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American Eagle CEO fashions winning strategy

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Wednesday, March 6, 2013, 8:33 a.m.
 

American Eagle Outfitters Inc. CEO Robert Hanson has focused the long-troubled retailer on being more hip and upscale in his first year on the job.

His strategy seems to be paying off.

The South Side company on Wednesday reported a sharp jump in profits on improving sales. A key sign of strength was its ability to lure shoppers, including during the critical holiday season, with fewer discounts.

The performance was an indication that Hanson's strategy for turning around the clothing retailer was taking hold. The former Levi's executive who became American Eagle's CEO in January 2012 has focused on putting sharper, sometimes pricier, styles in stores and turning over merchandise faster with fewer markdowns.

The company said it plans to close more of its weakest stores, open others in urban and other high-traffic locales and continue online and international growth — while adding abilities to tailor merchandise by region and later, by store.

Although its performance was encouraging for the quarter and the full year, its stock took a beating as investors focused on a warning by the company of a slowdown in business. American Eagle's shares ended down $2.28 at $20.27. In the past year, the stock has risen 48 percent.

“The good news is he had a great year,” Craig Johnson, president of research firm Customer Growth Partners of New Canaan, Conn., said of Hanson, “although it happened to end on a little bit of a slow note.”

“That's a cautionary note and doesn't detract from the huge turnaround” at the retailer that actually began around October 2011 under former CEO Jim O'Donnell, he added.

The clothing retailer predicted lower softer results for the current quarter, based on February sales that are down in the mid-single digits percentagewise, compared to a 17 percent increase a year ago, because of economic woes and bad weather.

Hanson's biggest achievement thus far has been returning “newness” to American Eagle's more than 1,000 namesake and aerie brand intimates and sleepwear stores, Johnson said, adding, “The stores had gotten tired, a little boring.”

American Eagle made a $94.78 million profit, or 47 cents a share, for the three months ended Feb. 2. That compared to a $51.28 million profit, or 26 cents, in the same period a year ago. Sales were up 8.6 percent to just under $1.12 billion.

For the full year, the company's profit rose 53 percent to $232.1 million, or $1.16 a share, on sales totaling $3.48 billion, up 11 percent.

American Eagle forecast first quarter per-share earnings of 16 to 19 cents, compared to an analysts' consensus of 25 cents and year-ago results of 22 cents. Retail analyst Jennifer Black noted the “combination of the cooler weather and the merchandise being a bit too colorful for this time of year is leading to softer sales.”

Johnson said while it is performing better than direct competitors Abercrombie & Fitch and Aeropostale, American Eagle is facing a tough fight for female shoppers' dollars — two-thirds of its business — with fast-fashion leaders Forever 21 and H&M, plus Charlotte Russe, Zara and the hottest retailer, Urban Outfitters. He noted AE stores have added eclectic, mismatched “hipster” styles such as Urban Outfitters carries to its typically classic jeans and other casual fashions.

Hanson and other executives outlined steps for 2013, including:

• Spending $250 million to $280 million on projects that include new point-of-sale and merchandise planning technologies, a new distribution center to help fulfill online orders and about 50 store openings, including 40 AEO Factory outlets. Seven to 10 planned AEO stores will include new Miami and New York locations. The company opened 16 AE stores in 2012.

• Closing 20 to 30 AE stores and 15 to 20 Aerie locations, compared to 34 and seven for the two brands in 2012. Aerie is improving since apparel selections were downsized, and a new swimwear line “shows potential,” said Roger Markfield, executive creative director. About 50 aerie stores are on the “watch list” for weak performance, the company said, and aerie locations in the future will tend to be beside or inside American Eagle stores.

• Localizing merchandise assortments based on customers' past purchases using the new technology, with most of the benefits coming in 2014. Hanson called this a “key focus for us to be competitive moving forward.”

Meanwhile, American Eagle said it's moving out of 51,000 square feet of leased space at the SouthSide Works and moving workers there to its two headquarters buildings nearby in the complex.

Kim Leonard is a staff writer for Trib Total Media. She can be reached at 412-380-5606 or kleonard@tribweb.com.

 

 
 


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