AMERICAN EAGLE OUTFITTERS INC, 10-Q filed on 12/4/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Oct. 31, 2015
Nov. 30, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Oct. 31, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
AEO 
 
Entity Registrant Name
AMERICAN EAGLE OUTFITTERS INC 
 
Entity Central Index Key
0000919012 
 
Current Fiscal Year End Date
--01-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
194,635,687 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2015
Jan. 31, 2015
Nov. 1, 2014
Current assets:
 
 
 
Cash and cash equivalents
$ 363,116 
$ 410,697 
$ 280,445 
Merchandise inventory
479,729 
278,972 
468,628 
Accounts receivable
63,775 
67,894 
55,875 
Prepaid expenses and other
78,091 
70,477 
69,724 
Deferred income taxes
65,636 
59,102 
53,445 
Total current assets
1,050,347 
887,142 
928,117 
Property and equipment, at cost, net of accumulated depreciation
709,261 
698,227 
717,537 
Intangible assets, at cost, net of accumulated amortization
46,756 
47,206 
47,864 
Goodwill
12,978 
13,096 
13,512 
Non-current deferred income taxes
17,052 
14,035 
26,598 
Other assets
51,442 
37,202 
38,444 
Total assets
1,887,836 
1,696,908 
1,772,072 
Current liabilities:
 
 
 
Accounts payable
304,989 
191,146 
309,348 
Accrued compensation and payroll taxes
66,466 
44,884 
49,562 
Accrued rent
77,892 
78,567 
77,102 
Accrued income and other taxes
43,721 
33,110 
27,472 
Unredeemed gift cards and gift certificates
28,259 
47,888 
27,712 
Current portion of deferred lease credits
13,055 
12,969 
13,392 
Other liabilities and accrued expenses
43,761 
50,529 
41,893 
Total current liabilities
578,143 
459,093 
546,481 
Non-current liabilities:
 
 
 
Deferred lease credits
53,877 
54,516 
58,988 
Non-current accrued income taxes
4,876 
10,456 
11,312 
Other non-current liabilities
41,667 
33,097 
35,044 
Total non-current liabilities
100,420 
98,069 
105,344 
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 shares issued; 194,438, 194,516 and 194,491 shares outstanding, respectively
2,496 
2,496 
2,496 
Contributed capital
588,293 
569,675 
566,449 
Accumulated other comprehensive (loss) income
(19,797)
(9,944)
10,876 
Retained earnings
1,602,550 
1,543,085 
1,506,519 
Treasury stock, 55,128, 55,050 and 55,075 shares, respectively
(964,269)
(965,566)
(966,093)
Total stockholders’ equity
1,209,273 
1,139,746 
1,120,247 
Total liabilities and stockholders’ equity
$ 1,887,836 
$ 1,696,908 
$ 1,772,072 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Oct. 31, 2015
Jan. 31, 2015
Nov. 1, 2014
Statement Of Financial Position [Abstract]
 
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000,000 
5,000,000 
5,000,000 
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Common stock, shares authorized
600,000,000 
600,000,000 
600,000,000 
Common stock, shares issued
249,566,000 
249,566,000 
249,566,000 
Common stock, shares outstanding
194,438,000 
194,516,000 
194,491,000 
Treasury stock, shares
55,128,000 
55,050,000 
55,075,000 
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Income Statement [Abstract]
 
 
 
 
Total net revenue
$ 919,072 
$ 854,290 
$ 2,416,020 
$ 2,211,014 
Cost of sales, including certain buying, occupancy and warehousing expenses
551,540 
538,818 
1,501,237 
1,432,150 
Gross profit
367,532 
315,472 
914,783 
778,864 
Selling, general and administrative expenses
220,798 
204,641 
601,680 
579,777 
Loss on impairment of assets
 
33,468 
 
33,468 
Restructuring charges
17,752 
 
17,752 
Depreciation and amortization expense
37,623 
36,528 
108,861 
104,312 
Operating income
109,111 
23,083 
204,242 
43,555 
Other income, net
521 
649 
4,254 
2,185 
Income before income taxes
109,632 
23,732 
208,496 
45,740 
Provision for income taxes
40,367 
14,697 
76,915 
27,027 
Income from continuing operations
69,265 
9,035 
131,581 
18,713 
Gain from discontinued operations, net of tax
4,847 
 
4,847 
 
Net income
74,112 
9,035 
136,428 
18,713 
Basic income per common share:
 
 
 
 
Income from continuing operations
$ 0.35 
$ 0.05 
$ 0.67 
$ 0.10 
Gain from discontinued operations
$ 0.03 
 
$ 0.02 
 
Net income per basic share
$ 0.38 
$ 0.05 
$ 0.69 
$ 0.10 
Diluted income per common share:
 
 
 
 
Income from continuing operations
$ 0.35 
$ 0.05 
$ 0.67 
$ 0.10 
Gain from discontinued operations
$ 0.03 
 
$ 0.02 
 
Net income per diluted share
$ 0.38 
$ 0.05 
$ 0.69 
$ 0.10 
Cash dividends per common share
$ 0.125 
$ 0.125 
$ 0.375 
$ 0.375 
Weighted average common shares outstanding - basic
195,215 
194,573 
195,308 
194,381 
Weighted average common shares outstanding - diluted
197,478 
195,221 
197,017 
194,934 
Retained earnings, beginning
1,553,380 
1,522,856 
1,543,085 
1,569,851 
Net income
74,112 
9,035 
136,428 
18,713 
Cash dividends and dividend equivalents
(24,925)
(24,882)
(74,991)
(74,713)
Reissuance of treasury stock
(17)
(490)
(1,972)
(7,332)
Retained earnings, ending
$ 1,602,550 
$ 1,506,519 
$ 1,602,550 
$ 1,506,519 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 74,112 
$ 9,035 
$ 136,428 
$ 18,713 
Other comprehensive loss:
 
 
 
