American Eagle Outfitters reports weak first quarter

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American Eagle Outfitters and its teen clientele owned a corner of the nation’s malls for years, hanging out and showing off their preppy fashions.

But the mall’s role in the future of shopping isn’t clear, so the South Side teen clothing retailer is rethinking its store development program — identifying 150 stores it will close in North America over the next three years and keeping an eye on 300 more that have leases due to come up for renewal in that time.

“We have half the fleet that comes due the next few years,” interim CEO Jay Schottenstein told analysts on a conference call to discuss first quarter earnings Wednesday. “That puts us in the driver’s seat.”

The 1,000-store chain historically closes 30 to 40 stores a year even as it is adding new stores elsewhere, another executive noted, so the big change this time is that the company won’t be aggressively going after new bricks-and-mortar locations as it seeks out customers.

Instead, it will invest in ways to make other types of shopping easier, such as the new distribution center opening this summer in Hazleton, Pa., an improved mobile app and a test program to allow customers to buy online and get products shipped from stores.

Meanwhile, Mr. Schottenstein, who took over as interim chief executive in January, said the first quarter’s underwhelming results were not unexpected, given product that he’s not particularly happy with and the need to increase markdowns to clear out inventory.

The retailer reported a profit of $3.87 million, or 2 cents per share, in the three months ended May 3. That compared to $28 million, or 14 cents per share, during the same period a year earlier. Total revenue fell 5 percent to $646 million during the quarter. Sales at stores open at least a year fell 10 percent.

“Results were consistent with our expectations,” said Mr. Schottenstein in the company’s official announcement.

In addition to shrinking the store fleet, he said, other actions toward improving profitability included reducing corporate and store expenses, as well as expanding internationally.

Roger S. Markfield, chief creative officer, gave an update on a fast-fashion project that has been getting merchandise from the design phase to stores within 60 days. It’s only in a small number of stores so far, and the company is trying to expand on that at profitable margins.

In addition, he said, American Eagle will be ordering less inventory for the second half of the year, leaving itself room to maneuver.

Randal J. Konik, an analyst with Jefferies, kept a buy rating on the stock Wednesday although he lowered the price target from $19 to $17. In a report to investors, Mr. Konik said management should be able to find more cost savings through store closures and administrative expenses.

His view that things could improve in the second half of the year is based on the potential of a new CEO being named, easier sales comparisons with last year, merchandise improvements and fewer marketing discounts.

For its part, the company is calling for second quarter earnings per share to be about break-even, excluding potential asset impairment and restructuring charges.

American Eagle shares closed Wednesday at $10.60, down more than 6 percent.

Teresa F. Lindeman: or at 412-263-2018.

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