American Eagle 4Q profit falls 77 percent

March 11, 2009 12:58:13 PM PDT
American Eagle Outfitters Inc. said Wednesday that unplanned markdowns during the weak holiday season and a charge related to the declining value of some investment securities sent its fourth-quarter profit tumbling 77 percent. Its adjusted results matched Wall Street's expectations, however, as did the company's first-quarter outlook.

Teen-focused American Eagle has struggled with its women's fashion and Chief Executive Jim O'Donnell said in the fourth quarter the company faced "particular softness" in that business.

That and the overall drop-off in consumer spending were factors in pushing the company's profit down to $32.7 million, or 16 cents per share, in the three months that ended Jan. 31. That compares with $140.5 million, or 66 cents per share, in the same period a year earlier.

Excluding charges and one-time items, the company earned 19 cents per share, which met the estimates of analysts polled by Thomson Reuters. Analysts' estimates typically exclude one-time items.

Sales fell 9 percent to $905.7 million from $995.4 million a year earlier, below the $911.8 million analysts expected. Sales in stores that have been open at least one year, a key retail metric known as same-store sales, slid 16 percent.

While teens can be notoriously fickle, clothing retailers who have hit the fashion trends they crave - at the right price - have fared better than other specialty retailers.

Rival The Buckle Inc., which also targets teens, said its fourth-quarter profit rose 18 percent as sales jumped 21 percent as shoppers snapped up its trendy jeans and accessories. But J. Crew Group Inc. said it swung to a fourth-quarter loss and AnnTaylor Stores Inc. reported last week that its fourth-quarter loss widened over the year before.

O'Donnell said in a statement that lower demand during the quarter led to a boost in unplanned promotions, which helped clear out some inventory.

"Looking ahead, we cannot accept this kind of performance, recession or not. We know that our customer responds when we have the right fashion at the right price," he said.

The Pittsburgh-based company hired Roger Markfield in January to a new position of vice chairman and executive creative director to revamp its merchandise selection. O'Donnell said his presence will begin to be fully felt with the back-to-school collections.

American Eagle also means to offer more planned promotions - such as a February event when all jeans were under $30 - rather than unplanned markdowns during the year and has improved its women's collection, including adjusting fits in women's jeans and expanding its dress offerings from less than 10 choices to 40 styles in the spring.

It is cutting capital spending by half, to $110 million to $135 million, and trimming other costs.

In the first quarter, American Eagle expects a profit of 4 cents to 7 cents per share, while analysts expect 6 cents per share.

Full-year net income sagged 55 percent to $179.1 million, or 86 cents per share, from $400 million, or $1.82 per share, in the previous year. Revenue fell 2 percent to $2.99 billion, while same-store sales fell 10 percent.

American Eagle shares rose 14 cents to $9.71 in midday trading, while Buckle Inc.'s shares rose $1.35, or 5.7 percent, to $25.22.


AP Business Writer Michelle Chapman contributed to this report.

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