American Eagle Outfitters Inc. is looking for balance.
This story first appeared in the May 24, 2012 issue of WWD. Subscribe Today.
The teen retailer said Wednesday that it plans to open more outlets and shutter a selection of underperforming stores.
“We’re reviewing opportunities to consolidate markets and selectively close stores,” chief executive officer Robert Hanson said on a conference call detailing stronger first-quarter earnings. “We’re also looking to accelerate outlet store openings and expect to more than double the store base from 67 today. Rebalancing our store fleet over time represents another shareholder return opportunity.”
Analysts said the majority of store closures would likely come from the firm’s Aerie brand. The company, which operates 911 American Eagle Outfitters stores and 158 Aerie stores, recently said it was closing its 22-door children’s concept, 77kids. It also revealed last week that chief financial officer Joan Hilson stepped down. The chain is seeking her successor.
Since Hanson took the reins as ceo in January, he’s been focused on fortifying the firm’s core brands, while also driving sales and margin improvement.
“We are relying on our longer-term objective to transform American Eagle Outfitters from a leading domestic teen retailer into a distinctive, branded, multichannel retailer that can successfully and profitably compete on a global stage,” the ceo said. “There’s work to be done here and this will take some time.”
According to Eric Beder, a retail analyst at Brean Murray, Carret & Co., “There are a number of key positives that are aimed at strengthening the model to drive meaningful top- and bottom-line growth, including lower cotton costs, disciplined inventory levels, expansion of the higher-profit outlet channel, reduction of underperforming Aerie locations and aligning marketing to the heritage of the American brand.”
For more than two years, analysts have been calling for American Eagle to concentrate more on its execution of key growth strategies and the Pittsburgh-based retailer appeared Wednesday to be well on its way, having posted a 40 percent jump in first-quarter profits. The company also raised annual guidance.
Higher demand for its preppy threads helped American Eagle post earnings of $39.7 million, or 20 cents a diluted share, for the quarter ended April 28. This compared with year-ago income of $28.3 million, or 14 cents a share.
Stripping out contributions from the 77kids business, the company earned 22 cents a share.
Net sales for the quarter increased 18 percent to $719.1 million, versus sales of $609.6 million a year earlier.
For the year, the teen retailer increased its earnings per share forecast to between $1.16 and $1.22, from prior guidance of between $1.06 and $1.12. The new range encompasses the $1.18 Wall Street was already projecting.