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UPDATE 4-American Eagle profit, outlook meet Street view
March 11, 2009 / 12:27 PM / 9 years ago

UPDATE 4-American Eagle profit, outlook meet Street view

* Q4 adj EPS 19 cents meets Wall Street’s lowered view

* Q4 sales fall 9 pct

* Sees Q1 EPS 4 cents-7 cents/share; Street view 6 cents

* Says “vigorously pursuing major improvements”

* Shares rise 2 pct (Recasts; adds analysts’ comments; updates shares)

By Martinne Geller

NEW YORK, March 11 (Reuters) - American Eagle Outfitters Inc (AEO.N) posted sharply lower quarterly earnings that met Wall Street estimates on Wednesday and forecast another decline ahead as the apparel chain works to make its teen fashions more appealing at lower prices.

Like many of its peers, American Eagle was battered during the 2008 holiday shopping season, the toughest in nearly four decades, as consumers pared spending, forcing the company to offer deep discounts that sapped profit.

Now the company expects to earn just 4 cents to 7 cents per share in the current first quarter. While that is down substantially from 21 cents a year earlier, it means American Eagle may even top analysts’ average estimate of 6 cents per share, according to Reuters Estimates.

The company’s shares were up in afternoon trading, after rising as much as 7 percent earlier in the day.

“The market is excited because the consensus is actually within range of their guidance, which suggests that maybe expectations are finally low enough,” said Needham & Co analyst Christine Chen.

Net income tumbled to $32.7 million, or 16 cents per share, in the holiday fourth quarter that ended on Jan. 31, from $140.5 million, or 66 cents per share, a year earlier. Excluding items, the company earned 19 cents per share, meeting Wall Street’s average forecast.

Analysts had lowered their estimates after the company said last week it expected profit to come in at the low point of its forecast range of 19 cents to 21 cents per share.

Sales fell 9 percent to $905.7 million. Sales at stores open at least a year fell 16 percent.

BACK-TO-SCHOOL BRIGHT SPOT?

American Eagle has battled a long string of same-store sales declines as its core teenage consumers buy less or flock to lower-priced rivals.

Looking ahead, Chief Executive Jim O‘Donnell said the company’s first priority was to improve its merchandise, especially in women’s clothes, which have been uninspiring for some time.

“It is absolutely imperative that we instill a dose of innovation in our product and do so quickly,” O‘Donnell said.

Stifel Nicolaus analyst Richard Jaffe said the return of Vice-chairman Roger Markfield as creative director will hopefully improve the chain’s “unappealing merchandise offerings,” but noted his impact will not be felt until the back-to-school season, or the second half of 2009.

“Given that the women’s business represents 60 percent of total sales, this fuels our concern for American Eagle in 2009,” Jaffe said in a research note.

He repeated his “hold” rating on the shares, noting that sales can be maintained in the near-term by promotions, such as a recent one in which all jeans were under $30.

Despite these promotions, O‘Donnell said American Eagle’s business remained “profitable and financially healthy.”

American Eagle affirmed its already-lowered expansion and capital spending plans for 2009, saying it expects to open 28 new stores this year and have capital spending of $110 million to $135 million.

As for its struggling Martin & Osa stores, O‘Donnell said if the chain does not make a “dramatic improvement” by the third quarter of 2009, he will have to “make a decision.”

The company’s shares were up 19 cents at $9.76 in afternoon trading on the New York Stock Exchange, after rising as high as $10.27. (Reporting by Martinne Geller, editing by Dave Zimmerman and Andre Grenon)

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