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Teen apparel retailer American Eagle reels as CEO Hanson abruptly departs

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Sunday, Jan. 26, 2014, 7:31 p.m.

Robert Hanson's abrupt departure from the top job at teen apparel retailer American Eagle Outfitters caught many off-guard.

“Premature,” “unexpected” and “surprising” was the Wall Street buzz last week as retail analysts digested the news.

“Hanson and his team had had a lot of success,” said Burt Flickinger III, managing director of Strategic Resource Group in New York, who counted himself among the surprised analysts.

Hanson, CEO for only two years, had been praised for closing under-performing stores, selling a children's clothing line, improving online sales and increasing logistics efficiency.

But sales fizzled during 2013, culminating in a disappointing Christmas shopping season. Profits fell, and the stock tanked.

Whether Hanson left on his own or was forced out remains unclear. The Pittsburgh-based company would say only that Hanson left and Jay Schottenstein — former CEO, its longtime chairman and one of its largest shareholders — took over as interim CEO.

Schottenstein declined an interview request, and Hanson couldn't be reached. A search is on for a permanent CEO, the company said.

Hanson faced a difficult set of circumstances at American Eagle, experts said, some of which fell outside his control.

Overall economic trends are squeezing shoppers' budgets across the retail industry, and most clothing stores, including American Eagle's direct competitors, have experienced declining sales.

“When Hanson and his team took over, everyone thought the economy was turning for American Eagle's core demographic,” Flickinger said, referring to consumers ages 15 to 29. “You look at teen or student retailing, it's just a wasteland.”

American Eagle's revenue for the nine weeks ended Jan. 4 dropped 2 percent to $882 million, compared with $904 million for the nine weeks ended Dec. 29, 2012, the company said this month. Results comparing stores open for at least a year were even worse, dropping 7 percent.

The company will report fourth-quarter and full 2013 results in March, but over the first three quarters, net income plummeted 47 percent. Its stock value crumbled 28 percent during last year.

On Thursday, the day after Hanson's departure was announced, investors took the news badly. American Eagle shares fell $1.12, or 8 percent, to $13.19. On Friday, the stock dropped another 37 cents to $12.82.

But it wasn't all external pressures that weighed on Hanson's performance. American Eagle was slow to respond to changing tastes of its customers, said Craig Johnson, president of Customer Growth Partners in Connecticut.

The all-important female shopper, if she's buying apparel, will go to so-called “fast-fashion” stores H&M, Forever 21 and Zara, which tend to be less pricey, Johnson said.

Paige Pegher, 16, of Greenfield said she likes American Eagle's clothing but finds it too expensive.

“I prefer Forever 21 and H&M because they are more affordable,”Pegher said. “I have some items from American Eagle, but they should just offer better prices for their clothes.”

American Eagle's basic proposition to core customers “has not materially changed in the last decade,” Johnson said.

Generally, he said, the reaction of female shoppers walking into American Eagle stores was: “Hey, that's where my older sister used to shop and it's like yesterday's news.”

A pair of Pittsburgh shoppers confirmed the analyst's sentiments.

“I like American Eagle,” said Aditi Shah, a University of Pittsburgh sophomore waiting recently for a bus near the American Eagle store at SouthSide Works. She and her friend, fellow Pitt sophomore Kaitlin Augustine, carried bags from H&M, Forever 21 and Urban Outfitters.

“But sometimes their clothing and styles aren't as trendy,” Shah said. “They are repetitive. A lot of their sweaters are the same style every time.”

Hanson acknowledged during conference calls with analysts over the past year that the company failed to “execute” when it came to getting the most appealing fashion into its stores.

There were seasonal misses. In May, for example, Hanson told analysts that the company stocked stores with warm weather clothing too early during a colder-than-normal spring.

Another factor beyond his control was Schottenstein's presence, some analysts suggested.

Schottenstein was CEO from 1992 to 2002 and chairman from 1992 to 2012. He became executive chairman in 2012, when Hanson started.

“Anytime you have a chairman or founder that is still hanging around ... it's a recipe for disaster,” Johnson said.

Many companies have experienced the difficulty caused when a former CEO maintains an active role, he said. The CEO asks, “Who's really in charge here?” Johnson said, and junior executives can wonder the same thing.

Investment firms suggested friction developed between Schottenstein and Hanson.

Piper Jaffray & Co. noted there was “little evidence to suggest abrupt change was solely business-driven,” according to a research note from the New York firm.

“Seems to us this was a board decision,” according to Wells Fargo Securities, which said American Eagle's board may have difficulty in finding a replacement because it “seems Hanson was on a pretty short leash.”

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or Staff writer Joanne Klimovich Harrop and Bloomberg News contributed to this report.

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