American Eagle Outfitters Bullish On Teen Denim

American Eagle/Summer 2010 Collection

Although profits at American Eagle Outfitters took a nosedive -- falling to $10.9 million in the first quarter compared to $22 million in the same period last year -- executives at the teen retailer are optimistic, and are looking for stronger results in the second half.

Sales at the Pittsburgh, Pa.-based company climbed 8% to $659.4 million from $612 million in the year-ago period, driven by a 5% gain in comparable-store sales for the period. The lower earnings reflect the cost of shutting down its Martin + Osa business, announced in March. (That concept was aimed at a slightly older shopper than AE's core fan base of 15 to 25.) But during a conference call, CEO Jim O'Donnell told investors the company felt its other new concepts, including Aerie and 77Kids, are right on target, and that young shoppers will like the pending changes in its merchandise mix and assortment.

"The first quarter demonstrated progress toward our goals. We achieved higher sales and stronger profitability," he says. "This is our second consecutive quarter of positive comps and the AE brand continues to gain momentum."

Still, the company lowered its forecast for the second quarter, based on weaker traffic and sales trends. And O'Donnell says that while denim continues to be dominant in the chain's sales, "we will continue to deliver core essentials, but are also focused on building our tops business, as well as accessories, and you'll see our assortment tempered with more fashion-forward accessories."

O'Donnell says Aerie, its lingerie concept, is doing well. "It's a brand with tremendous promise," and will be expanded to "become a full lifestyle brand," including personal care and loungewear, he says. Similarly, he says 77Kids, an online brand, "is gaining traction," and that nine brick-and-mortar stores will open this year -- fewer than initially forecast.

AE's results square with other specialty apparel companies, which have been reporting stronger traffic and sales trends. While AE rival Abercrombie & Fitch recently reported a loss for the first quarter, it says its sales gained 14% to $687.8 million, while same-store sales rose 3%.

Throughout the retail world, however, rugged old denim weathered the recession better than most categories: Women's Wear Daily recently reported that while the average price of a pair of jeans fell a bit in the last 12 months to $23.18, from $23.49, sales rose 6.2% to $8.02 billion.

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