 
Foreign currency translation loss
(1,419)
(5,074)
(9,853)
(1,281)
Other comprehensive loss:
(1,419)
(5,074)
(9,853)
(1,281)
Comprehensive income
$ 72,693 
$ 3,961 
$ 126,575 
$ 17,432 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Operating activities:
 
 
Net income
$ 136,428 
$ 18,713 
Gain from discontinued operations, net of tax
4,847 
 
Income from continuing operations
131,581 
18,713 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
109,382 
105,294 
Share-based compensation
32,531 
12,952 
Deferred income taxes
(12,914)
(18,580)
Foreign currency transaction loss
(564)
75 
Loss on impairment of assets
 
33,468 
Changes in assets and liabilities:
 
 
Merchandise inventory
(203,759)
(176,182)
Accounts receivable
2,528 
16,687 
Prepaid expenses and other
(4,515)
11,155 
Other assets
(16,156)
6,980 
Accounts payable
111,198 
100,441 
Unredeemed gift cards and gift certificates
(19,512)
(19,464)
Deferred lease credits
(328)
(389)
Accrued compensation and payroll taxes
21,975 
24,925 
Accrued income and other taxes
4,419 
19,898 
Accrued liabilities
7,016 
(1,147)
Total adjustments
31,301 
116,113 
Net cash provided by operating activities from continuing operations
162,882 
134,826 
Investing activities:
 
 
Capital expenditures for property and equipment
(108,680)
(210,534)
Acquisition of intangible assets
(2,158)
(1,084)
Sale of available-for-sale securities
 
10,002 
Net cash used for investing activities from continuing operations
(110,838)
(201,616)
Financing activities:
 
 
Payments on capital leases
(5,306)
(3,762)
Repurchase of common stock as part of publicly announced programs
(15,459)
 
Repurchase of common stock from employees
(5,164)
(7,464)
Net proceeds from stock options exercised
6,347 
7,086 
Excess tax benefit from share-based payments
653 
742 
Cash dividends paid
(73,113)
(72,912)
Net cash used for financing activities from continuing operations
(92,042)
(76,310)
Effect of exchange rates changes on cash
(777)
4,612 
Cash flows of discontinued operations
 
 
Net cash used for operating activities
(6,805)
 
Net cash used for discontinued operations
(6,805)
 
Net decrease in cash and cash equivalents
(47,580)
(138,488)
Cash and cash equivalents - beginning of period
410,696 
418,933 
Cash and cash equivalents - end of period
363,116 
280,445 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for income taxes
81,797 
7,623 
Cash paid during the period for interest
$ 892 
$ 448 
Interim Financial Statements
Interim Financial Statements

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at October 31, 2015 and November 1, 2014 and for the 13 and 39 week periods ended October 31, 2015 and November 1, 2014 have been prepared in accordance with generally accepted accounting principles 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 2014 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.

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 October 31, 2015, the Company operated in one reportable segment.

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 2015” refers to the 52 week period ending January 30, 2016. “Fiscal 2014” refers to the 52 week period ended January 31, 2015.

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 the Company’s estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  ASU 2014-09 is a comprehensive new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Originally, ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2016. In July 2015, the FASB voted to approve amendments deferring the effective date by one year to be effective for annual reporting periods beginning after December 15, 2017. Accordingly, the Company will adopt ASU 2014-09 on February 4, 2018. The Company does not expect a material impact of the adoption of this guidance on the Company’s consolidated financial condition, results of operations or cash flows.

Foreign Currency Translation

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 rates prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rates 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 issuance of gift cards. A current liability is recorded upon issuance, 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 license agreements based on a percentage of merchandise sales by the licensee.  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.

Design costs are related to the Company's Design Center operations and include compensation, travel, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.

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 Income, Net

Other income, net consists primarily of foreign currency transaction gain/loss and interest income/expense.

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. There was no net impairment loss for investment securities recognized in earnings during the 13 and 39 weeks ended October 31, 2015 or November 1, 2014.

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 October 31, 2015 and November 1, 2014, the Company held no short-term investments.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-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 when both title and risk of loss for the merchandise have transferred 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.

During the 13 weeks ended November 1, 2014, the Company recorded pre-tax asset impairment charges of $33.5 million that includes $25.1 million for the impairment of 79 retail stores recorded as a loss on impairment of assets in the Consolidated Statements of Operations. Based on the Company’s evaluation of current and future projected performance, it was determined that these stores would not be able to generate sufficient cash flow over the expected remaining lease term to recover the carrying value of the respective stores’ assets. Additionally, the Company recorded $8.4 million of impairment charges related to corporate assets. Refer to Note 13 to the Consolidated Financial Statements for additional information regarding Restructuring Charges.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations, Canadian business and businesses in Hong Kong and China.  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 January 31, 2015.  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 generally 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 during the 13 or 39 weeks ended October 31, 2015 or November 1, 2014.

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 issuance, 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. The Company recorded $1.4 million and $1.1 million of revenue related to gift card breakage during both the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. During the 39 weeks ended October 31, 2015 and November 1, 2014, the Company recorded $4.6 million and $4.1 million, respectively, 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). 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 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.  

 

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)

 

October 31,

2015

 

 

January 31,

2015

 

 

November 1,

2014

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

283,035

 

 

$

370,692

 

 

$

185,212

 

Money-market

 

 

80,081

 

 

 

40,005

 

 

 

72,896

 

Treasury bills

 

 

 

 

 

 

 

 

22,337

 

Total cash and cash equivalents

 

$

363,116

 

 

$

410,697

 

 

$

280,445

 

Total

 

$

363,116

 

 

$

410,697

 

 

$

280,445

 

 

Proceeds from the sale of investments were $10.0 million for the 39 weeks November 1, 2014.  There were no sales or purchases of investments for the 39 weeks ended October 31, 2015.

There were no unrecognized gains or losses for the Company’s available-for-sale securities for the 13 or 39 weeks ended October 31, 2015 or November 1, 2014.

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 October 31, 2015 and November 1, 2014, the Company held certain assets that are required to be measured at fair value on a recurring basis.  These include cash and cash equivalents.

