American Eagle Gains Altitude

In what analysts agree is a remarkable recovery, AE comp store sales in fourth quarter 2004 rose 28.6%, compared with a decline of 5.1% for the same quarter of 2003. Increases occurred in all regions of North America and stand beside company wide sales gain of 37.4% for the quarter and a slew of double-digit –in one case, triple-digit –gains covering all the important measures of success. Net income for the year spiked 150%. Fourth-quarter Internet sales rose 52%, and margins hit 49%, the highest in the company's history, said Jim O'Donnell, CEO. AE is selling more merchandise in general, and more at full price in particular.

A great fourth-quarter raises all stats. But, AE's fiscal fourth ended Jan. 29, 2005, and its happy holiday is not a spike, but a steady climb. Comp store sales for the 12 months ended Jan. 29 were up 21.3% over the previous 12 months. Margins rose to 46.2% for the year. And the trend continued into February, when sales hit $127 million, a monthly record for AE and an increase of 41.8% over February 2004. Comp store sales for the month were up 32.4%.

O'Donnell predicted double-digit same store sales increases for "several quarters into 2005." Another 40 American Eagle Outfitters stores will open this year and 60 existing ones will be remodeled. In all, square footage for the AE brand will increase between 5% and 7% this year and in 2006, he said. The "new concept," widely publicized, but narrowly described in public, "will drive growth in 2006," he added.Asked if AE plans expansion beyond North American, O'Donnell said, "Interest has been expressed from Asian markets. We have someone there now in very, I stress very, preliminary conversations, but Asia could well be part of American Eagle's expansion."

For now, however, "there's still good opportunity to tighten margins," he said. Among the primary vehicles are expansion of knits, particularly the Favorite Ts initiative, and accessories, which occupy stores' rear real estate, and that product will be upgraded.

Denim, however, reigns supreme, according to O'Donnell. AE will not follow other retailers who are touting jeans that sell at the $100-level. "We are doing fashion denim with those looks," he said, "but we're committed to remaining at price levels that are acceptable to our customer." Will AE denim hit the $79- to $89-a unit pricetag? "Probably not," he said, adding that AE did see some room for slight increases in denim retail tickets.

As for the trend to Bermuda shorts this spring, he said, "We're at the front end of that trend." Boho Chic, the bohemian trend, is being interpreted for the American Eagle customer's lifestyle, which AE sees as "a modern take on Preppy." To promote spring looks, AE is the official sponsor of "Spring Break with MTV," which management sees as the ideal vehicle for increasing altitude this year.