By and  on June 13, 2007

At its annual shareholders meeting on Tuesday in New York, the board of American Eagle Outfitters Inc. voted to raise the cash dividend payment as a signal of "our continuing confidence in the strong growth prospects and future financial performance."

The dividend will rise by 33 percent to an annual rate of 40 cents a share, from 30 cents a share. A quarterly cash dividend of 10 cents a share was declared, which is payable on July 13 to stockholders of record at the close of business on July 2.

"We will continue to seek to enhance shareholder value through dividends and share repurchases, along with strategies to maximize the potential of our brands and pursue new growth concepts," said Jim O'Donnell, American Eagle's chief executive officer.

The company is revising a proposal to increase the number of shares of common stock it would be authorized to issue. The retailer had planned to ask shareholders at the meeting to approve an increase from 250 million shares to 750 million, but said it is now seeking the right to issue up to 600 million shares.

Other business at the meeting included the nomination of Cary McMillan to AE's board and the election of three incumbent board members. Upon election, McMillan, ceo of True Partners Consulting and formerly executive vice president of Sara Lee Corp., will take the seat of retiring board member Larry M. Wolf, who has served as a director since May 2003.

During the meeting, which began at 11 a.m. at the Lowes Regency Hotel on Park Avenue, a number of members of UNITE HERE questioned O'Donnell about alleged employee rights violations at AE's Canadian distributor, National Logistics Services. The organization also distributed a letter to shareholders outlining conditions at the warehouse.

O'Donnell responded that he takes the company's code of conduct for vendors and contractors seriously.

UNITE HERE held a rally at 12:30 p.m. in front of AE's store on Union Square. Between 100 and 200 people gathered to denounce NLS' strong-arm tactics, which UNITE HERE alleges it used to discourage employees from joining the union. Organizers asked consumers to sign cards pledging to boycott AE until it enforces its code of conduct. It also is collecting signatures online at its new Web site, Americanvulture.org. A UNITE HERE member was dressed in a vulture costume at the rally.UNITE HERE claims NLS hired an American consulting firm to carry out an antiunion campaign, which included daily two-hour meetings. The union was joined by two student groups, United Students Against Sweatshops and the Student Labor Action Project. "American Eagle depends on students," said Hayley Watson, a Canadian regional organizer for USAS. "We're their number-one consumer."

"American Eagle Outfitters is one of many clients served by National Logistics Services and not involved in the operations of its Canadian distributor," an AE spokeswoman said. "We regret having become the target of a union campaign against NLS. American Eagle Outfitters has a code of conduct that respects the right of freedom of association. NLS employees voted overwhelmingly against unionization in front of the Ontario Labour Relations Board, and we're confident in the Ontario Labour Board to resolve this matter appropriately."

Wall Street has been generally pleased with AE's performance. "I'm very positive about the company," said Ann Poole, a retail analyst at Nollenberger Capital Partners. "I initiated coverage a month ago with a 'buy' rating. Martin + Osa still needs some work, but aerie is very well positioned for rapid growth. They're opening 45 new aerie stores next year. That's going to be a big growth driver for them for a few years." The company plans to open five Martin + Osa units in the fall.

Poole said AE has a lot of opportunity for back-to-school. "They were one of the only teen retailers that comped positively last fall," she added. "AE put out 90 percent newness in denim. Their merchants are very proactive. I expect to see them adopt the same strategy for b-t-s."

O'Donnell has said that intimates accounts for less than 5 percent of total sales and "is a significant market opportunity." The company has merchandised aerie in AE stores and will be testing freestanding units in the fall. There is also a side-by-side retail concept for AE and aerie.

"Aerie potentially could achieve $1 billion in sales in less than 10 years," O'Donnell said. Ae.com's sales, he added, are up by 50 percent this year.

Another initiative is Destination AE, which identifies and builds brand-defining categories. The company considers denim to be an example and said it's "in the process of identifying key market share opportunities.""The verdict on Martin + Osa is definitely still out," said Robert Buchanan, a retail analyst at A.G. Edwards & Sons. "They're going to make a big push this fall in terms of making the women's products more feminine and getting the sizing right. They need to have a big fall for the concept to continue. Martin + Osa is costing them a lot of money and the sooner they make a decision, the better. Jim [O'Donnell] indicated to me that they need to have a good fall season. I don't want to see them continue with it if it can't do big numbers."

American Eagle stock on Tuesday closed at $26.02, down 19 cents on the New York Stock Exchange.

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