NEW YORK — American Eagle Outfitters Inc. posted slightly higher, better-than-expected — though below the company’s own plan — net earnings in the holiday fourth quarter, thanks to a tight stance on promotions and markdowns.

The company also guided first-quarter profits that could show a similar soft increase over the prior year.

Nevertheless, shares of the specialty retailer surged in Wednesday trading, helped by a stock upgrade, the company’s announcement that February same-store sales rose a higher-than-anticipated 6 percent and news that it will open four Martin + Osa stores this fall. The shares ended up 13.5 percent at $28.91 on the New York Stock Exchange, the highest close since mid-August.

In the three months ended Jan. 28, the specialty retailer earned $107.5 million, or 71 cents a diluted share, up from $100.9 million, or 66 cents, a year ago. Results in the most recent quarter include a 1-cent loss related to an agreement to sell certain assets to its Canadian distribution operation and a 2-cent tax charge from the anticipated repatriation of foreign earnings; earnings in the year-ago period included a 4-cent loss from discontinued operations.

Earnings from continuing operations totaled 74 cents in the fourth quarter, ahead of analysts’ expectations for a profit of 72 cents.

Quarterly net sales were $764.4 million, an increase of 13.4 percent. Comparable-store sales were up 7.8 percent, versus a 28.6 percent rise in the year-ago quarter.

Gross profits declined to 46.3 as a percent of sales, from 49.3 percent last year. The company said lower merchandise margins were partially to blame.

In the year, American Eagle had net earnings of $294.2 million, or $1.89, versus $213.3 million, or $1.42, last year. Annual sales were $2.31 billion — the first time over the $2 billion mark — up from $1.88 billion last year, while same-store sales rose 15.5 percent.

James O’Donnell, chief executive officer of Warrendale, Pa.-based American Eagle, described on a conference call with analysts the fourth quarter as “a period that was less robust then we planned.” But he said the fourth-quarter operating margin of 22.8 percent was the second highest ever.

“Our holiday line was good, but not our best,” added Susan McGalla, president of the American Eagle brand. “There were few areas where the fashion basics were not as they should have been, specifically women sweaters and full weather accessories.”

This story first appeared in the March 2, 2006 issue of WWD. Subscribe Today.

O’Donnell, meanwhile, announced that though the company does not plan to go ahead with an initial agreement announced in November to enter the Japanese market with an unnamed partner, it is still planning to expand into Japan. The company expects that Japan could be a 100-store opportunity and has said expansion in Japan prepares it to open stores in other parts of Asia.

Separately, the company said February same-store sales were up 6 percent, and cited positive customer response to its spring assortments. American Eagle also said Wednesday that it has signed leases for its first four Martin + Osa sportswear stores and that two more are in the planning stages.

Morgan Keegan & Co. analyst Holly Guthrie upgraded shares of American Eagle to “outperform” from “market perform” in a Wednesday research report. The analyst said she is happy with the company’s expected 7 percent square footage growth in 2006, up from a prior 5 percent estimate, “impressive same-store sales increases in January and February” and possibly conservative gross margin assumptions.

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