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents) measured at fair value on a recurring basis at October 31, 2015 and November 1, 2014:

 

 

 

Fair Value Measurements at October 31, 2015

 

(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

 

$

283,035

 

 

 

283,035

 

 

 

 

 

 

 

Money-market

 

 

80,081

 

 

 

80,081

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

363,116

 

 

$

363,116

 

 

 

 

 

 

 

Total

 

$

363,116

 

 

$

363,116

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at November 1, 2014

 

(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

 

$

185,212

 

 

$

185,212

 

 

 

 

 

 

 

Money-market

 

 

72,896

 

 

 

72,896

 

 

 

 

 

 

 

Treasury bills

 

 

22,337

 

 

 

22,337

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

280,445

 

 

$

280,445

 

 

 

 

 

 

 

Total

 

$

280,445

 

 

$

280,445

 

 

 

 

 

 

 

 

In the event the Company holds Level 3 investments, a discounted cash flow model is used to value those investments. There were no Level 3 investments at October 31, 2015 or November 1, 2014.

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.

Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During the 39 weeks ended November 1, 2014, certain long-lived assets related to the Company’s retail stores were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in the loss on impairment of assets charge within the Consolidated Statements of Operations.

The fair value of these assets were determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.

 

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

 

 

39 Weeks Ended

 

 

 

October 31,

 

 

November 1,

 

 

October 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic number of common shares outstanding

 

 

195,215

 

 

 

194,573

 

 

 

195,308

 

 

 

194,381

 

Dilutive effect of stock options and non-vested restricted

   stock

 

 

2,263

 

 

 

648

 

 

 

1,709

 

 

 

553

 

Diluted number of common shares outstanding

 

 

197,478

 

 

 

195,221

 

 

 

197,017

 

 

 

194,934

 

 

Equity awards to purchase approximately 13,000 shares of common stock during the 13 and 39 weeks ended October 31, 2015, respectively, and approximately 2.4 million shares of common stock during both the 13 weeks and 39 weeks ended November 1, 2014, 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 no shares for either the 13 and 39 weeks ended October 31, 2015, and no shares and 0.5 million shares for the 13 and 39 weeks ended November 1, 2014, respectively, 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 be anti-dilutive. Additionally, approximately 0.6 million shares of restricted stock units for both the 13 and 39 weeks ended October 31, 2015 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:

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2015

 

 

2014

 

Property and equipment, at cost

 

$

1,784,862

 

 

$

1,690,175

 

 

$

1,700,269

 

Less:  Accumulated depreciation

 

 

(1,075,601

)

 

 

(991,948

)

 

 

(982,732

)

Property and equipment, net

 

$

709,261

 

 

$

698,227

 

 

$

717,537

 

 

Intangible Assets
Intangible Assets

7. Intangible Assets

Intangible assets consist of the following:

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2015

 

 

2014

 

Trademarks and other intangibles, at cost

 

$

61,543

 

 

$

59,385

 

 

$

59,205

 

Less:  Accumulated amortization

 

 

(14,787

)

 

 

(12,179

)

 

 

(11,341

)

Intangible assets, net

 

$

46,756

 

 

$

47,206

 

 

$

47,864

 

 

Other Credit Arrangements
Other Credit Arrangements

8. Other Credit Arrangements

In Fiscal 2014, the Company entered into a Credit Agreement (“Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”). The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibility and take advantage of a favorable credit environment.

All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory and certain other assets and have been further secured by first-priority mortgages on certain real property.

As of October 31, 2015, the Company was in compliance with the terms of the Credit Agreement and had $8.1 million outstanding in stand-by letters of credit. No loans were outstanding under the Credit Agreement as of October 31, 2015.

Additionally, the Company has borrowing agreements with two separate financial institutions under which it may borrow an aggregate of $155 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 October 31, 2015, the Company had outstanding trade letters of credit of $27.7 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 and 39 weeks ended October 31, 2015 was $10.5 million ($6.5 million, net of tax) and $32.5 million ($20.0 million, net of tax), respectively, and for the 13 and 39 weeks ended November 1, 2014 was $6.5 million ($4.0 million, net of tax) and $13.0 million ($8.0 million, net of tax), respectively.

Stock Option Grants

The Company grants both time-based and performance-based stock options.  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 39 weeks ended October 31, 2015 follows:

 

 

 

 

 

 

 

Weighted-

Average

 

 

Weighted-

Average

Remaining

Contractual

 

 

Aggregate

 

 

 

Options

 

 

Exercise Price

 

 

Term

 

 

Intrinsic Value

 

 

 

(In thousands)

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding - January 31, 2015

 

 

2,390

 

 

$

16.28

 

 

 

 

 

 

 

 

 

Exercised (1)

 

 

(403

)

 

$

15.80

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(720

)

 

$

19.38

 

 

 

 

 

 

 

 

 

Outstanding - October 31, 2015

 

 

1,267

 

 

$

14.67

 

 

 

2.4

 

 

 

1,162

 

Vested and expected to vest - October 31, 2015

 

 

1,184

 

 

$

14.67

 

 

 

2.3

 

 

 

1,163

 

Exercisable - October 31, 2015 (2)

 

 

552

 

 

$

13.29

 

 

 

3.0

 

 

 

1,097

 

 

(1)

Options exercised during the 39 weeks ended October 31, 2015 had exercise prices ranging from $8.09 to $16.49.

(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 October 31, 2015.

Cash received from the exercise of stock options was $6.3 million for the 39 weeks ended October 31, 2015 and $7.1 million for the 39 weeks ended November 1, 2014.  The actual tax benefit realized from stock option exercises totaled $0.0 million for the 39 weeks ended October 31, 2015 and $3.1 million for the 39 weeks ended November 1, 2014.

