American Eagle profit tops view; shares jump
NEW YORK (Reuters) - American Eagle Outfitters Inc (AEO.N) reported better-than-expected quarterly profit on Wednesday, helped by cost-cutting and inventory reductions, sending the teen apparel retailer's shares up nearly 8 percent.
The mall-based chain, known for colorful, casual fashions, said net profit in the first quarter tumbled 44 percent to $43.9 million, or 21 cents per share, from $78.8 million, or 35 cents per share, a year earlier.
Analysts on average had been expecting 19 cents per share, according to Reuters Estimates, based on the company's prior forecast for a range of 18 cents to 20 cents.
The Pittsburgh-based company operates the preppy American Eagle Outfitters chain, as well as aerie, which sells intimates for young women, and Martin & Osa, which sells sportswear for men and women aged 25 to 40.
As previously disclosed, sales rose 5 percent to $640.3 million in the quarter, which ended on May 3, but same-store sales, a key retail metric, fell 6 percent.
Chief Executive Officer Jim O'Donnell said on a conference call that sales results were "well below our original plan," due mostly to weak sales of girls' clothes that forced the retailer to take markdowns that hurt profits.
American Eagle has experienced weak demand for its clothing, especially women's items, during the spring. April same-store sales rose a mere 2 percent, but declines in March and February were a greater-than-expected 12 percent and 4 percent, respectively.
"Our first-quarter results reflect a number of challenges during the quarter, both internal and external," O'Donnell said. "In response to the economic environment, we are reducing inventory and expenses."
On the product side, American Eagle is revamping its denim lines in time for the crucial back-to-school selling season as it tries to cut expenses while reducing inventory.
Total inventories at the end of the first quarter were $12.6 million lower than a year ago.
"American Eagle, facing challenges from both a difficult environment, as well as a lack of compelling fashions for their female customers, has managed through the first quarter defensively and effectively," wrote Stifel Nicolaus analyst Richard Jaffe in a research note.
"With the business defensively well-positioned, management's biggest challenge and the focus of much of their efforts is the improvement of the merchandise offerings, particularly women's and the denim offerings."
American Eagle expects earnings for the current quarter to range from 28 cents to 30 cents per share, which would be down from 37 cents per share a year ago.
Analysts were expecting 28 cents, according to Reuters Estimates.
American Eagle shares, which have fallen 36.5 percent in the past year through Tuesday's close, were up $1.37 at $18.59 on the New York Stock Exchange.
(Additional reporting by Ben Klayman in Chicago; Editing by Dave Zimmerman and Andre Grenon)
