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Buoyed by strong gross margin, American Eagle Outfitters reported first-quarter earnings increased 16.1 percent on a sales gain of 14 percent.

NEW YORK — Buoyed by a gross margin rate almost as robust as the same period last year, American Eagle Outfitters Inc. on Tuesday reported that first-quarter earnings increased 16.1 percent on a sales gain of 14 percent.

The Warrendale, Pa.-based specialty retailer also said it was preparing for the fall launch of its Martin + Osa concept, as well as its intimates subbrand, aerie by American Eagle.

For the quarter ended April 29, American Eagle’s net income climbed to $64.2 million, or 42 cents a diluted share, from $55.3 million, or 35 cents, in the prior year’s quarter on sales that jumped to $522.4 million from $456.5 million. The earnings per share year-over-year gain was 20 percent, and was 1 cent above Wall Street analysts’ estimates. First-quarter results also include a 2 cent per share stock option expense.

Same-store sales for the first quarter gained 9 percent. A year ago, comps gained 27 percent.

Jim O’Donnell, chief executive officer, said in a statement that he was “extremely pleased with our first-quarter performance, which improved on outstanding results in the first quarter of last year. We achieved strong sales and earnings growth, demonstrating consistent performance. And importantly, we made solid progress on a number of strategic growth initiatives.”

The retailer’s gross margin rate was 48.6 percent, which compares with 48.7 percent in the same period last year. Operating income as a percent of sales dropped to 18.9 percent from 19.2 percent a year ago while selling, general and administrative expenses rose to 26 percent from 25.5 percent. The 50 basis-point increase in SG&A was partly due to the stock option expensing.

Regarding the company’s growth initiatives, management said it was on track to open the first four stores of its Martin + Osa brand as well as roll out its aerie by American Eagle subbrand in the fall.

“New and remodeled stores will open with more square footage dedicated to intimates, and the intimates presentation in existing stores will be expanded,” the company said in its quarterly report. “Three stand-alone aerie locations will also open. Additionally, the assortment will expand to include a complete line of bras, undies and AE dormwear.”

This story first appeared in the May 17, 2006 issue of WWD. Subscribe Today.

Because of these openings, as well as an “accelerated construction schedule” at its Kansas distribution facility, the company expects capital expenditures to reach $215 million this year, which is ahead of a previous estimate of $175 million.

“Continuing the company’s real estate strategy, total retail square footage is on track to increase 7 percent for the year,” the company said, adding that 11 stores opened in the quarter while 14 were remodeled and 4 were closed.

The retailer expects second-quarter EPS of between 39 cents and 41 cents, which compares with 37 cents in the prior year.