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Sales, profit fall at retailer American Eagle Outfitters

| Wednesday, Aug. 20, 2014, 9:36 a.m.

Despite a plunge in quarterly profit and continued struggles to boost sales, investors saw reason to celebrate the latest financial report from American Eagle Outfitters Inc.

They looked beyond those general indicators and focused on the struggling teen apparel retailer's progress in reducing inventory, expenses and markdowns — which led to a better quarter than the company and analysts had expected.

Prospects for a turnaround at South Side-based American Eagle remain hazy, analysts said, and company executives admitted they still have a lot of work ahead of them despite trying to sound upbeat.

“Although the second-quarter results were slightly ahead of our expectations, they do not reflect our potential,” interim CEO Jay Schottenstein said. “We did, however, make significant progress on our priorities to build higher profitability.”

American Eagle posted a profit of $5.8 million, or 3 cents a share, in the second quarter ended Aug. 2, down 70 percent from $19.6 million, or 10 cents a share, in the same period last year. Revenue was $711 million, down 2 percent, from $727 million a year earlier. Revenue dropped 7 percent at stores open at least a year, a key measure of a retailer's health.

Analysts had expected a break-even quarter on revenue of $689.7 million, according to data from Bloomberg. The better-than-expected news sent the company's shares soaring 12 percent, or $1.39, to $12.98.

“Despite a recent uptick in sales and margin trends, we believe it is too soon to declare victory, and we lack visibility that these positive trends will continue,” Richard E. Jaffe, analyst with Stifel in New York said in a report. “We believe there is uncertainty surrounding both the merchandise turnaround and the CEO search.”

American Eagle fired CEO Robert Hanson in January after two years. The company was facing mounting pressure from competitors and weaknesses that have dogged retailers coming out of the recession. Schottenstein, who had been executive chairman and is the retailer's seventh-largest shareholder, is running the company while a search is under way for a permanent CEO.

Under Schottenstein, the company has shuttered stores and made other changes to boost performance.

He and other executives said they accomplished goals that included clearing spring and summer inventories, delivering stable profit margins on merchandise, opening on schedule a fulfillment center in Hazleton, and initiating a national marketing campaign last week.

But expense cuts will continue, executives said. Growth in the retail sector has been stagnant for the past year.

“There are efficiencies to be found everywhere, including our stores,” Mary Boland, chief financial and administrative officer, told analysts on a conference call. “I would say a lot of focus here, though, does need to be on the overhead side, the corporate overhead side. As the company's revenue has been relatively flat, we need to continue to drive for actual reductions there.”

American Eagle employs about 500 at its South Side Works headquarters. A spokeswoman did not respond to a request for further details.

Last month, the retailer said it would shutter 150 AEO and aerie brand stores over three years because net income plummeted 86 percent in the first quarter. The company has about 950 stores in the United States. It closed five stores in the April-June quarter, and plans to close 27 AEO stores and 29 side-by-side AEO and aerie stores this year.

Trib Total Media staff writer Alex Nixon contributed to this report. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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