American Eagle's Profits Droop Despite Sales Increase - TheStreet

Poor sales of its men's clothes are grounding earnings at

American EagleOutfitters



For the fourth quarter, the fashion retailer saw its net earnings fall11% from same period a year before, despite an increase in sales. Thecompany earned $38.9 million, or 54 cents per share, on $491.6 million insales in the quarter ended Feb. 1. In the same period a year ago, thecompany earned $43.9 million, or 60 cents per share, on $464.3 million insales.

Wall Street had been expecting the company to earn 53 cents per share on$485.3 million in revenue, according to Thomson Financial/First Call.

In a conference call with investors and analysts, American Eagleofficials attributed the decline in earnings in part to an increase inpromotions used to drive sales of its men's clothing. Indeed, in thequarter, the company's gross profit margin, which is the difference betweenwhat a company charges for its products to what it pays its suppliers forthem, plummeted to 35.9% ofsales from 40.5% in the year ago period.

"We are not pleased with our fourth-quarter financial results," saidRoger Markfield, the company's president and co-chief executive officer, onthe conference call.

In contrast to the gross margin decline, the company showed animprovement in its sales, general and administrative costs. Such costsdeclined from $105.5 million, or 22.7% of sales, in the year-ago period, to$101.6 million, or 20.7% of sales in the just completed quarter. A declinein advertising, salaries and leasing costs helped drive the overall generaland administrative costs downward, said Chief Financial Officer Laura Weil.

But the expense improvement couldn't make up for American Eagle's salesproblems. In addition to the declining margin, the company saw itssame-store sales fall as well. The company's overall same-store sales, whichcompare results at shops open more than one year, fell 4.6% over the sameperiod a year ago.

Sales in the first quarter of 2003 have also been disappointing so far,Weil said. Noting that about 75% of its first-quarter sales typically comein March and April, Weil declined to provide guidance for American Eagle'sfirst-quarter results.