferred lease credits represent the unamortized portion of construction allowances received from landlords related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Co-branded Credit Card and Customer Loyalty Program

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”). These credit cards are issued by a third-party bank (the “Bank”), and the Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE or aerie purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. These rewards can be redeemed for a discount on a purchase of merchandise. Rewards not redeemed during the one-month redemption period are forfeited. The Company determined that rewards earned using the Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified three operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Summary of Significant Accounting Policies (Tables)
Useful Lives of Major Classes of Assets

The useful lives of our major classes of assets are as follows:

 

Buildings

   25 years

Leasehold improvements

   Lesser of 10 years or the term of the lease

Fixtures and equipment

   5 years
Cash and Cash Equivalents and Short-term Investments (Tables)
Fair Market Values for Cash and Marketable Securites

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded on the Consolidated Balance Sheets:

 

(In thousands)    May 4,
2013
     February 2,
2013
     April 28,
2012
 

Cash and cash equivalents:

        

Cash

   $ 302,188       $ 257,191       $ 625,398   

Money-market

     54,954         221,929         51,915   

Commercial paper

     20,000         29,999         19,999   

Treasury bills

     6,033         —           16,131   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 383,175       $ 509,119       $ 713,443   

Short-term investments:

        

Treasury bills

   $ 103,144       $ 109,305       $ 3,087   

Term-deposits

     9,897         12,568         —     

State and local government ARS

     —           —           5,500   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 113,041       $ 121,873       $ 8,587   
  

 

 

    

 

 

    

 

 

 

Total

   $ 496,216       $ 630,992       $ 722,030   
  

 

 

    

 

 

    

 

 

 
Fair Value Measurements (Tables)

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of May 4, 2013 and April 28, 2012:

 

     Fair Value Measurements at May 4, 2013  
(In thousands)    Carrying
Amount
     Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 302,188       $ 302,188       $  —         $  —     

Money-market

     54,954         54,954         —           —     

Commercial paper

     20,000         20,000         —           —     

Treasury bills

     6,033         6,033         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 383,175       $ 383,175       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 103,144       $ 103,144       $ —         $ —     

Term-deposits

     9,897         9,897         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 113,041       $ 113,041       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 496,216       $ 496,216       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at April 28, 2012  
(In thousands)    Carrying
Amount
     Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level
3)
 

Cash and cash equivalents:

           

Cash

   $ 625,398       $ 625,398       $  —         $ —     

Money-market

     51,915         51,915         —           —     

Commercial paper

     19,999         19,999         —           —     

Treasury bills

     16,131         16,131         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 713,443       $ —         $ —     

Short-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $  5,500   

Treasury bills

     3,087         3,087         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 3,087       $ —         $ 5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 722,030       $ 716,530       $ —         $ 5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the 13 weeks ended April 28, 2012 is as follows:

 

     Level 3 (Unobservable inputs)  
(In thousands)    Total      Auction-Rate
Municipal
Securities
 

Carrying value at January 28, 2012

   $ 5,500       $ 5,500   

Settlements

     —           —     
  

 

 

    

 

 

 

Balance at April 28, 2012

   $ 5,500       $ 5,500   
  

 

 

    

 

 

 
Earnings per Share (Tables)
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended  
(In thousands)    May 4,      April 28,  
   2013      2012  

Weighted average common shares outstanding:

     

Basic number of common shares outstanding

     192,710         194,890   

Dilutive effect of stock options and non-vested restricted stock

     4,008         2,362   
  

 

 

    

 

 

 

Diluted number of common shares outstanding

     196,718         197,252   
  

 

 

    

 

 

 
Property and Equipment (Tables)
Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    May 4,     February 2,     April 28,  
   2013     2013     2012  

Property and equipment, at cost

   $ 1,452,191      $ 1,417,933      $ 1,444,394   

Less: Accumulated depreciation

     (929,922     (917,799     (882,336
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 522,269      $ 500,134      $ 562,058   
  

 

 

   

 

 

   

 

 

 
Intangible Assets (Tables)
Intangible Assets

Intangible assets consist of the following:

 

(In thousands)    May 4,     February 2,     April 28,  
   2013     2013     2012  

Trademarks, at cost

   $ 44,561      $ 44,272      $ 44,362   

Less: Accumulated amortization

     (6,630     (6,136     (4,806
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 37,931      $ 38,136      $ 39,556   
  

 

 

   

 

 

   

 

 

 
Share-Based Compensation (Tables)

A summary of the Company’s stock option activity for the 13 weeks ended May 4, 2013 follows:

