While the South Side-based clothing and accessories retailer reported Wednesday that profit doubled in the second quarter, comparable store sales were flat, and the company lowered its full-year profit forecast.
Shares dipped by $1.02 yesterday to $10.60, their lowest price since March 2009.
High cotton prices are hurting the company, which relies heavily on jeans sales, and "the lack of an economic recovery has created a persistently challenging retail environment," CEO Jim O'Donnell said during a conference call with financial analysts.
But O'Donnell pointed to the company's "Off Campus" outlet stores as a bright spot. Sales there are 20 to 30 percent higher on average than at a typical mall store, he said.
"The traffic patterns are incredible," he said, and outlet center rents and maintenance costs are lower than at standard retail malls.
In coming months, 90 percent of new stores are planned as outlets, which resemble and are run like typical American Eagle stores but have a different product mix, he said.
More than 50 outlets are open now, and that could double in the next few years, O'Donnell said, but the company will be careful to avoid putting outlets where they could hurt regular stores,
There are 932 American Eagle men's and women's stores in the United States and Canada, plus 53 aerie women's casual wear and intimates stores and 21 77kids children's clothing stores. In Western Pennsylvania, Tanger Outlet Center in South Strabane and Grove City Premium Outlets have AE off-price stores.
For the three months ended July 30, the company said net income was $19.67 million, or 10 cents a share, up 103 percent from the $9.66 million, or 5 cents, a year ago. Sales were up 4 percent to $675.7 million, but sales at stores open a year or more were unchanged.
American Eagle has been in a "perpetual state of turnaround" with anemic financial results for a couple of years, said analyst Alyce Lomax of The Motley Fool. More tough going likely is ahead in the short term, she said.
In addition to the flat comparable sales, inventory is up about 35 percent. "I'm concerned that going forward, they are going to have a lot of markdowns," she said.
Executives said sales of jeans and women's tops have improved, and new accessories shops-in-shops with products ranging from headsets to yo-yos are doing well. There were 250 accessories shops as of late July, and 400 should be in place by the holidays. Online sales are up 16 percent.
Earnings per share of 85 cents to 95 cents are forecast, American Eagle said yesterday, citing increased costs. That's down from a projection in May of $1.02 a share.
Analyst Adrienne Tennant of Janney Montgomery Scott wrote the company is "taking the right steps" to improve merchandise, but faces tough competition. She rates the stock at neutral.
Lomax said the outlet strategy could work, especially with customers seeking lower prices, but "so many other retailers are taking the same tack."
O'Donnell, who announced his retirement in March, said little about the ongoing search for his successor. "We are moving forward," he said. O'Donnell has been CEO since 2003.
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