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American Eagle Profits Fall

Second-quarter profits fell as progress in its women’s denim business wasn’t shared by other departments.

American Eagle Outfitters Inc.’s second-quarter profits fell by more than half as progress in its women’s denim business wasn’t shared by other departments.

This story first appeared in the August 28, 2009 issue of WWD.  Subscribe Today.


Also reporting on Thursday, Bebe Stores Inc. said it fell to a loss in the fourth quarter on a 24 percent sales decline and Delia’s Inc. reduced second-quarter losses on higher sales.

During a conference call Thursday morning, American Eagle’s chief executive officer James O’Donnell said the Pittsburgh-based company continued to “face challenges,” which led to “disappointing results,” but “steady progress in a number of areas across the business” had been made.

O’Donnell pointed to strength in AE’s denim business, which, on the women’s side, reported its second consecutive quarter of positive comparable-store sales. In 2008, women’s denim had generated negative comps in the high teens.

“The success we’ve had with denim demonstrates that when our product is right and on trend, the AE brand is as strong and relevant as ever,” the ceo said. “Our teams have been working to take the same approach to other important categories within our business.”

For the quarter ended Aug. 1, the firm posted a profit of $28.6 million, or 14 cents a diluted share, matching analysts’ estimates but 52.2 percent below the $59.8 million, or 29 cents, reported in the year-ago period. Revenue slid 4.5 percent to $657.6 million from $688.8 million a year earlier. Quarterly comp-store sales dropped 10 percent.

The company said the women’s business showed slight improvement, comping down in the low double-digits this year, up from negative high-teens last year, but it acknowledged weakness in knits.

The firm brought back Roger Markfield as vice chairman and executive creative director in January in order to improve merchandising. The company said in order to address lagging demand, it is upping its fashion assortment and targeting an older consumer.

“In light of the market, American Eagle has done a good job of pulsing value into the business when they’ve needed to, but there’s still a lot of work to be done,” said Susquehanna Financial Group retail analyst Thomas Filandro, who added that targeting a slightly older consumer, in his or her 20s rather than a 13- or 14-year-old, is a good strategy.

“A younger shopper is more value-conscious. Targeting a higher age range should translate into higher overall ticket selling and full-price selling,” he said.

During the first half, net income declined 51.3 percent to $50.5 million, or 24 cents a diluted share, from $103.7 million, or 50 cents a share, in 2008. Net sales contracted 4.5 percent to $1.27 billion from $1.32 billion.

Eagle said it anticipated third-quarter earnings between 22 cents and 25 cents a share, which includes a 5-cent a share tax benefit. Analysts forecasted earnings per share of 24 cents.

The company’s shares fell 58 cents, or 4 percent, to close at $14 Thursday.

Reporting after the markets closed Thursday, contemporary women’s apparel retailer Bebe Stores said, hurt by lackluster fashion and waning consumer demand, its fourth-quarter loss would be followed by red ink in its first quarter as well.

“We have made investments in departments that performed below the incoming trend and, while the larger economic environment has stabilized, ours did not improve,” said chairman and ceo Manny Mashouf on an afternoon conference call. “It is very clear to us that we have to improve our merchandising needs to improve conversion and increase market share.”

Citing denim as a particularly weak area, Mashouf said Bebe had signed a letter of intent for a licensing agreement with denim specialists Sunrise Acquisition Co. LLC, formerly known as Tarrant Apparel Group. In addition, he said Bebe’s merchandising team is working to improve the print and color selection of its tops business, and will increase the ratio and balance of day dresses to special occasion dresses.

For the three months ended July 4, the Brisbane, Calif.-based retailer said it registered a net loss of $323,000, or zero cents a diluted share, compared with net income of $16 million, or 18 cents a share, in the year-ago quarter. Net sales receded 24.1 percent to $130.2 million, from $171.5 million in 2008, as comparable-store sales for the quarter dropped 29.6 percent. Gross margin receded to 39.5 percent of sales from 45.8 percent in last year’s quarter.

For the year, profit sank 80 percent to $12.6 million, or 14 cents a diluted share, from $63.1 million, or 70 cents, a year earlier. Revenue slid 12.3 percent to $603 million from $687.6 million.

For fiscal 2010, the company plans to open six and close four Bebe stores as well as to shutter eight Bebe Sport units and one 2b store. Bebe is in the process of converted 62 Bebe Sport units to its new active and streetwear concept PH8.

The retailer said it anticipates first-quarter comps to be less negative than in the fourth quarter, and expects EPS to be between breakeven and a 5-cent loss a share before write-offs. Analysts forecasted a profit of 4 cents.

Meanwhile, improved revenues helped Delia’s reduce its second-quarter losses and beat Wall Street expectations.

In the three months ended Aug. 1, the New York-based teen retailer and direct marketer recorded a loss of $4.7 million, or 15 cents a diluted share, compared to a loss of $5 million, or 16 cents, a year ago.

Analysts polled by Yahoo Finance had expected a loss per share of 17 cents, on average.

Sales in the three months increased 2.4 percent to $45.7 million from $44.6 million in the comparable period.

The top-line improvement came at the expense of margins, which fell 100 basis points to 32.7 percent in the quarter. The company said increased promotions in its direct market segment were partially offset by improved margins at retail.

“As we anticipated, need-based buying patterns and the shift to a later back-to-school selling period contributed to the deferral of full-price sales,” said Robert Bernard, ceo, on a conference call. “We’re seeing somewhat improved sales trends for our direct full-price merchandise in August.”

Direct business revenues were up 4.9 percent in the second quarter to $22.1 million, while retail revenues gained 0.3 percent to $23.7 million.

Shares of Delia’s fell 11 cents, or 3.9 percent, in trading Thursday to close at $2.70.

In the first half of the year, Delia’s posted a loss of $8.3 million, or 27 cents a share, versus a loss of $8.9 million, or 29 cents a share, a year ago. Sales in the six months increased 7 percent to $97.8 million from $91.5 million in 2008.