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AEO Shares Hit by Cut in Guidance

Second-quarter profit expectations halved based on weakness in women’s business.

The American Eagle store in the Santa Fe district of Mexico City.

Shares of American Eagle Outfitters Inc. dropped more than 17 percent in early after-hours trading Monday after the teen retailer cut its second-quarter profit estimates in half based on weakness in the women’s business.

This story first appeared in the August 6, 2013 issue of WWD.  Subscribe Today.

The Pittsburgh-based operator of American Eagle and aerie said late Monday that earnings from continuing operations are likely to land at about 10 cents a diluted share, less than half the 21 cents registered in the second quarter of 2012.

The new projection is also about half the range of 19 to 21 cents provided as guidance by American Eagle on May 22, when it reported first-quarter earnings per share for continuing operations of 14 cents, down from 22 cents, on a 4.1 percent slide in revenues to $679.5 million.

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In the most recent quarter, net revenues decreased about 2 percent, the company said, while comparable sales, including same-store sales and AEO direct-to-consumer, were off 7 percent. The 2 percent decline in net revenues would put sales for the quarter just below $725 million from the year-ago level of $739.7 million.

“We are not at all happy with our second-quarter results, which were impacted primarily by a disappointing performance of our AEO women’s assortment and weak traffic,” commented Robert Hanson, chief executive officer of the company. “Results were exacerbated by a highly promotional retail environment, which intensified over the course of July.

“Within this context,” he continued, “we increased the depth and breadth of markdowns. These actions have enabled us to achieve a clean inventory position moving into the third quarter.”

Prior to the update, analysts, on average, had expected American Eagle to generate EPS of 21 cents on revenues of $760 million. Even the lowest revenue estimate, $731.9 million, was well above the figure the company now expects to report.

Shares of American Eagle ended Monday’s trading session at $19.97, down 8 cents or 0.4 percent, but descended rapidly following the after-market disclosure. An hour after the close of the markets, shares were quoted at $16.49, off $3.48, or 17.4 percent, from their New York Stock Exchange close.

The after-hours figure is below the 52-week low of $17.37 hit on June 24. The 52-week high, dating back to Sept. 19, was $23.94.

A Levi Strauss & Co. alumnus, Hanson’s 18-month tenure in Pittsburgh has included the sale of AEO’s 77kids business to Ezrani 2 Corp. and a more aggressive approach to international expansion, including the exit of the retailer’s licensing agreement with Dickson Concepts for China, Hong Kong and surrounding markets in favor of direct control of its six stores in the area.

Hanson on Monday touted the performance of the company’s direct business, which had a low-double-digit increase in the quarter, as well as its men’s business and its aerie, factory and international stores which, in the ceo’s view, validated the firm’s strategic initiatives.

“Our efforts are keenly focused on strengthening our women’s business and ensuring our assortments are compelling, innovative and balanced across core, core fashion and fashion,” he said. “The domestic retail environment remains challenging; however, we have a strong sense of urgency and believe we are focused on the right actions to regain traction, deliver strong returns and profitable growth.”

AEO is scheduled to report second-quarter results on Aug. 21.