Eagle Outfitters Inc. CEO Jim O'Donnell will lead American Eagle Outfitters Inc.'s annual meeting today for what likely will be the last time, as the retailer works to fix recent missteps and recapture core customers in their teens and early 20s.
Sales at South Side-based American Eagle dipped by 6 percent in the first quarter, while key competitors had gains. The company said it may close 85 to 100 underperforming stores during the next two years, and it's been the subject of takeover speculation for several months.
"The key thing is that they lost sight of who their core customer is over the last couple of years," said Craig Johnson, president of Customer Growth Partners, a research and strategy company in New Canaan, Conn. "When you do that, the merchandise you offer that customer becomes muddled, and you don't stand for anything in the marketplace."
O'Donnell, 70, announced his retirement in March after eight years as CEO and said he'll stay on through an unspecified transition period, after his successor is hired. Some candidates could be brought in for "meet and greet" sessions this month, he said a few weeks ago. O'Donnell was unavailable for comment Monday
American Eagle stock traded in the $35 range in early 2007 but generally has lagged during the recession and closed yesterday at $12.73, up 18 cents.
O'Donnell's pay totaled $9.2 million in cash and stock last year, down from $17.9 million in 2009.
O'Donnell and Roger Markfield, executive creative director, said during a first-quarter earnings presentation that American Eagle will return to classic preppy styles and refocus on basic items such as T-shirts, fleece and jeans.
In-store accessory shops with more handbags, shoes and jewelry are in 46 stores and will be added to 250 more this year. And more exclusive styles and expanded sizes will be added to the growing AEO Direct online sales business, they said.
Still, women's shirts and tops have been a weak area, Johnson said, and that's worrisome because women's merchandise is two-thirds of the business. Styles have become bland, and similar to offerings at other stores, he said.
Teenage girls wore jeans with a T- or polo shirt to school every day around 2005, but Internet shopping and low-priced, fast-fashion stores have changed that, analyst Jennifer Davis of Lazard Capital Markets wrote in a recent report.
"We don't understand how AEO's plan to recapture lost sales by returning to classic preppy styles will work," she added. American Eagle is "stuck in the middle" between pricier Abercrombie & Fitch and Aeropostale for basic items, "and can't compete with Forever 21 on fashion," Davis said.
Davis said American Eagle is at risk for a buyout due to depressed earnings and $600 million in cash with no debt. Bankim Chadha of Deutsche Bank AG named the company earlier this month as one of 50 potential leveraged buyout targets.
Still, Johnson said American Eagle's aerie brand of intimate wear has "been a nice success story," expanding into casual women's wear and sports styles. It's too early to tell how its 77kids children's brand will impact the company's results, he said.
"This is a company that had a great run for a long time," he said. "The search for a new CEO could be just what the doctor ordered."
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