There were no stock options granted during the 39 weeks ended October 31, 2015. The weighted-average grant date fair value of stock options granted during the 39 weeks ended November 1, 2014 was $3.99. The aggregate intrinsic value of options exercised during the 39 weeks ended October 31, 2015 and November 1, 2014 was $0.2 million and $1.3 million, respectively.

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:

 

 

 

39 Weeks Ended

 

 

 

November 1,

 

Black-Scholes Option Valuation Assumptions

 

2014

 

Risk-free interest rate (1)

 

 

1.5

%

Dividend yield

 

 

3.1

%

Volatility factor (2)

 

 

41.2

%

Weighted-average expected term (3)

 

4.5 years

 

Expected forfeiture rate (4)

 

 

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 October 31, 2015, there was $0.2 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 1.4 years.

Restricted Stock Grants

Time-based restricted stock awards are comprised of time-based restricted stock units.  These awards vest over three years.  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

 

 

 

39 Weeks Ended

 

 

39 Weeks Ended

 

 

 

October 31, 2015

 

 

October 31, 2015

 

(Shares in thousands)

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Nonvested - January 31, 2015

 

 

1,596

 

 

$

15.95

 

 

 

2,435

 

 

$

16.02

 

Granted

 

 

1,101

 

 

$

14.91

 

 

 

1,241

 

 

$

15.00

 

Vested

 

 

(590

)

 

$

16.97

 

 

 

(166

)

 

$

14.77

 

Cancelled

 

 

(139

)

 

$

15.25

 

 

 

(796

)

 

$

14.80

 

Nonvested - October 31, 2015

 

 

1,968

 

 

$

15.11

 

 

 

2,714

 

 

$

15.99

 

 

As of October 31, 2015, there was $20.2 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 1.8 years. Based on current probable performance, there is $12.2 million of unrecognized compensation expense related to performance-based restricted stock unit awards which will be recognized as achievement of performance goals is probable over a one to three year period.

As of October 31, 2015, the Company had 6.8 million shares available for all equity grants.

 

Income Taxes
Income Taxes

10. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate based on actual operating results for the 13 weeks ended October 31, 2015 was 36.8% compared to 61.9% for the 13 weeks ended November 1, 2014. The effective income tax rate based on actual operating results for the 39 weeks ended October 31, 2015 was 36.9% compared to 59.1% for the 39 weeks ended November 1, 2014. The decrease in the effective income tax rate for the 13 weeks ended October 31, 2015 was primarily due to a decrease in the amount of valuation allowance recorded as a result of reduced foreign losses as well as increased worldwide earnings, in addition to income tax settlements and higher federal tax credits. The decrease in the effective income tax rate for the 39 weeks ended October 31, 2015 was primarily due to a decrease in the amount of valuation allowance recorded as a result of reduced foreign losses as well as increased worldwide earnings, in addition to income tax settlements, higher federal tax credits and other changes in income tax reserves.

 

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 October 31, 2015.  Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $4.3 million due to settlements, expiration of statute of limitations or other changes in 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

In Fiscal 2012, the Company exited the 77kids business. In connection with the exit of the 77kids business, the Company became secondarily liable for obligations under lease agreements for 21 store leases assumed by the third party purchaser. In Fiscal 2014, the third party purchaser did not fulfill its obligations under the leases, resulting in the Company becoming primarily liable. The Company was required to make rental and lease termination payments and received reimbursement from the $11.5 million stand-by letter of credit provided by the third party purchaser. The cash outflow for the remaining lease termination costs was paid in Fiscal 2015.

In accordance with ASC 460, Guarantees (“ASC 460”), as the Company became primarily liable under the leases upon the third party purchaser’s default, the estimated remaining amounts to terminate the lease agreements were accrued in our Consolidated Financial Statements related to these guarantees.

A rollforward of the liabilities recognized in the Consolidated Balance Sheets is as follows:

 

(In thousands)

 

 

 

 

Accrued liability as of January 31, 2015

 

 

14,636

 

Add: Costs incurred

 

 

 

Less:  Cash payments

 

 

(6,805

)

Less:  Adjustments (1)

 

 

(7,831

)

Accrued liability as of October 31, 2015

 

 

 

 

(1)

Adjustments resulting from favorably settling lease termination obligations during the 13 weeks ended October 31, 2015.

The table below presents the significant components of 77kids’ results included in Gain from Discontinued Operations on the Consolidated Statements of Operations for the 13 and 39 weeks ended October 31, 2015. During the 13 and 39 weeks ended November 1, 2014, there were no costs associated with discontinued operations incurred on the Consolidated Statement of Operations.

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

October 31,

 

 

October 31,

 

(In thousands)

 

2015

 

 

2015

 

Total net revenue

 

$

 

 

$

 

Gain from discontinued operations, before income taxes

 

 

7,831

 

 

 

7,831

 

Income tax expense

 

 

(2,984

)

 

 

(2,984

)

Gain from discontinued operations, net of tax

 

$

4,847

 

 

$

4,847

 

Gain per common share from discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.02

 

Diluted

 

$

0.03

 

 

$

0.02

 

 

Restructuring Charges
Restructuring Charges

13. Restructuring Charges

During Fiscal 2014, the Company undertook restructuring aimed at strengthening the store portfolio and reducing corporate overhead, including severance and office space consolidation. These changes were aimed at driving efficiencies and aligning investments in areas that help fuel the business.

Costs associated with restructuring activities are recorded when incurred. A summary of costs recognized within Restructuring Charges on the Consolidated Income Statement for the 13 weeks ended November 1, 2014 are included in the table as follows. There were no costs associated with restructuring incurred during the 13 and 39 weeks ended October 31, 2015

A summary of costs recognized within Restructuring Charges on the Consolidated Income Statement for the 13 weeks ended November 1, 2014 are included in the table as follows.

