Discounts to hit American Eagle profit in holiday quarter

Fri Dec 6, 2013 11:50am EST

(Reuters) - Teen apparel retailer American Eagle Outfitters Inc (AEO.N) became the latest U.S. retailer to forecast a weaker-than-expected holiday quarter, blaming the deep discounts necessary to boost sales.

Shares of the company fell 10 percent in morning trading after it also posted a 68 percent fall in quarterly profit.

The "three A's" of teen retail, American Eagle, Aeropostale Inc (ARO.N) and Abercrombie & Fitch (ANF.N), are struggling to attract young shoppers who have shifted allegiance to "fast fashion" chains such as Sweden's H&M, Forever 21 and Inditex's (ITX.MC) Zara, which offer trendier clothes at lower prices.

However, American Eagle has fared a little better than its U.S. peers as it targets a wider age group with more fashionable clothing.

While all three companies forecast weak results holiday season, Jefferies analyst Randal Konik believes American Eagle could beat its own fourth quarter forecast since the company's inventory levels were in "decent shape.

American Eagle on Friday forecast a fourth-quarter profit of 26 cents to 30 cents per share, below analysts' estimates of 39 cents per share, according to Thomson Reuters I/B/E/S.

The company, which also named a new chief merchandising and design officer for its American Eagle Outfitters brand, forecast a mid single-digit percentage fall in comparable-store sales.


American Eagle said Chad Kessler would head merchandising and design at its American Eagle Outfitters brand from February 3.

Kessler, who started his career Abercrombie & Fitch to launch the Hollister brand in 1999, joins from Urban Outfitters Inc (URBN.O), which has also been faring better than rivals due to its fresher on-fashion styles and attractive pricing.

American Eagle said net profit fell 68 percent to $24.9 million, or 13 cents a share, in the third quarter ended November 2 from $78.6 million, or 39 cents per share, a year earlier.

Excluding items, it earned 19 cents per share, in line with analysts' estimates.

Net margins slumped to 2.9 percent from 8.6 percent.

On November 6 the retailer had reported a 6 percent fall in sales in the quarter and a 5 percent fall in comparable-store sales.

Shares of the company were down 8.5 percent at $15.01 in late morning trade on the New York Stock Exchange.

The stock has fallen 16 percent in last six months, compared with a 28 percent fall in Abercrombie & Fitch's shares and a more than 36 percent fall in Aeropostale's shares.

(Additional reporting by Maria Ajit Thomas; Editing by Savio D'Souza)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article