From paring its store count and inventories to looking for expansion opportunities overseas, the key themes in apparel retailing were on display at American Eagle Outfitters Inc.
This story first appeared in the August 26, 2010 issue of WWD. Subscribe Today.
The Pittsburgh-based company on Wednesday said it would close 50 to 100 stores in the next two to five years as it reported that second-quarter net income fell 66.2 percent following markdowns to clear an aggressive position in tops and the closure of the 28 Martin + Osa stores.
Like many of its peers, American Eagle spent years investing to support growth that it acknowledged Wednesday had failed to materialize. The retailer is looking to compensate for weakness at home with international expansion through franchise agreements for the Middle East, China, Hong Kong and Israel.
But misses in its stores have led to a depressed stock price and fueled speculation the firm could be a takeover candidate. Big financial players have been trying to put their money to work, kicking the tires at specialty stores, but the last deal of note in the sector was Advent International Corp.’s October acquisition of Charlotte Russe Holding Inc.
Brian Sozzi, an analyst at Wall Street Strategies Inc., said there was a less than 50 percent chance that American Eagle would be bought out, in part because of the ebb and flow of companies catering to the younger crowd.
“In 10 years, I’m not sure in what capacity American Eagle will be around,” Sozzi said. “Teen brands come and go.”
American Eagle’s stock rose 99 cents, or 7.9 percent, to close at $13.48 Wednesday, but it’s still down nearly a third — 31.4 percent — from the high this year of $19.64, set March 26.
Elsewhere on Wall Street, the S&P Retail Index pulled back above the 400 level, advancing 5.46 points, or 1.4 percent, to 405.18. After falling below 10,000 in morning trading, the Dow Jones Industrial Average ended a four-day losing streak, gaining 19.61 points, or 0.2 percent, to 10,060.06.
Marie Driscoll, an equity analyst at Standard & Poor’s, reiterated her “strong sell” rating on American Eagle and said the company faced an uphill battle.
“Given the economic backdrop, it’s harder to execute a turnaround,” she said. “The consumer is prickly and not buying all that much. [American Eagle] had some fashion right, they had some fashion wrong. They are the go-to place for denim. Denim is important, but they brought down price points on denim, so that’s what it’s taking to make a sale now.”
The firm’s second-quarter net income fell to $9.7 million, or 5 cents a share, from $28.6 million, or 14 cents, a year earlier. Income from continuing operations fell to 13 cents a share from 18 cents a year earlier. Sales for the three months ended July 31 inched up 0.7 percent to $651.5 million from $646.8 million. Same-store sales fell 1 percent.
This quarter, the firm expects same-store sales to come in flat to down in the low-single digits based on a more conservative view of traffic following the peak of the back-to-school season.