* Q3 EPS $0.27 vs est $0.27
* Sees Q4 EPS $0.40-$0.44 vs est $0.39
* Says Thanksgiving sales driven by higher traffic,
* Shares up as much as 9 percent
By Nivedita Bhattacharjee
Nov 30 American Eagle Outfitters Inc
is betting that the strong sales it saw over the
Thanksgiving weekend will continue through the rest of the
holiday quarter and make up for high raw material costs and
The outlook drove American Eagle shares up as much as 9
percent on Wednesday on the New York Stock Exchange, before they
pared some gains to trade up 4 percent at $14.03.
The teen apparel retailer -- priced mid-way between high end
rival Abercrombie & Fitch, and more affordable
Aeropostale Inc -- has fared better than its peers so
far this holiday season.
"If you don't have something new and novel to offer,
shoppers won't buy," said Linda Tsai, senior softline retail
analyst with ITG Investment Research
"(American Eagle's results are) definitely a
combination of merchandising and promotions because everyone is
For the fourth quarter, Pittsburgh-based American
Eagle expects to earn between 40-44 cents a share in the fourth
quarter, while analysts, on average, were expecting 39 cents a
Clothes retailers are banking on discounts to boost sales
and overcome a margin squeeze during the holiday season, which
typically accounts for about 30 percent of annual sales.
Even though American Eagle advertised discounts of about 40
percent during Black Friday, they were still not as sharp as
"Our inventory investments in key items were spot on ...
resulted in record conversion rates and double-digit unit sales
growth," Chief Executive Jim O'Donnell, who retires soon, said
on a conference call with analysts.
American Eagle named Levi Strauss executive
Robert Hanson as O'Donnell's successor earlier this month.
BASICS OR FASHION?
American Eagle struggled with sales and missed profit
estimates in the beginning of the year, but the retailer has
since capitalized on its forte -- denims, knit tops and other
wardrobe staples for 15-25 year olds.
"Denim achieved a high-single digit comparable
sales ... through a combination of new styles and strong
demand for our heritage jeans," Executive Creative Director
Roger Markfield said.
He said NPD data showed that the company gained market share
in denims and is the number one leading specialty store denim
brand for 15-25-year-olds.
However, some analysts were skeptical that plain
denims and knit tops would excite American Eagle's
"We view management's concentration on basic key items as
defensive because it is focused on protecting and growing its
franchise strengths: denim and knit tops," Stifel Nicolaus
analyst Richard Jaffe wrote in a client note.
"American Eagle is in the business of fashion ... must
therefore make fashion bets and support them with sufficient
Currently, roughly half of the company's merchandise leans
towards wardrobe staples.
"We believe the company will be unable to inspire the
consumer with its overly basic and unexciting assortment this
holiday season, thereby pressuring results," Jaffe added.