American Eagle posts better-than-expected earnings


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A market looking for an indication that the teen clothing sector is cool again rewarded American Eagle Outfitters on Wednesday by pushing its stock price up almost 12 percent after the South Side retailer did better in the second quarter than expected.

Not bad for a retailer who noted that denim — still its dominant product — might not be quite as key to its customers’ wardrobes as in past seasons.

Roger S. Markfield, chief creative officer, said the company has planned for a dip in demand for jeans, even as it added more options such as jeggings, soft pants and fleece. “Denim is holding up well in a highly competitive landscape and remains a healthy and profitable business,” he told analysts on a conference call to discuss the company’s earnings.

American Eagle reported a profit of $5.8 million, or 3 cents per share, for the three months ended Aug. 2, beating analysts’ estimates by 3 cents, according to Thomson Financial. Last year in the second quarter, the company had net income of $19.6 million, or 10 cents per share.

Total revenue dropped 2 percent to $711 million from $727 million last year, and sales in stores that have been open at least a year — or same-store sales — fell 7 percent during the three months ended Aug. 2. That follows a similar 7 percent drop in the second quarter of last year.

The company said it expects same-store sales to be down in the single digits in the third quarter. Earnings per share should come in the range of 17 to 19 cents a share, which would meet analyst expectations for 18 cents per share.

Jay Schottenstein, the company’s chairman who has also been serving as interim CEO since earlier this year when American Eagle parted ways with the executive who held the job for two years, said the retailer has a way to go to fulfill its potential.

He said the search for a new CEO continues, even as he praised the team in place that’s been working on the turnaround effort for the past several months.

In the second quarter, Mr. Schottenstein said, “We successfully cleared through spring and summer merchandise, and entered the second half of the year in a good inventory position.”

Mr. Markfield also touched on the teamwork issue, noting, “Working through a challenging and dynamic business environment is never easy. Yet I’m proud of how everyone has pulled together and made quick adjustments to our process and plans.”

Determining the next generation of leaders for teen clothing retail has been an issue in the industry. In December, Abercrombie & Fitch announced it had worked out a new arrangement with CEO Mike Jeffries and planned to recruit presidents for its key brands as a way to “build internal candidates for succession planning.”

Earlier this week, Aeropostale brought back Julian R. Geiger to serve as CEO, effective immediately, after he’d been out of the job for several years. The retailer also said it expected to report a loss in the second quarter.

Aeropostale is scheduled to release earnings today, and Abercrombie will share its second-quarter results next week.

American Eagle’s ability to perform better than expected looked like a good sign to Jefferies analyst Randal J. Konik. In a report issued Wednesday, he said, “Overall, we view this as a strong indicator for a positive inflection in the teen space. With inventory clean, topline momentum building and a number of [second-half] catalysts to drive sequential improvement, we are very positive on AEO’s prospects here.”

Jefferies has a buy rating on the stock with a target price of $20.

American Eagle stock closed at $12.98 per share Wednesday, up $1.39. The company’s shares started trading this year at $14.76

In addition to getting its merchandise right and making its systems more nimble to jump on fashion trends, American Eagle has been downsizing its store fleet to respond to the fact that more shopping is coming through digital channels.

Mr. Schottenstein said a new Hazleton distribution center that can speed up delivery times and cut unit processing costs is up and running. The facility will replace one in Thorn Hill Industrial Park in Marshall, a change the company announced last year.

Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018.


First Published August 20, 2014 9:16 AM

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