 

 

 

13 Weeks Ended

 

 

 

November 1,

 

(In thousands)

 

2014

 

Cash restructuring charges

 

 

 

 

Office space consolidation charges

 

$

8,571

 

Severance and related employee costs

 

 

7,816

 

Other corporate items

 

 

1,365

 

Total restructuring charges

 

$

17,752

 

 

A rollforward of the liabilities recognized in the Consolidated Balance Sheets is as follows:

 

(In thousands)

 

 

 

 

Accrued liability as of January 31, 2015

 

$

12,456

 

Add: Costs incurred

 

 

 

Less: Cash payments

 

 

(8,561

)

Accrued liability as of October 31, 2015

 

$

3,895

 

 

Subsequent Events
Subsequent Events

14. Subsequent Events

Subsequent to October 31, 2015, the Company acquired Tailgate Clothing Company Corp., which owns and operates Tailgate, a vintage, sports-inspired apparel brand with a college town store concept, and Todd Snyder New York, a premium menswear brand. This acquisition closed in the fourth quarter of Fiscal 2015 and the purchase price was approximately $11 million, paid in cash and stock.

 

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 October 31, 2015, the Company operated in one reportable segment.

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 2015” refers to the 52 week period ending January 30, 2016. “Fiscal 2014” refers to the 52 week period ended January 31, 2015.

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 the Company’s estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  ASU 2014-09 is a comprehensive new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Originally, ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2016. In July 2015, the FASB voted to approve amendments deferring the effective date by one year to be effective for annual reporting periods beginning after December 15, 2017. Accordingly, the Company will adopt ASU 2014-09 on February 4, 2018. The Company does not expect a material impact of the adoption of this guidance on the Company’s consolidated financial condition, results of operations or cash flows.

Foreign Currency Translation

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 rates prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rates 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 issuance of gift cards. A current liability is recorded upon issuance, 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 license agreements based on a percentage of merchandise sales by the licensee.  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.

Design costs are related to the Company's Design Center operations and include compensation, travel, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.

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 Income, Net

Other income, net consists primarily of foreign currency transaction gain/loss and interest income/expense.

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. There was no net impairment loss for investment securities recognized in earnings during the 13 and 39 weeks ended October 31, 2015 or November 1, 2014.

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 October 31, 2015 and November 1, 2014, the Company held no short-term investments.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-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 when both title and risk of loss for the merchandise have transferred 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.

During the 13 weeks ended November 1, 2014, the Company recorded pre-tax asset impairment charges of $33.5 million that includes $25.1 million for the impairment of 79 retail stores recorded as a loss on impairment of assets in the Consolidated Statements of Operations. Based on the Company’s evaluation of current and future projected performance, it was determined that these stores would not be able to generate sufficient cash flow over the expected remaining lease term to recover the carrying value of the respective stores’ assets. Additionally, the Company recorded $8.4 million of impairment charges related to corporate assets. Refer to Note 13 to the Consolidated Financial Statements for additional information regarding Restructuring Charges.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations, Canadian business and businesses in Hong Kong and China.  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 January 31, 2015.  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 generally 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 during the 13 or 39 weeks ended October 31, 2015 or November 1, 2014.

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 issuance, 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. The Company recorded $1.4 million and $1.1 million of revenue related to gift card breakage during both the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. During the 39 weeks ended October 31, 2015 and November 1, 2014, the Company recorded $4.6 million and $4.1 million, respectively, 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). 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 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.  

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 Securities

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)

 

October 31,

2015

 

 

January 31,

2015

 

 

November 1,

2014

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

283,035

 

 

$

370,692

 

 

$

185,212

 

Money-market

 

 

80,081

 

 

 

40,005

 

 

 

72,896

 

Treasury bills

 

 

 

 

 

 

 

 

22,337

 

Total cash and cash equivalents

 

$

363,116

 

 

$

410,697

 

 

$

280,445

 

Total

 

$

363,116

 

 

$

410,697

 

 

$

280,445

 

 

Fair Value Measurements (Tables)
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on Recurring Basis

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents) measured at fair value on a recurring basis at October 31, 2015 and November 1, 2014:

 

 

 

Fair Value Measurements at October 31, 2015

 

(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

 

$

283,035

 

 

 

283,035

 

 

 

 

 

 

 

Money-market

 

 

80,081

 

 

 

80,081

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

363,116

 

 

$

363,116

 

 

 

 

 

 

 

Total

 

$

363,116

 

 

$

363,116

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at November 1, 2014

 

(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

 

$

185,212

 

 

$

185,212

 

 

 

 

 

 

 

Money-market

 

 

72,896

 

 

 

72,896

 

 

 

 

 

 

 

Treasury bills

 

 

22,337

 

 

 

22,337

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

280,445

 

 

$

280,445

 

 

 

 

 

 

 

Total

 

$

280,445

 

 

$

280,445

 

 

 

 

 

 

 

 

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

 

 

39 Weeks Ended

 

 

 

October 31,

 

 

November 1,

 

 

October 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic number of common shares outstanding

 

 

195,215

 

 

 

194,573

 

 

 

195,308

 

 

 

194,381

 

Dilutive effect of stock options and non-vested restricted

   stock

 

 

2,263

 

 

 

648

 

 

 

1,709

 

 

 

553

 

Diluted number of common shares outstanding

 

 

197,478

 

 

 

195,221

 

 

 

197,017

 

 

 

194,934

 

 

Property and Equipment (Tables)
Property and Equipment

Property and equipment consists of the following:

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2015

 

 

2014

 

Property and equipment, at cost

 

$

1,784,862

 

 

$

1,690,175

 

 

$

1,700,269

 

Less:  Accumulated depreciation

 

 

(1,075,601

)

 

 

(991,948

)

 

 

(982,732

)

Property and equipment, net

 

$

709,261

 

 

$

698,227

 

 

$

717,537

 

 

Intangible Assets (Tables)
Intangible Assets

Intangible assets consist of the following:

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

(In thousands)

 

2015

 

 

2015

 

 

2014

 

Trademarks and other intangibles, at cost

 

$

61,543

 

 

$

59,385

 

 

$

59,205

 

Less:  Accumulated amortization

 

 

(14,787

)

 

 

(12,179

)

 

 

(11,341

)

