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American Eagle Q3 Profits Drop 68.3%

The retailer said net revenues fell 5.8 percent in the period.

Shares of American Eagle Outfitters Inc. fell 9.5 percent Friday after the company reported declines in third-quarter results and updated fourth-quarter guidance below analysts’ consensus estimates.

This story first appeared in the December 9, 2013 issue of WWD.  Subscribe Today.

For the three months ended Nov. 2, net income was down 68.3 percent to $24.9 million, or 13 cents a diluted share, from $78.6 million, or 39 cents, a year ago. EPS on a GAAP basis includes a non-cash charge of 6 cents a diluted share in connection with the plans to close its Warrendale, Pa., distribution center after the chain opens its new facility in Hazelton, Pa. Total net revenues also fell by 5.8 percent to $857.3 million from $910.4 million.

Consolidated comparable-store sales, including its direct channel, fell 5 percent versus a 10 percent gain last year.

Robert Hanson, chief executive officer, said during a conference call to Wall Street analysts, “We continue to operate in the most challenging sector of retail where there has been intense promotional competition and tepid consumer spending. This has led to weak store traffic and the high level of promotional activity.…In the third quarter, good expense management was offset by top-line pressure and weak merchandise margins.”

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He added that business conditions remain tough in the firm’s North American mainline stores. “We need to deliver stronger assortments and ensure we have compelling innovative key items at outstanding value. In order to win, we need to be differentiated and deliver excellence in trending quality combined with a great customer experience,” he said.

While Hanson said the company has been working on initiatives to improve performance in 2014, he expects “conditions to remain challenging and we’re planning accordingly.”

The company said fourth-quarter diluted earnings per share are expected in the range of 26 cents to 30 cents, based on a “midsingle-digit decline” in comps. Analysts were expecting 39 cents as the consensus estimate. That’s compared with fourth-quarter EPS of 55 cents a year ago.

American Eagle is the latest retailer in the teen space that has reported declines in third-quarter results.

According to Jeff Edelman, a former retail analyst and now director of retail and consumer products advisory services at McGladrey, the problem faced by all the teen retailers is one regarding merchandising.

Separately, the retailer said that Chad Kessler will be joining the company as chief merchandising and designer officer for the core American Eagle brand in early February. He succeeds Fred Grover, who is retiring after 35 years.