Transcript Competitors
American Eagle Outfitters, Inc.
NYSE: AEO
11/2/2010
Ruonan Ding
Meiling Liu
Cardo Martinez
Rajani Meka
Prateek Sharma
Industry Analysis
Competitors
Company Overview
SWOT
Management Discussion
Financial Performance Analysis
DuPont Analysis
DCF Model
Multiple Valuation
Recommendation
Dec 1999 – BOT 200 @ $44
Jan 2000 – BOT 200@ $27
Mar 2000 – BOT 600 @ $15.63
Feb 2001– 3:2 Split
Mar 2005– 2:1 Split
Apr 2005 – Sold 600 @ $26.284
Nov 2005 – Sold 700@ $23.33
Nov 2006 – Sold 400 @ $39.19
Dec 2006 – Splits 3:2
Nov 2007 – Sold 450 @ $22
Dec 2008 – BOT 1000 @ $9.07
RCMP Currently Holds 2500 shares of AEO with a weighted average price
of $6.766 and an unrealized gain of $22,142 (as of 1-Nov-2010)
Source: Yahoo! Finance
Market Value (Excl. Cash)
Cost Basis (Excl. Cash)
WFR
AEO
7%
18%
WAG
WFR
AEO
15%
33%
34%
BGC
6%
DO
MOS
4%
13%
JKHY
4%
MCD
WAG
MCD
14%
JKHY
BGC
9%
5%
DO
3%
13%
11%
MOS
11%
American Eagle Outfitters is a clothing and
accessories retailer based in Philadelphia, PA.
It was founded in 1977 by Mark and Jerry
Silverman as a subsidiary of Retail Ventures,
Inc.
The Silverman’s sold their ownership interest
in 1991
The company started trading on the NASDAQ
in 1994 as AEOS
Targets teens and young adults
Brands Include
◦ The American Eagle Outfitters –
targets 15-25 year old boys and girls.
934 stores in US and Canada
◦ aerie® by american eagle – offers
dorm-wear and intimates for girls –
144 standalone stores in US and
Canada
◦ 77kids by american eagle – targets
kids up to 14 yrs of age
◦ Online via www.ae.com and
www.aerie.com – ships to more than
76 countries
Source: http://phx.corporate-ir.net/phoenix.zhtml?c=81256&p=irol-homeprofile
Total revenues of Family Clothing Stores
Industry for 2009 was $2,862 billion.
Representing a CAGR of 5.1% from
2005-09
The breakdown of sales across the globe:
◦
◦
◦
◦
Asia Pacific
Europe
Americas
Rest of the world
46.2%
30.4%
22.8%
4.2%
Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code-0199-2005
Persistent Link:
http://search.ebscohost.com.proxy2.library.uiuc.edu/login.aspx?direct=true&db=bth&AN=51689167&site=bsi-live
Key External Drivers for Demand:
◦
◦
◦
◦
Number of young adults
Consumer sentiment
Per capita disposable income
Competition from substitutes such as department
stores
Source: IBISWorld Industry Report 44814 Family Clothing Stores in the US September 2010
The Family Clothing Stores industry is a
highly competitive one, facing threats from
within and from outside the industry.