Intangible assets, net

 

$

46,756

 

 

$

47,206

 

 

$

47,864

 

 

Share-Based Compensation (Tables)

A summary of the Company’s stock option activity for the 39 weeks ended October 31, 2015 follows:

 

 

 

 

 

 

 

Weighted-

Average

 

 

Weighted-

Average

Remaining

Contractual

 

 

Aggregate

 

 

 

Options

 

 

Exercise Price

 

 

Term

 

 

Intrinsic Value

 

 

 

(In thousands)

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding - January 31, 2015

 

 

2,390

 

 

$

16.28

 

 

 

 

 

 

 

 

 

Exercised (1)

 

 

(403

)

 

$

15.80

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(720

)

 

$

19.38

 

 

 

 

 

 

 

 

 

Outstanding - October 31, 2015

 

 

1,267

 

 

$

14.67

 

 

 

2.4

 

 

 

1,162

 

Vested and expected to vest - October 31, 2015

 

 

1,184

 

 

$

14.67

 

 

 

2.3

 

 

 

1,163

 

Exercisable - October 31, 2015 (2)

 

 

552

 

 

$

13.29

 

 

 

3.0

 

 

 

1,097

 

 

(1)

Options exercised during the 39 weeks ended October 31, 2015 had exercise prices ranging from $8.09 to $16.49.

(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 October 31, 2015.

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:

 

 

 

39 Weeks Ended

 

 

 

November 1,

 

Black-Scholes Option Valuation Assumptions

 

2014

 

Risk-free interest rate (1)

 

 

1.5

%

Dividend yield

 

 

3.1

%

Volatility factor (2)

 

 

41.2

%

Weighted-average expected term (3)

 

4.5 years

 

Expected forfeiture rate (4)

 

 

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

 

 

 

39 Weeks Ended

 

 

39 Weeks Ended

 

 

 

October 31, 2015

 

 

October 31, 2015

 

(Shares in thousands)

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Nonvested - January 31, 2015

 

 

1,596

 

 

$

15.95

 

 

 

2,435

 

 

$

16.02

 

Granted

 

 

1,101

 

 

$

14.91

 

 

 

1,241

 

 

$

15.00

 

Vested

 

 

(590

)

 

$

16.97

 

 

 

(166

)

 

$

14.77

 

Cancelled

 

 

(139

)

 

$

15.25

 

 

 

(796

)

 

$

14.80

 

Nonvested - October 31, 2015

 

 

1,968

 

 

$

15.11

 

 

 

2,714

 

 

$

15.99

 

 

Discontinued Operations (Tables)

A rollforward of the liabilities recognized in the Consolidated Balance Sheets is as follows:

 

(In thousands)

 

 

 

 

Accrued liability as of January 31, 2015

 

$

12,456

 

Add: Costs incurred

 

 

 

Less: Cash payments

 

 

(8,561

)

Accrued liability as of October 31, 2015

 

$

3,895

 

 

The table below presents the significant components of 77kids’ results included in Gain from Discontinued Operations on the Consolidated Statements of Operations for the 13 and 39 weeks ended October 31, 2015. During the 13 and 39 weeks ended November 1, 2014, there were no costs associated with discontinued operations incurred on the Consolidated Statement of Operations.

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

October 31,

 

 

October 31,

 

(In thousands)

 

2015

 

 

2015

 

Total net revenue

 

$

 

 

$

 

Gain from discontinued operations, before income taxes

 

 

7,831

 

 

 

7,831

 

Income tax expense

 

 

(2,984

)

 

 

(2,984

)

Gain from discontinued operations, net of tax

 

$

4,847

 

 

$

4,847

 

Gain per common share from discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.02

 

Diluted

 

$

0.03

 

 

$

0.02

 

 

A rollforward of the liabilities recognized in the Consolidated Balance Sheets is as follows:

 

(In thousands)

 

 

 

 

Accrued liability as of January 31, 2015

 

 

14,636

 

Add: Costs incurred

 

 

 

Less:  Cash payments

 

 

(6,805

)

Less:  Adjustments (1)

 

 

(7,831

)

Accrued liability as of October 31, 2015

 

 

 

 

Restructuring Charges (Tables)

A summary of costs recognized within Restructuring Charges on the Consolidated Income Statement for the 13 weeks ended November 1, 2014 are included in the table as follows.

 

 

 

13 Weeks Ended

 

 

 

November 1,

 

(In thousands)

 

2014

 

Cash restructuring charges

 

 

 

 

Office space consolidation charges

 

$

8,571

 

Severance and related employee costs

 

 

7,816

 

Other corporate items

 

 

1,365

 

Total restructuring charges

 

$

17,752

 

 

A rollforward of the liabilities recognized in the Consolidated Balance Sheets is as follows:

 

(In thousands)

 

 

 

 

Accrued liability as of January 31, 2015

 

$

12,456

 

Add: Costs incurred

 

 

 

Less: Cash payments

 

 

(8,561

)

Accrued liability as of October 31, 2015

 

$

3,895

 

 

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Nov. 1, 2014
Oct. 31, 2015
Segment
Nov. 1, 2014
Significant Accounting Policies [Line Items]
 
 
 
 
 
Number of reportable segments
 
 
 
 
Net impairment loss recognized in earnings
$ 0 
$ 0 
 
$ 0 
$ 0 
Short-term investments
Asset impairment charges
 
33,468,000 
33,500,000 
 
33,468,000 
Finite-lived impairment charges
 
Revenue related to gift card breakage
1,400,000 
1,100,000 
 
4,600,000 
4,100,000 
Number of operating segments
 
 
 
 
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 
 
Segment, Discontinued Operations
 
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
 
Asset impairment charges
 
 
25,100,000 
 
 
Number of stores impaired
 
79 
79 
 
79 
Noncash Corporate Office And Other Asset Impairments Charges
 
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
 
Asset impairment charges
 
 
$ 8,400,000 
 
 
Useful Lives of Major Classes of Assets (Detail)
9 Months Ended
Oct. 31, 2015
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) (Leasehold Improvements, Maximum)
9 Months Ended
Oct. 31, 2015
Leasehold Improvements |
Maximum
 
