American Eagle Outfitters CEO outlines sales strategy

| Thursday, March 8, 2012

American Eagle Outfitters Inc.'s new CEO on Wednesday gave the first hints of his plan to boost flat sales and reverse "significant" profit-margin erosion, while promising a more detailed strategy later.

"We must especially turn fashion items faster," said Robert L. Hanson, who has 24 years of retail experience and has been with American Eagle for a month, after the South Side-based retailer of teen clothing reported lower profit for the three months ended Jan. 28.

Adding that he has a "bias toward lean inventory," Hanson said the company will increase marketing and work to accelerate online sales.

American Eagle plans to open 15 stores this year, primarily in outlet centers, close 20 to 30 others and remodel 100 locations, Hanson said. The retailer has 62 AE Off Campus stores in outlet centers, fewer than competitors, he said.

And this fall, fashion items meant to sell out quickly will appear in AE stores alongside well-stocked jeans, T-shirts and other basics that made AE the top teen clothing brand, Hanson said.

The retailer said yesterday that it might close some of its aerie brand intimates and loungewear stores that are underperforming. The aerie chain delivered mixed results for the holidays.

American Eagle said it took a $21 million charge for the latest quarter, primarily tied to weak results from 50 of its 158 aerie stores in the United States and Canada. The charge amounted to 7 cents a share, figuring into the company's 41 percent profit drop from a year earlier.

Net income for the latest period totaled $51.28 million, or 26 cents a share, down from $87 million, or 44 cents, reported a year ago. Sales were up 14 percent to $1.04 billion. Higher fourth-quarter sales came on markdowns needed to drive traffic, but that reduced profit.

Shares closed yesterday at $15.54, up 91.5 cents.

Hanson called aerie a great brand that's profitable overall.

"We're stepping back and looking at the opportunity to drive the growth of aerie in a thoughtful manner, moving forward," said the former global brand president for Levi Strauss Co. during a conference call.

Chief Financial Officer Joan Holstein Hilson said the company is talking with landlords and evaluating several underperfoming stores for possible closing.

The company did not name specific locations. In Western Pennsylvania, aerie stores are at Ross Park Mall, the Mall at Robinson, South Hills Village and the SouthSide Works.

Comparable brand sales for aerie were up 6 percent for the fourth quarter, compared with 10 percent for the company's AE brand. Customers bought underwear, but clothing in the stores had less appeal, the company said.

"The intimates category at aerie continues to perform well," and that's the core of the business, retail analyst Jennifer Black of Jennifer Black & Associates in Lake Oswego, Ore., said in a report. "The apparel side of the business has not done well but is targeted for improvement, creating an opportunity."

The aerie brand debuted in 2006, and items also are sold in AE stores.

For the full year, American Eagle's profit rose to $151.7 million, or 77 cents a share, up 7.9 percent from $140.65 million, or 70 cents, in 2010. Sales climbed 6 percent to $3.16 billion.

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