 

           Weighted-
Average
     Weighted-
Average
Remaining
Contractual
     Aggregate  
   Options     Exercise Price      Term      Intrinsic Value  
     (In thousands)            (In years)      (In thousands)  

Outstanding—February 2, 2013

     4,629      $ 16.29         

Granted

     376      $ 22.55         

Exercised (1)

     (107   $ 14.29         

Cancelled

     (12   $ 22.15         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding—May 4, 2013

     4,886      $ 16.80         3.4       $ 16,531   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest—May 4, 2013

     4,807      $ 16.80         3.3       $ 16,053   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable—May 4, 2013 (2)

     2,443      $ 13.26         3.6       $ 8,751   

 

(1) Options exercised during the 13 weeks ended May 4, 2013 had exercise prices ranging from $4.24 to $19.28.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted-average exercise price of vested options compared to the Company’s stock price at May 4, 2013.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     13 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   May 4,     April 28,  
   2013     2012  

Risk-free interest rate (1)

     0.3     0.6

Dividend yield

     2.0     2.8

Volatility factor (2)

     34.4     41.2

Weighted-average expected term (3)

     2.5 years        4.0 years   

Expected forfeiture rate (4)

     8.0     8.0

 

(1) Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.
(2) Based on a combination of historical volatility of the Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
     13 Weeks Ended      13 Weeks Ended  
     May 4, 2013      May 4, 2013  
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested—February 2, 2013

     1,386      $ 13.91         2,086      $ 14.91   

Granted

     846        22.47         814        21.01   

Vested

     (966     13.55         (566     17.39   

Cancelled

     (37     14.84         (4     14.65   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested—May 4, 2013

     1,229      $ 20.05         2,330      $ 16.78   

Discontinued Operations (Tables)

The table below presents the significant components of 77kids’ results included in Loss from Discontinued Operations on the Consolidated Statement of Operations for the 13 weeks ended April 28, 2012:

 

     13 Weeks
Ended
 
(In thousands)    April 28,
2012
 

Total net revenue

   $ 10,398   

Loss from discontinued operations, before income taxes

     (7,048

Income tax benefit

     2,710   
  

 

 

 

Loss from discontinued operations, net of tax

   ($ 4,338

Loss per common share from discontinued operations:

  

Basic

     (0.02

Diluted

     (0.02

There were no assets or liabilities included in the Consolidated Balance Sheets for 77kids as of May 4, 2013 or February 2, 2013. The major classes of assets and liabilities included in the Consolidated Balance Sheet for 77kids as of April 28, 2012 are as follows:

 

(In thousands)    April 28,
2012
 

Current assets

   $ 10,077   

Non-current assets

     15,647   
  

 

 

 

Total assets (1)

   $ 25,724   
  

 

 

 

Total current liabilities

   $ 6,166   

Total non-current liabilities

     2,686   
  

 

 

 

Total liabilities

   $ 8,852   
  

 

 

 

 

(1) Current assets primarily relate to merchandise inventory classified as an asset held-for-sale on the Company’s Consolidated Balance Sheets. Non-current assets relate primarily to property and equipment at cost, net of, accumulated depreciation.
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended
May 4, 2013
Segment
Apr. 28, 2012
Feb. 2, 2013
Significant Accounting Policies [Line Items]
 
 
 
Number of reportable segments
 
 
Assets Held-for-sale, Long Lived
$ 4,500,000 
$ 19,000,000 
$ 9,500,000 
Assets held for sale
4,528,000 
19,039,000 
9,499,000 
Finite-lived impairment charges
 
Revenue related to gift card breakage
1,900,000 
1,900,000 
 
77kids stores
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
Assets held for sale
9,000,000 
Investment Securities
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
Net impairment loss recognized in earnings
$ 0 
$ 0 
 
Minimum
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
Finite lived intangibles, useful life
15 years 
 
 
Maximum
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
Finite lived intangibles, useful life
25 years 
 
 
Useful Lives of Major Classes of Assets (Detail)
3 Months Ended
May 4, 2013
Buildings
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
25 years 
Leasehold Improvements
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
Lesser of 10 years or the term of the lease 
Fixtures and equipment
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
5 years 
Useful Lives of Major Classes of Assets (Parenthetical) (Detail) (Maximum, Leasehold Improvements)
3 Months Ended
May 4, 2013
Maximum |
Leasehold Improvements
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
10 years 
Fair Market Values for Cash and Marketable Securities (Detail) (USD $)
In Thousands, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Jan. 28, 2012
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
$ 383,175 
$ 509,119 
$ 713,443 
$ 719,545 
Short-term investments:
 
