American Eagle Plans New Concept

After the launch of its latest "grown-up" brand, American Eagle Outfitters is devising the next concept to add to its portfolio.

After the launch of its latest “grown-up” brand, Martin + Osa, and intimates sub-brand, aerie, American Eagle Outfitters is devising the next concept to add to its portfolio.

At a Susquehanna Inter­national Group conference last month, the teen specialty retailer said plans for a third concept are on the drawing board. While executives did not reveal the direction of this new brand or when it would be launched, analysts agree another concept is necessary for the success of the company’s long-term growth.

It will take about two to three year’s before American Eagle can break even from its Martin + Osa launch and start seeing a profit, said Christine Chen, senior research analyst at Pacific Growth Equities.

“They need to get a new concept incubated sooner rather than later. Martin + Osa was launched a little later than it should have been, and American Eagle wants to reap the benefits of a third concept earlier this time,” she said.

It can take years before a brand really becomes a success, as seen with their flagship, said Margaret Mager, analyst at Goldman Sachs.

But with a positive balance sheet and steady cash flow, now is the right time to start exploring an expansion of the brand. “American Eagle’s comps are reaching saturation point,” said Eric Beder, senior vice president at Brean Murray, Carret & Co. “Store growth has been in the low single digits and their second concept [Martin + Osa] won’t make a difference for a few years.”

Analysts have a few guesses as to what’s next for American Eagle, with possibilities including a children’s line, similar to Abercrombie & Fitch’s abercrombie, or an extension of the intimate collection into a separate women’s lingerie store. Another option is an accessories brand targeting the middle-class teen and contemporary shopper.

This story first appeared in the November 13, 2006 issue of WWD.  Subscribe Today.