Denim War Could Squeeze American Eagle

Thursday's American Eagle Outfitters (AEOS Quote) conference call left little doubt that the preppy clothier is facing a tough operating environment. But exactly how tough wasn't evident until its big rival Gap (GPS Quote) released its earnings after the close.

Here's what worries me. Gap said weak denim sales caused the company to fall short of sales projections for August. On the surface, this is good news for American Eagle, which said its strongest area this past quarter was denim. The problem is that Gap isn't going to sit idly by and watch American Eagle tread on its turf. ...