American Eagle to launch children's brand

DANA POINT, California Thu Jan 17, 2008 3:38pm EST

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DANA POINT, California (Reuters) - American Eagle Outfitters Inc (AEO.N), known for its mall-based apparel chain geared to teens, said on Thursday it was setting its sights on an even younger market, launching a new children's brand called 77kids by american eagle.

The line will debut on the Web at www.77kids.com by early autumn and then in its new chain of stores in time for the 2009 back-to-school season, with clothing like denim, fleece and accessories for children ages 2 to 10.

"I believe it will be accretive very quickly .... I hope by the third full year," American Eagle Chief Executive Jim O'Donnell told Reuters at the ICRXchange Conference for consumer companies. "When we can leverage off our main brand ... we won't spend as much money."

The brand will offer "cool clothes" seen at some higher-end children's stores, but at more affordable prices, O'Donnell said. Whereas a pair of kids' jeans at a more upscale chain cost $48, O'Donnell said 77kids will offer them at $24 to $26, with knits priced between $12 to $14.

Clothing from 77kids will combine the durability and washability sought by mothers, with what increasingly fashion- conscious kids want to wear, O'Donnell said.

"If you can capture that, you have an advantage," he said, adding that the fun, fashion component was key. "You don't want to be just in the T-shirt business, you don't want to be in commodities."

American Eagle's namesake chain, which has over 850 stores, sells colorful, casual apparel targeted at young men and women ages 15 to 25. The company says it is the No. 1 specialty retailer selling denim to teens.

The company has been successful with its aerie line of intimates and lounge wear for teen girls, which it sees becoming a $1 billion business. Its 19-strong Martin & Osa chain for adults has crimped profits, but O'Donnell said he had no plans to shutter the chain, which targets men and women ages 28 to 40. Martin & Osa is expected lose 15 cents to 17 cents per share in 2007.

American Eagle, currently in the United States, Puerto Rico and Canada, also hopes to expand abroad. The company is in talks with potential joint-venture partners to bring the brand to Hong Kong, South Korea or Japan by 2010, O'Donnell said.

"Probably sometime in 2010 we'll be in one of those three countries," he said.

ACCESSORIZE, ACCESSORIZE, ACCESSORIZE

O'Donnell said there was no target for the number of 77kids stores yet, but said it would probably be "a bit less" than its aerie chain of 39 stand-alone stores.

In targeting children, American Eagle will now compete with companies such as Gap Inc (GPS.N), Gymboree Corp GYMB.O and Children's Place Retail Stores Inc (PLCE.O).

American Eagle also has plans to increase accessories offerings at its main chain of stores, which now represent 8 percent of total sales.

"In my dreams it could be 15 percent," said O'Donnell, who said the company will eventually devote a "significant" portion of real estate, or the entire back of its American Eagle stores, to accessories like bags, which can carry higher profit margins than apparel.

For 2008, American Eagle expects 2008 earnings to grow 15 percent, in line with its long-term target. That target was built on a conservative financial model that assumes same-store sales will rise at a low single-digit percentage rate, O'Donnell said.

Operating profit margins should be around 20 percent, he added.

(Additional reporting by Nicole Maestri and Martinne Geller in New York, editing by Richard Chang)

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