 
 
 
Short-term investments
113,041 
121,873 
8,587 
 
Fair Value, Measurements, Recurring
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
383,175 
509,119 
713,443 
 
Short-term investments:
 
 
 
 
Short-term investments
113,041 
121,873 
8,587 
 
Total
496,216 
630,992 
722,030 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
302,188 
257,191 
625,398 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
54,954 
221,929 
51,915 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
20,000 
29,999 
19,999 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
6,033 
 
16,131 
 
Short-term investments:
 
 
 
 
Short-term investments
103,144 
109,305 
3,087 
 
Fair Value, Measurements, Recurring |
Term-deposits
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
9,897 
12,568 
 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
$ 5,500 
 
Cash and Cash Equivalents and Short-term Investments - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Schedule of Available-for-sale Securities [Line Items]
 
 
Proceeds from sale of available-for-sale securities
$ 23,778 
$ 20,119 
Purchase of available-for-sale securities
$ 15,217 
$ 3,051 
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on Recurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Jan. 28, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
$ 383,175 
$ 509,119 
$ 713,443 
$ 719,545 
Short-term investments
113,041 
121,873 
8,587 
 
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
383,175 
509,119 
713,443 
 
Short-term investments
113,041 
121,873 
8,587 
 
Total
496,216 
630,992 
722,030 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
302,188 
257,191 
625,398 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
54,954 
221,929 
51,915 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
20,000 
29,999 
19,999 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
6,033 
 
16,131 
 
Short-term investments
103,144 
109,305 
3,087 
 
Fair Value, Measurements, Recurring |
Term-deposits
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
9,897 
12,568 
 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
5,500 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
383,175 
 
713,443 
 
Short-term investments
113,041 
 
3,087 
 
Total
496,216 
 
716,530 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
302,188 
 
625,398 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
54,954 
 
51,915 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
20,000 
 
19,999 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
6,033 
 
16,131 
 
Short-term investments
103,144 
 
3,087 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Term-deposits
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
9,897 
 
 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
5,500 
 
Total
 
 
5,500 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
$ 5,500 
 
Fair Value Measurements - Additional Information (Detail) (Significant Unobservable Inputs (Level 3))
3 Months Ended
Apr. 28, 2012
Fair Value, Measurement Inputs, Disclosure [Line Items]
 
Discounted cash flow model to value Level 3 investments, assumptions, illiquidity
0.50% 
Maximum
 
Fair Value, Measurement Inputs, Disclosure [Line Items]
 
Discounted cash flow model to value Level 3 investments, assumptions, recovery period
2 months 
Discounted cash flow model to value Level 3 investments, assumptions, discount yield
0.10% 
Reconciliation of Assets Measured at Fair Value On Recurring Basis Using Unobservable Inputs (Level 3) (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
May 4, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Beginning Balance
$ 5,500 
Settlements
   
Ending Balance
5,500 
ARS |
State and local government
 
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Beginning Balance
5,500 
Settlements
   
Ending Balance
$ 5,500 
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding (Detail)
In Thousands, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Weighted average common shares outstanding:
 
 
Basic number of common shares outstanding
192,710 
194,890 
Dilutive effect of stock options and non-vested restricted stock
4,008 
2,362 
Diluted number of common shares outstanding
196,718 
197,252 
Earnings per Share - Additional Information (Detail)
In Millions, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Outstanding Stock Awards
 
 
Earnings Per Share Disclosure [Line Items]
 
 
Shares that were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive
1.0 
7.7 
Restricted Stock Units (RSUs)
 
 
Earnings Per Share Disclosure [Line Items]
 
 
Shares that were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive
0.8 
0.9 
Shares of restricted stock units not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on performance
0.6 
 
Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, at cost
$ 1,452,191 
$ 1,417,933 
$ 1,444,394 
Less: Accumulated depreciation
(929,922)
(917,799)
(882,336)
Property and equipment, net
$ 522,269 
$ 500,134 
$ 562,058 
Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Finite-Lived Intangible Assets [Line Items]
 
 
 
