American Eagle Sees Strength

After a forgettable fourth quarter, the company says February is going well.
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Could 2004 be the turnaround year for

American Eagle Outfitters

(AEOS)

?

The teen clothing company, whose sales have been under the weather for roughly two years, reported Thursday that February's same-store sales results rose by a percentage in the midteens. That sent the shares higher.

While February looks good, the just-completed fourth quarter was weak, as earnings fell in part because of a challenging holiday season. Earnings including a noncash goodwill impairment charge were $35.4 million, or 49 cents a share, in the quarter ended Jan. 31, which was down from the prior year's $38.9 million, or 54 cents a share.

On an adjusted basis, American Eagle earned $41.5 million, or 57 cents a share, which beat analysts' expectation for 55 cents a share.

Revenue rose 5.2% to $517.3 million, compared with $491.6 million a year ago. But same-store sales decreased 5.1% in the period at its American Eagle Outfitters stores, while consolidated same-stores sales declined 4.7%.

Operating income was relatively flat at $61.01 million, from $61.6 million last year.

"We are not pleased with our overall performance in the quarter," the company said on a post-earnings conference call with analysts. The company cited a decline in average retail prices due in part to markdowns and said sales in its men's and women's outerwear and men's business were weak.

"We have to reduce our markdown cadence," the Warrendale, Pa.-based company said.

Gross margin in the quarter was slightly up at 37.6% from 35.9% last year, but the company said 2003's gross margins are at the low end of the entire six-year period of the company's history. On average, the company has quarterly gross margins in the 39% range.

American Eagle vowed, however, to address its margin and operating performance issues in the new year and said renewed sales in its men's department as well as more fashionable clothes will help.

The company's shares were lately up 30 cents, or 1.2%, at $24.70, surpassing the 52-week high of $24.50 reached Wednesday.

"Spring is off to a great start," American Eagle said. "It's sill very early, but with almost four weeks in the quarter, we are very pleased with all sales."

In its men's business, which has had soft sales for over two yeas, the company said sales are picking up, helped by new styles and colors. Meanwhile, its women's business has maintained a steady level of sales.

Because most sales in the first quarter are realized in March and April and February's results are usually only 25% of total business, the company was reluctant provide sales and earnings guidance for the quarter. Analysts have forecast earnings of 11 cents a share, compared with 9 cents a share a year earlier.

In the first quarter of 2003, the company had a same-store sales decline of 6% with February alone dropping 8%.

American Eagle plans to open 50 new stores in 2004 and remodel another 50. Total capital expenditures for the year are seen at $85 million to $90 million, of which $57 million should be spent on store remodels alone, American Eagle said.