By  on August 22, 2007

American Eagle Outfitters Inc. posted a 13 percent jump in second-quarter earnings, driven by merchandise management and expense control.

The company, which experienced stronger sales in men's wear than women's, said Tuesday that it is extending its aerie brand to the fitness segment.

For the three months ended July 29, earnings reached $81.3 million, or 37 cents a diluted share, from $72.1 million, or 31 cents, in the year-ago period on a 17 percent sales gain to $703.2 million from $602.3 million. Same-store sales increased 2 percent during the quarter.

For the six-month period, earnings climbed 18 percent to $160.1 million, or 71 cents a diluted share, from $136.3 million, or 60 cents, in the prior year as sales grew 17 percent to $1.32 billion from $1.12 billion.

The company said the gross margin rate shed 50 basis points during the quarter due to higher markdowns, which were partially offset by strong initial markup.

"During the second quarter our men's business was strong, delivering a high-single-digit comp increase," said Susan McGalla, president and chief merchandising officer, on a call to Wall Street analysts. "Strength was broad based across men's major categories, including men's shorts, net tops and woven shirts."

But women's graphic T-shirts, polo skirts and accessories all saw declines. Store traffic also fell, hurt by the month of July and the impact of a calendar shift on the start of back-to-school.

During the quarter, the retailer also aired its new original series, "It's a Mall World," and relaunched the company's Web site in July.

In the second half of the year and into 2008, American Eagle said it will expand its aerie line, introducing aerie Fit, a line of fun- and fitness-inspired apparel, as well as personal care and cosmetic offerings.

The company said it expects third-quarter earnings in the range of 47 cents to 48 cents a diluted share.

Joan Hilson, chief financial officer, said on the conference call that American Eagle is still on target to deliver 15 percent earnings per share growth on an annual basis.

"We believe management is keeping guidance cautious for now...given current turmoil and uncertainty in the market," said Dorothy Lakner, retail analyst at CIBC World Markets, in a research note. "That said, improvement in the women's knits category for fall, which was soft in the second quarter, should provide an additional boost to sales and margins this season versus last."

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