Trademarks, at cost
$ 44,561 
$ 44,272 
$ 44,362 
Less: Accumulated amortization
(6,630)
(6,136)
(4,806)
Intangible assets, net
$ 37,931 
$ 38,136 
$ 39,556 
Other Credit Arrangements - Additional Information (Detail)
In Millions, unless otherwise specified
12 Months Ended 12 Months Ended
May 4, 2013
Entity
May 4, 2013
Demand letter of credit facilities
USD ($)
May 4, 2013
Demand letter of credit facilities
CAD ($)
May 4, 2013
Trade Letter of Credit
USD ($)
Feb. 2, 2013
Unsecured Revolving Credit Facility
USD ($)
May 4, 2013
Unsecured Revolving Credit Facility
USD ($)
Feb. 2, 2013
Unsecured Revolving Credit Facility
LIBOR
Minimum
Feb. 2, 2013
Unsecured Revolving Credit Facility
LIBOR
Maximum
Feb. 2, 2013
Unsecured Revolving Credit Facility
Base Rate
Minimum
Feb. 2, 2013
Unsecured Revolving Credit Facility
Base Rate
Maximum
Debt Disclosure [Line Items]
 
 
 
 
 
 
 
 
 
 
Line of credit facility, expiration period
 
 
 
 
5 years 
 
 
 
 
 
Borrowing agreements with financial institutions
 
$ 135.0 
 
 
$ 150.0 
 
 
 
 
 
Credit facility interest rate description
 
 
 
 
The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate ("LIBOR" as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly. 
 
 
 
 
 
Frequency of payments for interest on borrowing
 
 
 
 
Quarterly 
 
 
 
 
 
Interest rate margin
 
 
 
 
 
 
1.00% 
1.75% 
0.00% 
0.75% 
Commitment fee payable on the unused portion of total lender commitments
 
 
 
 
 
 
 
 
0.175% 
0.30% 
Letters of credit outstanding amount
 
 
 
 
 
7.9 
 
 
 
 
Borrowings
 
 
 
 
 
 
 
 
 
Borrowing agreements with financial institutions
 
110.0 
25.0 
 
 
 
 
 
 
 
Borrowing agreements, number of financial institutions
 
 
 
 
 
 
 
 
 
Outstanding borrowings
 
 
 
$ 28.1 
 
 
 
 
 
 
Share-Based Payments - Additional Information (Detail) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Share-based compensation expense
$ 5,289,000 
$ 21,299,000 
Share-based compensation expense, net of tax
3,300,000 
13,100,000 
Weighted-average grant date fair value of stock options granted
$ 3.42 
 
Aggregate intrinsic value of options exercised
500,000 
13,100,000 
Cash received from the exercise of stock options
1,523,000 
12,165,000 
Tax benefit realized from stock option exercises
8,100,000 
2,600,000 
Shares available for all equity grants
17.8 
 
Stock Options
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense
1,800,000 
 
Unrecognized compensation expense, weighted average period
1 year 6 months 
 
Time Based Restricted Stock Units
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense, weighted average period
1 year 8 months 12 days 
 
Vesting period
3 years 
 
Unrecognized compensation expense
21,300,000 
 
Performance-Based Restricted Stock Units
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Vesting period
3 years 
 
Unrecognized compensation expense
$ 23,000,000 
 
Performance-Based Restricted Stock Units |
Minimum
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense, weighted average period
1 year 
 
Performance-Based Restricted Stock Units |
Maximum
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense, weighted average period
3 years 
 
Summary of Stock Option Activity (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
May 4, 2013
Options
 
Outstanding - beginning of period
4,629 
Granted
376 
Exercised
(107)1
Cancelled
(12)
Outstanding- end of period
4,886 
Vested and expected to vest-end of period
4,807 
Exercisable-end of period
2,443 2
Weighted-Average Exercise Price
 
Outstanding-beginning of period
$ 16.29 
Granted
$ 22.55 
Exercised
$ 14.29 1
Cancelled
$ 22.15 
Outstanding-end of period
$ 16.80 
Vested and expected to vest-end of period
$ 16.80 
Exercisable-end of period
$ 13.26 2
Weighted-Average Remaining Contractual Term (In years)
 
Outstanding-end of period
3 years 4 months 24 days 
Vested and expected to vest-end of period
3 years 3 months 18 days 
Exercisable-end of period
3 years 7 months 6 days 2
Aggregate Intrinsic Value
 
Outstanding-end of period
$ 16,531 
Vested and expected to vest-end of period
16,053 
Exercisable-end of period
$ 8,751 2
Summary of Stock Option Activity (Parenthetical) (Detail)
3 Months Ended
May 4, 2013
Schedule of Share based Compensation Arrangements by Share based Payment Award, Performance Options [Line Items]
 
