American Eagle Comps Up 21%

WARRENDALE, PA-With continued positive results in its second quarter, American Eagle Outfitters Inc. CEO James O’Donnell during the company’s earnings call Tuesday praised the results of AE’s new flagship stores in Seattle and Manhattan, which have produced a 90% above-average increase in sales.

O’Donnell also noted that newly remodeled stores have exceeded store expectations on a sf basis. During the quarter, the company closed one underperforming store and opened 10 stores. By year-end, the company plans to open another 21 locations for a total of 37 new stores this year. Also in the second quarter, AE remodeled 11 stores, adding to the anticipated total of 46 remodeled stores by the end of 2005.

Emphasizing growth as a key priority to the AE strategy, which targets the 15- to 25-year-old consumer, O’Donnell told investors that the company plans to enhance its branded accessories and intimates categories, while looking into expanding with new stores internationally. Of the most anticipated—and guarded—initiatives is the company’s roll out of a new store concept. Expected by next year, the company says the store will not compete with the American Eagle brand, targeting an untapped demographic for the company.

In its second quarter ended July 31, AE posted a total sales increase of 29.8% to $513.3 million from $395.4 million for the same period last year. Same-store sales increased 21.1%, while gross profit as a percent to sales increased to 44.4% from 41.2% last year. Net income for the quarter rose to $58 million, or 37 cents per share on a diluted basis, from net income of $29.3 million, or 20 cents per share on a diluted basis last year.

O’Donnell attributed the results to the company’s comprehensive merchandise assortment and higher traffic numbers, which resulted in limited markdowns. He added that the company is looking to improve efficiency, namely in payroll. “During the second quarter, store payroll was higher than I’d like, and we are currently correcting it. We are focusing on lower-buying stores, which we can better manage payroll hours without sacrificing standards.”

Despite the company’s accelerated sales quarter, AE did not raise its third-quarter guidance of 45 cents to 46 cents, keeping in line with Wall Street expectations. The company currently operates 783 AE stores in 50 states, the District of Columbia and Puerto Rico, and 71 AE stores in Canada.