American Eagle Investors Come to Senses (Update)

American Eagle Outfitters(AEO Quote) gave up morning gains, after investors realized the teen retailer is not flying yet.

Shares of the company reached $15.24, before ending the day down 1% to end the day at $14.33.

While executives eased investors fears during a conference call on Wednesday, addressing some bigger issues, analysts said a turnaround won't be evident for several quarter.

Among these issues: the Martin + Osa concept, which actually recorded a 7% increase in same-store sales. Unlike rival Abercrombie & Fitch(ANF Quote), which said earlier in the month said it would strategically evaluate its contemporary apparel Ruehl chain, American Eagle remains committed to the Martin + Osa concept.

Its intimate/sleepwear division, aerie, saw a 17% jump in same-store sales, and its newest concept 77kids is exceeding plans and building its customer base.

The company admitted it still faces a few hurdles, namely in its core women's business. While American Eagle women's same-store sales recorded a 13% decline compared to a 23% plunge in the fourth quarter, merchandise assortment is still lagging.

Brean Murray Carret analyst Eric Beder says he maintains his sell rating and target price of $10.50.

"The company registered slightly better-than-expected [first-quarter] results but provided more than enough data points for even the staunchest bulls in American Eagle Outfitters to recognize that the turn at the company is not occurring in the near term," he wrote in a note on Wednesday.

Beder doesn't even expect to see signs of a turnaround in the third quarter.

American Eagle remains in tight competition with Aeropostale(ARO Quote), as the company shifts from a full priced to a more discount driven model.

During the quarter, the company earned $22.0 million, or 11 cents per share, compared with $43.9 million, or 21 cents, a year earlier.

Excluding a tax benefit and loss from the sale of investment securities, quarterly profit was 8 cents a share, beating analysts' target by a penny.

Sales fell 4% to $612 million, while total same-store sales dropped 10%.

"We are seeing improvements in the AE brand, particularly in denim and other key fashion categories such as dresses and accessories," CEO Jim O'Donnell said in a statement.

The company is also expanding its international presence, with plans to open American Eagle Outfitters stores throughout the Middle East over the next several years. The first store is slated to open early 2010.

Looking ahead, the company expects to earn 12 cents to 15 cents in the second quarter, compared with a profit of 29 cents a share in the same period last year.

Shares of the company climbed 5% to $15.16 in morning trading.