March 12, 2008 / 12:03 PM / 9 years ago

American Eagle quarterly profit falls 6.4 percent

4 Min Read

NEW YORK (Reuters) - American Eagle Outfitters Inc (AEO.N) reported a 6.4 percent drop in quarterly profit on Wednesday, but shares of the teen retailer rose as the results met Wall Street expectations and it stuck by its forecast for the current period.

The mall-based chain, known for its colorful fashions for young men and women, said it would adjust to tough market conditions by cutting expenses and taking a more conservative approach to stocking inventory this year.

"In today's world, everyone wants to know what your inventories are," said retail analyst Jennifer Black of Jennifer Black & Associates.

That the company achieved a 21 percent operating profit margin on same-store sales that fell 2 percent in the quarter was "truly impressive," Black said.

On a conference call with analysts, Chief Merchandising Officer Susan McGalla said the retailer's No. 1 priority was improving its struggling women's business, a key driver of sales.

American Eagle shares, which through Tuesday had fallen about 17 percent this year, were up nearly 7 percent in late-morning trading.

Net income for the fourth quarter that ended February 2 fell to $140.5 million, or 66 cents per share, from $150.2 million, or 66 cents per share, a year earlier, when there were more shares outstanding.

The results met the analysts' average outlook, according to Reuters Estimates. Last week American Eagle said it expected to report earnings of 66 cents a share, up from its previous forecast of 64 cents to 65 cents.

Gross margin declined to 45.7 percent of sales from 47.9 percent after the company cut prices to clear out slow-selling goods.

Its brands include preppy American Eagle stores; aerie, a line of dormwear and intimates; and Martin + Osa, a sportswear chain targeting 25-to-40-year-old women and men.

Quarterly sales rose 2.3 percent to $995.4 million.

Last week, American Eagle posted a bigger-than-expected drop in February same-store sales, citing low store traffic and weakness in its women's merchandise.

To turn that business around, McGalla said the company would focus on providing "value," like AE jeans for $29.50 and T-shirts for $15.50.

American Eagle is also revamping its denim selection, saying it is exiting its current line-up to make way for "100 percent newness" for the back-to-school season.

For the current fiscal year, the company expects capital expenditures of $250 million to $275 million, and it forecast square footage growth of roughly 10 percent.

Aerie will open about 70 new stores this year, and next month the company is launching the e-commerce Web site for Martin + Osa.

Last week, American Eagle forecast first-quarter earnings of 25 cents to 27 cents a share, well below analysts' expectations, on higher markdowns and same-store sales declines. In the year-earlier quarter, profit was 35 cents per share.

The company said the response to its new spring merchandise was weaker than it had expected during this quarter, and same-store sales should remain negative.

American Eagle shares were up 92 cents, or 5.3 percent, at $18.17 in early afternoon trading on the New York Stock Exchange.

(Additional reporting by Alexandria Sage)

Reporting by Nicole Maestri, editing by Maureen Bavdek and Lisa Von Ahn

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