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American Eagle Tanks on Outlook

Stocks in this article: AEO

This story has been updated to include stock price change.

NEW YORK (TheStreet) -- American Eagle (AEO) shares are plunging more than 9% after the teen retailer reported a tough third-quarter leading to a more cautious outlook for the rest of the year.

As expected, American Eagle reported adjusted earnings of 19 cents a share. The Pittsburgh-based company had said last month that it was upping its adjusted earnings guidance to 19 cents a share from 14 cents to 16 cents a share based on slightly better margins than previously expected.

On a GAAP basis, the company reported net income of $24.9 million, or 13 cents a share compared to $78.6 million, or 39 cents a share, in the year-earlier period. This year's quarter includes non-cash charges of 6 cents a share related to the company's previously disclosed plans to close a distribution center in Warrendale, Pa., as it opened up a new one in Hazelton, Pa.

The company had alerted investors last month that revenue declined 6% in the quarter to $857 million while comparable sales decreased 5%, which includes online sales.

Still shares were sinking 9.6% to $14.82 on Friday after the company said that it expects fourth-quarter earnings between 26 cents and 30 cents a share "based on a double-digit decline in comparable sales."

Analysts, according to Thomson Reuters, were expecting fourth-quarter earnings of 39 cents a share. American Eagle posted adjusted earnings of 55 cents a share in the year-earlier quarter.

American Eagle joins other teen retailers in reporting rough third quarters. Aeropostale (ARO) reported a larger-than-expected loss on Wednesday and said comparable sales plunged 15% in the quarter. Elsewhere, Abercrombie & Fitch (ANF) and Express (EXPR) are also suffering.

American Eagle's gross profit declined 21% to $299 million or 34.9% of revenue as a result of higher promotional activity as well as "the deleverage of rent on negative comparable sales," it said. In the year-earlier quarter, gross profit totaled $379 million, or 41.6% of revenue.

Total merchandise inventory rose 8% to $519 million at quarter's end, the company said. At cost per foot, inventory rose 6% compared to an 11% decline last year, which reflects the impact of timing shifts of merchandise receipts due to the 53rd week last year, American Eagle noted.

"Our performance was clearly unsatisfactory and not consistent with our objectives," American Eagle CEO Robert Hanson said in the earnings statement. "As we continue to navigate through an intensely promotional North American retail landscape, we are making improvements in merchandising and marketing, while aggressively pursuing efficiency gains, expense reductions and ensuring disciplined inventory management. We are continuing to invest in important areas of growth including omnichannel, global expansion and factor stores -- all high-return segments, which diversify our business and will be key drivers of our future growth and success."

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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