Competitive Factors:
Having a clear market position
Ability to control stock on hand
Established brand names
Production of goods currently favored by the market
Attractive product presentation
Experienced workforce
Industry Rival is High:
Fickle demographic
Fast fashion chains
Depends on trends and seasonality
Buyer Power is High:
Demand is highly affected by consumers disposable
income level
Fashion taste and product mix
Sensitive to price change
Supplier Power is Moderate:
Purchasing from international suppliers
Suppliers compete on the price and quality basis
Eliminate import quotas in 2005
Threats of Substitutes is High:
Substitute good from not only the competitors
but also department stores
Buyers Bargaining Power is High:
Low switching cost
There is a general positive outlook for the
industry as consumer discretionary income
increases
Growth will be lead by the Asia Pacific region
(CAGR of 8.3%) whilst the European region
will only face a growth rate of 3.9%. Growth is
expected to be the slowest in the Americas
Urban Outfitters (Ticker: URBN)
◦ Lifestyle Specialty Retail
Urban Outfitters, Anthropologie, Free People and
Terrain Brands
Retail stores and e-commerce
◦ Wholesale Business
Free People and Leifsdottir brands
◦ Core operating location: US
◦ FY 2009 Revenue : $1.9378B
Source: Yahoo Finance, http://finance.yahoo.com/q?s=URBN
Aeropostale, Inc (Ticker: ARO)
◦ Mall-based specialty retailer and online sales
through aeropostale.com
◦ Target group: Aeropostale for 14-17 years old
women and men; P.S for 7-12 years elementary
school children
◦ Presence only in North America
◦ FY 2009 Revenue: $2.23B
Source: Yahoo Finance, http://finance.yahoo.com/q?s=ARO
Gap, Inc (Ticker: GPS)
◦ Specialty retailer
Brands include Gap, Old Navy, Banana Republic,
Piperlime, and Athleta brand
◦ Franchise agreements with unaffiliated franchisees
Gap and Banana Republic stores
◦ Presence in United States, Canada, the United
Kingdom, France, Ireland, and Japan.
◦ FY 2009 Revenue: $14.19B
Source: Yahoo Finance, http://finance.yahoo.com/q?s=GPS
Abercrombie and Fitch, Inc (Ticker: ANF)
◦ Specialty retailer
Stores and direct-to-consumer operations
Brands include Abercrombie & Fitch, abercrombie kids,
Hollister and Gilly Hicks brands
◦ Presence in North America, Europe and Asia
1,096 stores
◦ FY 2009 Revenue: $2.928B
Source: Yahoo Finance, http://finance.yahoo.com/q?s=ANF
Strengths:
Strong brands
Strong distribution channels
Little-to-zero debt on Balance Sheet
Weakness:
Needs to maintain hype to sustain “teen” loyalty.
Research shows that most teens are not loyal customers
Currently in excess of 90% of its revenues are generated
in the USA (stores are now primarily in USA and
Canada)
Opportunities:
Increased demand for women’s accessories
Expansion into global markets (Asia) via franchising
agreements
Threats:
Strong dependency on consumer spending.
Accessories especially dependent on “discretionary
spending”
Merchandizes from limited suppliers
1200
1000
1098
1103
987
869
911
800
Total stores
$638
$521
600
$577
$519
$642
Net Sales per
average selling
sqft
400
200
Fy 2007
38%
55%
7%
0
Fy 2005 Fy 2006 Fy 2007 Fy 2008 FY 2009
Fy 2008
42%
50%
8%
Women's
Apparrel and
Accessories
20%
15%
10%
FY 2009
40%
51%
9%
aerie
16%
5%
0%
Men's
Apparrel and
Accessories
1%
Comparable Store
Sales
12%
-5%
0%
50%
100%
-4%
-10%
-10%
-15%
FY 2005FY 2006 FY 2007 FY 2008 FY 2009
Source: AEO 10-K, pg.17
http://www.sec.gov/Archives/edgar/dat
a/919012/000095012310028815/l3923
7e10vk.htm
Increase in sales through e-commerce in ‘09