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
Oct. 31, 2015
Feb. 2, 2015
Jan. 31, 2015
Nov. 1, 2014
Feb. 3, 2014
Cash and cash equivalents:
 
 
 
 
 
Cash and cash equivalents
$ 363,116 
$ 410,696 
$ 410,697 
$ 280,445 
$ 418,933 
Total
363,116 
 
410,697 
280,445 
 
Cash
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Cash and cash equivalents
283,035 
 
370,692 
185,212 
 
Money-market
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Cash and cash equivalents
80,081 
 
40,005 
72,896 
 
Treasury bills
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Cash and cash equivalents
 
 
 
$ 22,337 
 
Cash and Cash Equivalents and Short-term Investments - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Investments Debt And Equity Securities [Abstract]
 
 
 
 
Proceeds from sale of available-for-sale securities
 
 
 
$ 10,002,000 
Sale or purchase of available-for-sale securities
 
 
 
Unrecognized gains (losses) for available-for-sale securities
$ 0 
$ 0 
$ 0 
$ 0 
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on Recurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2015
Feb. 2, 2015
Jan. 31, 2015
Nov. 1, 2014
Feb. 3, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
 
Total
$ 363,116 
 
$ 410,697 
$ 280,445 
 
Cash and cash equivalents
363,116 
410,696 
410,697 
280,445 
418,933 
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
363,116 
 
 
280,445 
 
Total
363,116 
 
 
280,445 
 
Cash
 
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
 
Cash and cash equivalents
283,035 
 
370,692 
185,212 
 
Cash |
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
283,035 
 
 
185,212 
 
Money-market
 
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
 
Cash and cash equivalents
80,081 
 
40,005 
72,896 
 
Money-market |
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
80,081 
 
 
72,896 
 
Treasury bills
 
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
 
Cash and cash equivalents
 
 
 
22,337 
 
Treasury bills |
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
 
 
 
$ 22,337 
 
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding (Detail)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Weighted average common shares outstanding:
 
 
 
 
Basic number of common shares outstanding
195,215 
194,573 
195,308 
194,381 
Dilutive effect of stock options and non-vested restricted stock
2,263 
648 
1,709 
553 
Diluted number of common shares outstanding
197,478 
195,221 
197,017 
194,934 
Earnings per Share - Additional Information (Detail)
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Common stock
 
 
 
 
Antidilutive Securities Excluded From Computation Of Earnings Per Share [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
13,000 
2,400,000 
13,000 
2,400,000 
Restricted Stock Units (RSUs)
 
 
 
 
Antidilutive Securities Excluded From Computation Of Earnings Per Share [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
500,000 
Restricted Stock Units (RSUs) |
Performance shares
 
 
 
 
Antidilutive Securities Excluded From Computation Of Earnings Per Share [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
0.6 
 
0.6 
 
Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2015
Jan. 31, 2015
Nov. 1, 2014
Property Plant And Equipment [Abstract]
 
 
 
Property and equipment, at cost
$ 1,784,862 
$ 1,690,175 
$ 1,700,269 
Less: Accumulated depreciation
(1,075,601)
(991,948)
(982,732)
Property and equipment, net
$ 709,261 
$ 698,227 
$ 717,537 
Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2015
Jan. 31, 2015
Nov. 1, 2014
Finite Lived Intangible Assets Net [Abstract]
 
 
 
Trademarks and other intangibles, at cost
$ 61,543 
$ 59,385 
$ 59,205 
Less: Accumulated amortization
(14,787)
(12,179)
(11,341)
Intangible assets, net
$ 46,756 
$ 47,206 
$ 47,864 
Other Credit Arrangements - Additional Information (Detail) (USD $)
12 Months Ended
Oct. 31, 2015
Entity
Oct. 31, 2015
Demand letter of credit facilities
Oct. 31, 2015
Trade Letter of Credit
Jan. 31, 2015
Asset Based Credit Facility
Oct. 31, 2015
Unsecured Revolving Credit Facility
Debt Instrument [Line Items]
 
 
 
 
 
Line of credit facility, expiration period
 
 
 
5 years 
 
Borrowing agreements with financial institutions
 
$ 155,000,000 
 
$ 400,000,000 
 
Letters of credit outstanding amount
 
 
 
 
8,100,000 
Outstanding borrowings
 
 
$ 27,700,000 
 
$ 0 
Borrowing agreements, number of financial institutions
 
 
 
 
Share-Based Compensation - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Share-based compensation
$ 10,500,000 
$ 6,500,000 
$ 32,531,000 
$ 12,952,000 
Share-based compensation, net of tax
6,500,000 
4,000,000 
20,000,000 
8,000,000 
Net proceeds from stock options exercised
 
 
6,347,000 
7,086,000 
Tax benefit realized from stock option exercises
 
 
3,100,000 
Stock options granted
 
 
 
Weighted-average grant date fair value of stock options granted
 
 
 
$ 3.99 
Aggregate intrinsic value of options exercised
 
 
200,000 
1,300,000 
Shares available for all equity grants
6,800,000 
 
6,800,000 
 
Employee Stock Option
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Unrecognized compensation expense
200,000 
 
200,000 
 
Unrecognized compensation expense, weighted average period
 
 
1 year 4 months 24 days 
 
Time Based Restricted Stock Units
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Unrecognized compensation expense, weighted average period
 
 
2 years 2 months 12 days 
 
Vesting period
 
 
3 years 
 
Unrecognized compensation expense
20,200,000 
 
20,200,000 
 
Performance-Based Restricted Stock Units
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Vesting period
 
 
3 years 
 
Unrecognized compensation expense
$ 12,200,000 
 
$ 12,200,000 
 
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
9 Months Ended
Oct. 31, 2015
Options
 