Options exercised, exercise price range, lower limit
$ 4.24 
Options exercised, exercise price range, upper limit
$ 19.28 
Black-Scholes Option Valuation Assumptions (Detail)
3 Months Ended
May 4, 2013
Apr. 28, 2012
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
 
 
Risk-free interest rate
0.30% 1
0.60% 1
Dividend yield
2.00% 
2.80% 
Volatility factor
34.40% 2
41.20% 2
Weighted-average expected term
2 years 6 months 3
4 years 3
Expected forfeiture rate
8.00% 4
8.00% 4
Summary of Restricted Stock Activity (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
May 4, 2013
Time Based Restricted Stock Units
 
Shares
 
Nonvested - beginning of period
1,386 
Granted
846 
Vested
(966)
Cancelled/Forfeited
(37)
Nonvested - End of period
1,229 
Weighted-Average Grant Date Fair Value
 
Nonvested - beginning of period
$ 13.91 
Granted
$ 22.47 
Vested
$ 13.55 
Canceled/Forfeited
$ 14.84 
Nonvested - end of period
$ 20.05 
Performance-Based Restricted Stock Units
 
Shares
 
Nonvested - beginning of period
2,086 
Granted
814 
Vested
(566)
Cancelled/Forfeited
(4)
Nonvested - End of period
2,330 
Weighted-Average Grant Date Fair Value
 
Nonvested - beginning of period
$ 14.91 
Granted
$ 21.01 
Vested
$ 17.39 
Canceled/Forfeited
$ 14.65 
Nonvested - end of period
$ 16.78 
Income Taxes - Additional Information (Detail)
3 Months Ended
May 4, 2013
Apr. 28, 2012
Income Taxes [Line Items]
 
 
Effective income tax rate from continuing operations
38.00% 
35.10% 
Discontinued Operations - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
May 4, 2013
77kids stores
Feb. 2, 2013
77kids stores
Apr. 28, 2012
77kids stores
Feb. 2, 2013
Discontinued Operations
Store
Feb. 2, 2013
Discontinued Operations
77kids stores
Store
May 4, 2013
Segment, Discontinued Operations
77kids stores
Feb. 2, 2013
Segment, Discontinued Operations
77kids stores
Apr. 28, 2012
Segment, Discontinued Operations
77kids stores
Restructuring Cost and Reserve [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Number of stores impaired
 
 
 
 
 
 
 
22 
 
 
 
Percentage of cost paid for acquired inventory
 
 
 
 
 
 
 
 
 
65.00% 
 
Assets held for sale
$ 4,528 
$ 9,499 
$ 19,039 
$ 0 
$ 0 
$ 9,000 
 
 
$ 0 
$ 0 
$ 9,000 
Number of stores leases
 
 
 
 
 
 
21 
 
 
 
 
Significant Components of 77kid's results included in Loss from Discontinued Operations on Consolidated Statement of Operations (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
May 4, 2013
Apr. 28, 2012
Discontinued Operations [Line Items]
 
 
Total net revenue
$ 679,477 
$ 708,695 
Loss from discontinued operations, net of tax
 
(4,338)
Loss per common share from discontinued operations:
 
 
Basic
 
$ (0.02)
Diluted
 
$ (0.02)
77kids stores
 
 
Discontinued Operations [Line Items]
 
 
Total net revenue
 
10,398 
Loss from discontinued operations, before income taxes
 
(7,048)
Income tax benefit
 
2,710 
Loss from discontinued operations, net of tax
 
$ (4,338)
Loss per common share from discontinued operations:
 
 
Basic
 
$ (0.02)
Diluted
 
$ (0.02)
Major Classes of Assets & Liabilities Included in Consolidated Balance Sheets (Detail) (77kids stores, USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
77kids stores
 
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
 
Current assets
$ 10,077 
Non-current assets
15,647 
Total assets
25,724 1
Total current liabilities
6,166 
Total non-current liabilities
2,686 
Total liabilities
$ 8,852 
Acquisitions and Dispositions - Additional Information (Detail) (USD $)
1 Months Ended
May 4, 2013
Feb. 2, 2013
Apr. 28, 2012
Feb. 4, 2013
Contract Termination
Store
May 4, 2013
Contract Termination
Significant Acquisitions and Disposals [Line Items]
 
 
 
 
 
Payment to terminate Dickson Right
 
 
 
$ 10,000,000 
 
Number of stores to be acquired
 
 
 
 
Payment to acquire assets operated by Dickson on termination of agreement
 
 
 
11,000,000 
 
Other assets
$ 35,479,000 
$ 23,718,000 
$ 16,688,000 
 
$ 10,000,000