American Eagle, Minus Martin + Osa = Buy
NEW YORK (
) --
American Eagle Outfitters
(AEO) - Get Report
appears poised to soar without Martin + Osa weighing it down.
On Tuesday, American Eagle announced that it will shutter its Martin + Osa concept. This highly-anticipated news overshadowed what was a strong fourth-quarter for Eagle.
The news sent shares of American Eagle climbing 8% to $18.52 in morning trading.
All 28 Martin + Osa stores will close, as well as its online business -- moves that should be completed by American Eagle by the end of the year.
This announcement has been a long-time coming, as Martin + Osa has been a drag on American Eagle's business since its inception in 2006. In 2009, Martin + Osa recorded a loss of about $44 million.
Still, it's unclear why the decision to discontinue the concept was so difficult for American Eagle, Wall Street Strategies analyst Brian Sozzi wrote in a note. He plans on inquiring about the company's review process for underperforming brands.
American Eagle expects to book between $32 million and $77 million in expenses for leases, severance and other costs. It also expects to realize $29 million in writedowns.
Removing Martin + Osa from the equation should be boost to the second half of the year for American Eagle, Sozzi wrote.
Even without Martin + Osa, American Eagle still has plenty of room for growth. Its 77kid concept will allow the company to bring awareness of the brand to a younger demographic, which may one day represent potential Eagle customers, Sozzi wrote.
While the Martin + Osa announcement was significant, the fourth-quarter was nothing to be ignored on its own terms. American Eagle earned $59.3 million, or 29 cents a share, compared with $32.7 million, or 16 cents, in the year-ago period.
Excluding items, American Eagle actually earned 33 cents a share, in-line with analysts' estimates.
American Eagle sales jumped 7% to $972 million from $905.7 million, while its same-store sales rose 5%.
Looking ahead, the teen retailer predicts first-quarter earnings in the range of 15 cents to 17 cents a share. Wall Street is calling for 15 cents a share.
-- Reported by Jeanine Poggi in New York.
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