American Eagle Outfitters Inc., which is starting to run out of room to add stores in North America, has signed a deal with a company that will start putting franchise locations in the Middle East as early as next year.

M.H. Alshaya Co. in Kuwait, which indicates on its Web site that it already operates stores under brand names such as Justice, Claire's and H&M, is slated to open the first American Eagle franchise location in the Middle East in early 2010.

Meanwhile, the South Side retailer reported that it was starting to carry fashions teens will pay full price for again even though first-quarter profits were almost half those of the same period last year and the second quarter isn't likely to be much better.

The company posted net income of $22 million, or 11 cents per share, for the three months ended May 2. That compares with $43.9 million, or 21 cents, during the same period last year.

Total quarterly sales fell 4 percent to $612 million compared with $640.3 million last year. Sales in stores open at least a year fell 10 percent.

"We clearly have issues in our business that have yet to be resolved," CEO Jim O'Donnell told analysts as he discussed the results yesterday. Still, he said the sharp declines of the holiday quarter seemed to be leveling off.

Customer favorites were jeans, dresses and fashionable tops. One fashion miss came in men's shorts, which aren't selling as well as expected.

Two newer concepts met internal goals in the quarter. The intimates and dormwear chain Aerie posted a 17 percent gain in sales at established stores. Martin + Osa, which could be abandoned if it doesn't show sustained growth, produced a 7 percent increase.

Looking ahead, American Eagle is projecting second-quarter earnings in the range of 12 to 15 cents per share, compared with 29 cents last year. Analysts polled by Thomson Financial Network expected an average of 15 cents per share.

American Eagle shares closed yesterday at $14.33, down 15 cents.