Depreciation increased by 11% in ‘09 compared to ’08 due to
greater PP&E driven by their capital expenditures
Complete closure of Martin +OSA
2010 Outlook
Expecting ‘10 to be more favorable than ’09
Focus on controlling expenses and keep it less than ’09
Low inventory levels
Source: 2009 Annual 10-K report
Growth Strategy:
◦ Through new internal brands and franchising
◦ Open 40 new stores in US and Canada in ’10
◦ Franchising in Asia
◦ Franchising in the Middle-East
◦ Acquisitions
Capital Expenditures:
◦ Reduced to $127.4 million in ‘09 as opposed to $265.3 million in
’08
◦ Aiming at keeping CAPEX between $100-$120 million in ’10
Source: AEO 10K, FY 2010
• For the Fiscal year ’09, 60% of their sales attributed to women’s apparel and
accessories
• Aerie initiative started in ’06, exclusively for women’s apparel
• International Expansion: Franchising agreements in the Middle-East, China and HongKong
Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code-0199-2005
Persistent Link:
http://search.ebscohost.com.proxy2.library.uiuc.edu/login.aspx?direct=true&db=bth&AN=51689167&site=bsi-live
YEAR
SALES ($MM)
2010
2009
2008
2007
2006
5 YEAR GROWTH RATE %
2,990.52
2,988.87
3,055.42
2,794.41
2,321.97
6.5
NET INCOME ($MM) EPS ($)
169.02
179.06
400.02
387.36
293.71
-12.9
0.82
0.87
1.85
1.74
1.29
-10.7
Source: AEO 10-K, FY 2010, ‘09, ‘08
Inventory and A/R management
FISCAL YEAR END
Receivables Turnover
Receivables Days Sales
Inventories Turnover
Inventories Days Sales
1/30/2010 1/31/2009 2/2/2008
36.57
29.55
95.78
9.85
12.18
3.76
9.16
10.13
10.67
39.3
35.52
33.75
Operational Asset Utilization
FISCAL YEAR END
Net Sales/Working Capital
Net Sales/Net Plant & Equipment
Net Sales/Current Assets
Net Sales/Total Assets
1/30/2010 1/31/2009 2/2/2008
3.94
5.71
4.74
4.19
4.04
4.88
2.56
3.23
2.99
1.4
1.52
1.64
Amount in $millions, except ratios
Source: Form 10-K, FY 2010, FY 2009
Metric
Value
Weight
Weighted Value
Cost of Equity
from CAPM
8.31%
60%
4.99%
Cost of Equity
from ROE
22.24%
10%
2.224%
Cost of Equity
from HPR (5year)
18.74%
30%
5.622%
Total
12.836%
RFR is the yield on 10-Year T-Bond
The company has no long-term debt outstanding and does not intend to change its
capital structure in the near future
All amount in $millions, except per share data and ratios
Company Name
Abercrombie and Fitch
Aeropostale, Inc
Urban Outfitters, Inc
Ticker Mkt Cap
ANF
3,760
ARO
2,240
URBN
5,000
P/E (ttm)
40.56
P/B (mrq) P/S (ttm) ROE (ttm)
2.08
1.21
6.62%
9.49
4.58
0.97
53.54%
19.72
3.77
2.39
20.99%
Gap, Inc
GPS
11,840
10.90
2.77
0.81
26.35%
American Eagles Outfitters, Inc
Minimum
Median
Mean
AEO
3.050
23.52
9.54
20.35
21.28
2.27
2.04
2.62
3.04
1.03
0.77
1.04
1.27
11.58%
40.87
4.38
2.44
Per Share Valuation (Median)
Per share Valuation (Mean)
17.91
18.73
21.15
24.52
15.91
19.48
Max
Min
max-min
35.97
8.40
27.57
35.36
16.47
18.89
37.32
11.78
25.54
Maximum
Normalized EPS
Revenues
Book Value Per Share
Shares Outstanding
$0.88
2990.5
$8.07
206.17m
Source: Yahoo! Finance
DCF model values the stock in the range $16-18.
The multiples analysis values the stock between
$18-22.
At a market price of $15.62 (as of 11/1/2010), we
think the stock is fairly valued with limited upside
potential, pending any news event.
We recommend selling 500 shares (20% of
current holding) at a limit price of $17/share (Good
till 12/6/2010)
Pre-Recommendation
Post-Recommendation*
WFR
WFR
7%
7%
WAG
AEO
15%
34%
MOS
AEO
WAG
30%
16%
MOS
13%
14%
BGC
5%
BGC
5%
MCD
14%
JKHY
9%
DO
MCD
JKHY
15%
10%
DO
3%
3%
*Approximate representation of market value