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American Eagle to Shutter 77kids Business

Children's offshoot had loss of $24 million on sales of $40 million in fiscal 2011, company says.

Adding to a long list of specialty store spin-off casualties, American Eagle Outfitters Inc. Friday pulled the plug on its four-year-old 77kids children’s retail concept.

This story first appeared in the May 21, 2012 issue of WWD.  Subscribe Today.

American Eagle plans to explore other options for the business, including a full or partial sale to a third party. The company, which is scheduled to report first-quarter results Wednesday, expects to take charges to reflect the discontinuation of the business primarily during the third and fourth quarters.

The company said 77kids, which has 22 stores and an online business at 77kids.com, racked up aftertax losses of $24 million on sales of $40 million during fiscal 2011. Its parent had net income of $151.7 million on sales of $3.16 billion last year.

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Launched on the Internet in 2008 with a name derived from the 1977 founding of its parent company, 77kids was geared to children ages two to 10 and didn’t open brick-and-mortar stores until 2010. Martin + Osa, a contemporary offshoot geared to a more adult audience than the youth-oriented American Eagle brand, was closed in 2010, also after a four-year run.

“Although making this decision is disappointing, it is in the best interest of the company and our shareholders to prioritize and focus our efforts on businesses with the highest return potential,” said Robert Hanson, who joined American Eagle as chief executive officer in January from Levi Strauss & Co. “We thank the 77kids team for their hard work, passion and dedication.”

A spokeswoman said American Eagle is seeking other positions for the 90 corporate associates and 400 field personnel employed at 77kids.

The brand joins a long list of specialty store spin-offs that were unable to be sustained by their parent firms. While Gap Inc. saw Old Navy grow into its largest business and Abercrombie & Fitch and J. Crew continue to operate their Hollister and Madewell operations, respectively, Abercrombie closed its high-minded Ruehl concept in 2009 after a five-year run, Pacific Sunwear of California shuttered its D.e.m.o. and One Thousand Steps divisions in 2008 and Bebe Stores Inc. extinguished its PH8 nameplate in 2010.

AEO continues to operate its aerie intimates subbrand.

Separately on Friday, AEO said chief financial officer Joan Hilson is leaving the firm. Scott Hurd, vice president and controller, will serve as principal financial and accounting officer on an interim basis until a successor is appointed.