Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 5
Hi Hewitt,

I have been buying AEO recently for my accounts and have about a $25 average basis. Thanks for your post (and Dean for alerting me). I did my very amateur valuation that kinda follows a TomG. thumbnail a while back at SA. This is a cut, edited  and mashed short version of my attempt. I paste in the spirit of keeping the AEO discussion alive. I am not the best at this work but....


So looking at the past 4 quarters (which again includes qtr 1 May 2007) you get roughly:

NI =402m
Dep = 94m
CapX 260m
OE 236m

What I had found, if I remember correctly, when I looked at bebe was that over the years the growth capx figure grew...something like from 40% to 60% for instance. AEO stated in the 10k that the primary amount of capx for this year would be spent on growth. They already spent nearly 50% on growth capx last year as you found from the 10k snippet I posted earlier. In light of this, not that I know what I'm doing (and never got a reply from Tom on this question), what I did is use 50% as a constant figure going forward until I see some reason to adjust it. So far in quarter one it appears they spent only about 26% of the capx figure on new stores. The rest was spent on a corporate aircraft (not mentioned in the 10k as a future expenditure by the way), new headquarter, tech and etc.
From the latest 10Q:
Capital Expenditures

Capital expenditures for the 13 weeks ended May 5, 2007 included $17.1 million related to investments in our AE stores, including eight new AE stores in the United States and Canada, as well as eight remodeled stores in the United States. The remaining capital expenditures were primarily related to the purchase of a corporate aircraft, the construction of our new corporate headquarters in Pittsburgh, Pennsylvania, information technology upgrades at our home office and construction at our Ottawa, Kansas distribution center.

We expect capital expenditures for Fiscal 2007 to be approximately $240 to $260 million. These capital expenditures will include the construction of approximately 34 new AE stores in the United States and Canada, 40 new aerie stores and the remodeling of approximately 56 AE stores in the United States. The remaining capital expenditures will relate primarily to information technology upgrades, the construction of our new corporate headquarters, investments in MARTIN + OSA, including approximately 14 new stores, the purchase of a corporate aircraft and the completion of our Ottawa, Kansas distribution center. As of May 5, 2007, $65.3 million of the Fiscal 2007 capital expenditures had been incurred.

Maybe it would be better to just break out those dollars and use them as the growth capx amount. I don't know? I don't think it is all that important as long as your guessing (which is really what were doing) close. The next 10k could be used as a check up.

So with my 236m in hand for OE...I add back 50% of 260m (above capx figure) and get 366m for OE. But I'm not done yet.

My Fool TMFHumbleServant tells me working capital is an important part of a retailer's business. He suggested I add or subtract that from my bebe model. He is smarter than I. I don't argue. I follow his lead.

I used the SEC filings.

I took qtr 1 2008, added it to the 10k 2007 and took out qtr 1 2007.
I get an outflow of 47.6m for inventory. An outflow of 13.6m for A/R. An outflow of 19.5m for A/P. That's a total outflow of cash to the tune of 80.7m.
Using this information :
366m-80.7m gives me an OE of 285.3m if you were to count working capital.

Plugging this in again:

Current Stock Price $25.48
Basic Shares Outstanding 219.7m (They have reduced the share count)
Share Dilution Rate 0% (Buy-back in place)
Owner Earnings 285.3m
Annual Growth Rate 15% (analyst estimates)
Cash and Equivalents 834m (latest filing)
Outstanding Debt 0

Outputs for 15% growth:

M-cap 12.0B
Share Price $54.73 (A double+ from here)
CAGR 16.52%

Using 13% growth:

M-cap 9.7B
Share Price $44.23
CAGR 11.66% (still a historical market beater)

Using the low-end 11% of the exercise:

M-cap 7.7B
Share Price $35.09
CAGR 6.61%

How about 18% growth:

M-cap 16.1B
Share Price $73.31
CAGR 23.54%

I don't even know what to do, if anything at all, with the dividend.

Who's to say their new chains wont take-off and they can't beat 15% estimated growth. I'm still liking this investment and again...this is just an amateur attempt at a valuation I like to do for fun and to get to know the company better.


Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.