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Weak retail climate slows American Eagle results

Philip G. Pavely | Tribune-Review
An American Eagle Outfitters sales associate fixes merchandise on the South Side Wednesday, March 6, 2013.

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By Thomas Olson
Wednesday, Aug. 21, 2013, 9:36 a.m.
 

American Eagle Outfitters Inc. said earnings would drop this quarter from year-ago levels because of lower store traffic and competitor discounting that dogged the teen clothing retailer in recent months.

The profit warning was issued as the South Side-based company posted disappointing second-quarter results that sent shares tumbling. The stock closed Wednesday at $14.76 a share, down $1.62, or 9.9 percent.

“It's a very competitive environment out there,” CEO Robert Hanson told Wall Street analysts on a conference call. “With high teen unemployment, there's lots of competition for youth dollars.”

The unemployment rate for people ages 16 to 19 has been roughly 24 percent for many months, according to Labor Department data. That rate compares to 7.4 percent in July for working-age people generally.

American Eagle operates more than 1,000 stores in North America.

The retailer said it expected to earn 14 to 16 cents a share this quarter, a drop from 41 cents earned the year earlier.

“No one was expecting (the projection) to be as low as it was,” said John Kernan, an analyst at Cowen Securities LLC, Boston.

American Eagle is forced to reduce prices on some merchandise in response to price reductions by other retailers, he said.

“We've seen weak results from other teen retailers,” such as The Gap and Abercrombie & Fitch, said Kernan.

American Eagle focused too much on fashion-oriented items that increasingly cost-conscious consumers shied away from, and not enough on basic merchandise such as T-shirts and denim products, Kernan said.

Hanson told analysts the retailer was “revisiting marketing plans” to drive customers into stores. It will manage operating expenses more tightly and reduce capital spending.

Sales for the quarter ended Aug. 3 declined 1.7 percent to $727 million, from $740 million a year earlier. Comparable store sales fell 7 percent over the year, a sharp contrast with the 8 percent increase a year ago over the 2011 period.

Earnings rose 3.1 percent to $19.6 million, or 10 cents a share, compared to $19.0 million, or 9 cents a share, a year earlier. The year-ago period included a loss of $23.8 million from discontinued operations.

During the quarter, the company opened 26 stores and closed seven locations, including six Aerie stores, which sell intimate clothing and sleepwear.

Thomas Olson is a Trib Total Media staff writer. Reach him at 412-320-7854 or tolson@tribweb.com.

 

 
 


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