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American Eagle Earnings Jump 47 Percent on Cost Cuts

Wednesday, 09 March 2011 02:33 PM

American Eagle Outfitters Inc.'s fiscal fourth-quarter net income rose 47 percent as the company cut costs faster than sales declined, the teen clothing retailer said Wednesday. Its CEO also announced plans to retire.

CEO James V. O'Donnell's retirement comes at a time when takeover speculation has swirled around the Pittsburgh company. O'Donnell, 70, will stay with the retailer until a successor is chosen and will work through the transition.

American Eagle's stock rose nearly 7 percent. Analysts said the company's business might turning the corner and new management will help rejuvenate the company, which has struggled with sales declines.

O'Donnell started with American Eagle as its chief operating officer in 2000. He became co-CEO in 2002 and CEO in 2003.

American Eagle's earnings climbed to $87 million, or 44 cents per share, for the fourth quarter. That's up from $59.3 million, or 28 cents per share, a year ago. Last year's quarter included a $20.3 million loss from stores it has since closed.

That beat the 43 cents per share that analysts polled by FactSet predicted.

Fourth-quarter selling, general and administrative expenses declined to $194 million from $227.7 million.

Revenue for the period ended Jan. 29 slipped 4 percent to $916.1 million, short of Wall Street's $919.4 million estimate.

American Eagle's rival Aeropostale Inc. has focused on the low end of the price spectrum and Abercrombie & Fitch Co., after cutting prices during the recession, is again focusing on the higher end. American Eagle is increasingly targeting an older crowd, customers in their 20s, to carve out its own niche, said Stifel Nicolaus analyst Richard Jaffe. Still, revenue overall was weak during the quarter.

"In the fourth quarter, we had some areas that were not up to our expectations," Roger Markfield, vice chairman and executive creative director, said in a call with analysts. "Women's tops, including sweaters, should have been stronger. On the men's side, frankly, we did not invest enough in key items, and missed an opportunity to drive higher volumes."

Revenue at stores open at least a year fell 7 percent. This figure is a key gauge of a retailer's health because it excludes revenue from stores opened or closed during the year.

Janney Capital Markets analyst Adrienne Tennant said American Eagle's business will turn around.

"We believe shares will continue to be supported by new ideas from a new management, takeout speculation, lean inventory levels, cost reduction program" and its relatively low share price, she said.

Looking ahead, American Eagle expects first-quarter net income of 13 cents to 17 cents and fiscal 2011 net income, excluding one-time items, of $1.02 per share. Analysts expect first quarter net income of 16 cents per share and full-year earnings of $1.09 per share.

American Eagle, like most clothing retailers, is facing substantially higher costs for cotton and other key raw materials.

"There is no question we face headwinds with respect to higher product costs in the second half of the year," O'Donnell said. "We are actively managing our supply chain to help mitigate this cost pressure."

Following the recession, leveraged buyouts of retailers have picked up. Gymboree Corp. agreed to be bought by Bain Capital for $1.8 billion in a deal that closed in November, and J. Crew was taken private by TPG Capital and Leonard Green & Partners in a $3 billion deal that closed Monday.

American Eagle and Aeropostale both have been mentioned by industry watchers as potential targets.

American Eagle has 929 stores in the U.S. and Canada.

Its stock rose 99 cents, or 6.7 percent, to $15.79 during midday trading. The stock has traded between $11.35 and $19.64 during the past year.

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American Eagle Outfitters Inc.'s fiscal fourth-quarter net income rose 47 percent as the company cut costs faster than sales declined, the teen clothing retailer said Wednesday. Its CEO also announced plans to retire.CEO James V. O'Donnell's retirement comes at a time when...
Earns American Eagle Outfitters
Wednesday, 09 March 2011 02:33 PM
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