American Eagle Outfitters Inc.’s stock received a more than 6 percent lift Wednesday after the teen retailer posted an 81.2 percent jump in fourth-quarter profits following the announcement late Tuesday it would shutter the struggling 28-unit Martin + Osa concept.
This story first appeared in the March 11, 2010 issue of WWD. Subscribe Today.
The M+O move by the Pittsburgh-based firm was both widely anticipated and largely applauded by Wall Street.
Improved assortments and sharper price points helped AEO deliver net income of $59.3 million, or 28 cents a diluted share, for the three months ended Jan. 30, compared with profits of $32.7 million, or 16 cents a share, in the year-ago quarter. Excluding a noncash impairment charge, earnings per share of 33 cents matched analysts’ estimates.
Quarterly revenue edged up 7.3 percent, to $972 million from $905.7 million, and sales rose 5 percent on a same-store basis. Reduced markdowns bumped up gross margin to 39.9 percent of sales from year-ago levels of 34.4 percent, the company said.
“We started this year with brand momentum, financial strength and a game-changing attitude that will enable us to achieve our potential and position AEO for future growth and success,” chief executive officer Jim O’Donnell said on a conference call. “And two initiatives that you will hear more about during the year are 77kids and international.”
Alluding to the company’s decision to close M+O, Lazard Capital Markets retail analyst Todd Slater said, “We are gratified with management’s conclusion that its time and capital would be more wisely spent chasing the core opportunity. The stock should benefit from the eradication of a significant overhang, rising EPS, improving same-store productivity, and positive, although likely conservative, first-quarter guidance.”
Despite the closing of M+O, Randal Konik, an analyst at Jeffries & Co., said the retailer still faces “rising competition” from Aéropostale Inc. and a resurgent Abercrombie & Fitch Co., which “should mute the pace of AEO’s turnaround.”
For the year, AE’s net income fell 5.6 percent to $169 million, or 81 cents a diluted share, compared with a profit of $179.1 million, or 86 cents, in 2008. Yearly sales inched up 0.1 percent, rounding off to $2.99 billion in both periods.
The firm said it anticipates first-quarter adjusted profits to range from 15 to 17 cents a share, compared with the 15 cents analysts were projecting. Analysts polled by Yahoo expect first-quarter EPS of 33 cents, and annual EPS totaling 76 cents.
AEO added that during the year, it plans to open 14 AE stores, 20 aerie store and five 77kids stores. Additionally, the company will close 15 to 20 AE stores and complete 20 AE remodels.
Shares closed at $18.20, up $1.05, or 6.1 percent, on the day.
After the close of the markets Wednesday, Hot Topic Inc. met analysts’ fourth-quarter expectations as net income dropped 43.6 percent.
The City of Industry, Calif.-based teen retailer said for the period ended Jan. 30, net income shrank to $8 million, or 18 cents a diluted share, from $14.2 million, or 32 cents a share, a year earlier. Revenues for the quarter retracted 10 percent to $214.2 million, from $238 million, while comparable-store sales dipped 11.5 percent.
“Although we managed inventories tightly and controlled expenses, that was not enough to offset the sales shortfall that occurred in the Hot Topic division,” said ceo Betsy McLaughlin on a conference call.
Hot Topic, which reported a 13.5 percent comp-sales decline, was up against strong sales from the company’s “Twilight” and “New Moon” licensed products.
The ceo said the firm’s total quarterly comp would have been 2 percentage points better if it had excluded sales of Twilight, New Moon and other related merchandise.
Torrid, the retailer’s plus-size concept, provided a bright spot for the company, registering a flat comp, which was driven by more full-price selling and stricter inventory controls.
For the year, Hot Topic posted a 39.8 percent decline in profits to $11.9 million, or 27 cents a diluted share, compared with income of $19.7 million, or 45 cents, a year earlier. Annual sales decreased 3.2 percent to $736.7 million from $761.1 million.
The company projected that, in the first quarter, it would register earnings per share of a 2 cent loss to a 5 cent profit. Analysts had been looking for a first-quarter loss of 2 cents.
In New York, the S&P Retail Index rallied 0.5 percent to 436.49, matching the advance of the S&P 500, which finished at 1,145.61. The Dow Jones Industrial Average ended Wednesday’s session at 10.567.33, up less than 0.1 percent.
Investors were subdued in Asia, with the Hang Seng Index basically flat at 21,208.29 in Hong Kong as the Nikkei 225 slipped 0.04 percent to 10,563.92 in Tokyo and the SSE Composite Index fell 0.7 percent to 3,048.93 in Shanghai.
The CAC 40 rose 0.9 percent to 3,943.55 in Paris and the FTSE 100 increased 0.7 percent to 5,640.57 in London.