Outstanding - beginning of period
2,390 
Exercised
(403)1
Cancelled
(720)
Outstanding- end of period
1,267 
Vested and expected to vest-end of period
1,184 
Exercisable-end of period
552 2
Weighted-Average Exercise Price
 
Outstanding-beginning of period
$ 16.28 
Exercised
$ 15.80 1
Cancelled
$ 19.38 
Outstanding-end of period
$ 14.67 
Vested and expected to vest-end of period
$ 14.67 
Exercisable-end of period
$ 13.29 
Weighted-Average Remaining Contractual Term (In years)
 
Outstanding-end of period
2 years 4 months 24 days 
Vested and expected to vest-end of period
2 years 3 months 18 days 
Exercisable-end of period
3 years 2
Aggregate Intrinsic Value
 
Outstanding-end of period
$ 1,162 
Vested and expected to vest-end of period
1,163 
Exercisable-end of period
$ 1,097 2
Summary of Stock Option Activity (Parenthetical) (Detail)
9 Months Ended
Oct. 31, 2015
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Options exercised, exercise price range, lower limit
$ 8.09 
Options exercised, exercise price range, upper limit
$ 16.49 
Black-Scholes Option Valuation Assumptions (Detail)
9 Months Ended
Nov. 1, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Risk-free interest rate
1.50% 1
Dividend yield
3.10% 
Volatility factor
41.20% 2
Weighted-average expected term
4 years 6 months 3
Expected forfeiture rate
8.00% 4
Summary of Restricted Stock Activity (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended
Oct. 31, 2015
Time Based Restricted Stock Units
 
Shares
 
Nonvested - beginning of period
1,596 
Granted
1,101 
Vested
(590)
Cancelled
(139)
Nonvested - end of period
1,968 
Weighted-Average Grant Date Fair Value
 
Nonvested - beginning of period
$ 15.95 
Granted
$ 14.91 
Vested
$ 16.97 
Cancelled
$ 15.25 
Nonvested - end of period
$ 15.11 
Performance-Based Restricted Stock Units
 
Shares
 
Nonvested - beginning of period
2,435 
Granted
1,241 
Vested
(166)
Cancelled
(796)
Nonvested - end of period
2,714 
Weighted-Average Grant Date Fair Value
 
Nonvested - beginning of period
$ 16.02 
Granted
$ 15.00 
Vested
$ 14.77 
Cancelled
$ 14.80 
Nonvested - end of period
$ 15.99 
Income Taxes - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Income Tax Disclosure [Abstract]
 
 
 
 
Effective income tax rate from continuing operations
36.80% 
61.90% 
36.90% 
59.10% 
Possible decrease in unrecognized tax benefits in next twelve months
$ 4.3 
 
$ 4.3 
 
Discontinued Operations - Additional Information (Detail) (Segment, Discontinued Operations, USD $)
In Millions, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 2, 2013
Store
Segment, Discontinued Operations
 
 
Restructuring Cost And Reserve [Line Items]
 
 
Number of stores leases
 
21 
Proceeds from line Stand-by letter
$ 11.5 
 
Rollforward of Liabilities Recognized in Consolidated Balance Sheet Discontinued Operations (Detail) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 31, 2015
Restructuring Cost And Reserve [Line Items]
 
Accrued liability as of January 31, 2015
$ 12,456 
Less: Cash payments
(8,561)
Accrued liability as of October 31, 2015
3,895 
Segment, Discontinued Operations
 
Restructuring Cost And Reserve [Line Items]
 
Accrued liability as of January 31, 2015
14,636 
Less: Cash payments
(6,805)
Less: Adjustments (1)
$ (7,831)
Significant Components of 77kids Results Included in Gain from Discontinued Operations on Consolidated Statements of Operations (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Segment, Discontinued Operations
Oct. 31, 2015
Segment, Discontinued Operations
Discontinued Operations [Line Items]
 
 
 
 
 
 
Total net revenue
$ 919,072 
$ 854,290 
$ 2,416,020 
$ 2,211,014 
 
 
Gain from discontinued operations, before income taxes
 
 
 
 
7,831 
7,831 
Income tax expense
 
 
 
 
(2,984)
(2,984)
Gain from discontinued operations, net of tax
$ 4,847 
 
$ 4,847 
 
$ 4,847 
$ 4,847 
Gain per common share from discontinued operations:
 
 
 
 
 
 
Basic
$ 0.03 
 
$ 0.02 
 
$ 0.03 
$ 0.02 
Diluted
$ 0.03 
 
$ 0.02 
 
$ 0.03 
$ 0.02 
Restructuring Charges - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Restructuring And Related Activities [Abstract]
 
 
 
 
Costs associated with restructuring activities
$ 0 
$ 17,752 
$ 0 
$ 17,752 
Summary of Costs Recognized Within Restructuring Charges on Consolidated Income Statement (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Nov. 1, 2014
Cash restructuring charges
 
 
 
 
Office space consolidation charges
 
$ 8,571 
 
 
Severance and related employee costs
 
7,816 
 
 
Other corporate items
 
1,365 
 
 
Total restructuring charges
$ 0 
$ 17,752 
$ 0 
$ 17,752 
Rollforward of Liabilities Recognized in Consolidated Balance Sheets (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Oct. 31, 2015
Nov. 1, 2014
Restructuring And Related Activities [Abstract]
 
 
 
 
 
Accrued liability as of January 31, 2015
 
 
$ 12,456 
$ 12,456 
 
Add: Costs incurred
17,752 
 
17,752 
Less: Cash payments
 
 
(8,561)
 
 
Accrued liability as of October 31, 2015
$ 3,895 
 
$ 3,895 
$ 3,895 
 
Subsequent Events - Additional Information (Detail) (Subsequent Event, Tailgate Clothing Company Corp, USD $)
In Millions, unless otherwise specified
0 Months Ended
Nov. 1, 2015
Subsequent Event |
Tailgate Clothing Company Corp
 
Subsequent Event [Line Items]
 
Purchase price of acquisition
$ 11