NEW YORK — Expense controls could not overcome promotional pressures and higher shipping costs, as American Eagle Outfitters’ profits dwindled in both its fourth quarter and year.

AE also indicated February sales are running below plan in about half of its 697 stores, due to cold weather, snow storms and terror alerts, but stores in warm-weather markets are generating positive comps, which could bode well for AE when temperatures rise this spring in the Northeast and Midwest.

The Warrendale, Pa.-based specialty retailer, which sells casual apparel targeting 16 to 34 year olds, said income decreased 11.4 percent to $38.9 million, or 54 cents a diluted share, for the three months ended Feb. 1. That compares with income of $43.9 million, or 60 cents, in the prior-year period. Earnings were 1 cent above Wall Street’s average estimates.

Total sales in the quarter increased 5.9 percent to $491.6 million, including $22.2 million from Bluenotes/Thriftys, compared with $464.3 million last year, including $29.7 million from Bluenotes. However total comps, including results from its Bluenotes/Thriftys operation, decreased 4.6 percent overall and were down 3 percent at AE stores. Consolidated gross margins declined 460 basis points to 35.9 percent from 40.5 percent, while selling, general and administrative expenses declined 200 basis points as a percentage of sales.

Conceding that "2002 did not meet our expectations," AE’s president and co-chief executive Roger Markfield said the company was encouraged by increased market share and being named the second favorite brand among teens, according to Teen Research Unlimited.

Markfield said women’s business comped up in the mid-single digits during the fourth quarter, while men’s comps fell 12 percent. Key merchandise categories include sweaters, graphic T-shirts, denim, woven shirts, underwear and personal care.

"The momentum that was created when we refocused our efforts to fashion for college-aged women early in the fall season continued through holiday," Markfield said. "The fall and holiday assortments were fashion right and strongly differentiated in the marketplace."

In Nasdaq trading Tuesday, AE closed down 40 cents, or 2.6 percent, at $14.86.

Although the Bluenotes business remains problematic, the company hopes for improvement under new divisional president Fred Grover.Looking ahead, although the company did not give guidance for the first quarter or full year, James O’Donnell, co-chief executive and chief operating officer, said the company "has significant opportunities for improved merchandise margins and we will continue to control our SG&A expenses."

For the full year, income declined 15.9 percent to $88.7 million, or $1.22 a share, versus income in 2001 of $105.5 million, or $1.43. Sales rose 6.7 percent to $1.46 billion compared to year-ago sales of $1.37 billion.

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