American Eagle Still Soaring

Add a long-term positive assessment to his predictions for the current quarter. From an operational and technological standpoint, he believes store initiatives could increase sales productivity and drive growth until significant store expansions kick in. They are directed toward overseas growth and an as-yet-unidentified fourth concept, both planned to begin in 2006.

Noting that AE sees the potential for about 950 stores long term as well as 80 in Canada, he says units are being added in urban markets, "such as Seattle, as well as in lifestyle centers, prime real estate for attracting higher income `soccer moms' and teenagers with disposable income." This summer an American Eagle will open on Union Square in Manhattan.

Of its plans for overseas units, Black says, "we think that Japan could be a prime candidate as well as Korea and/or China." Of what he terms "the highly anticipated fourth concept," which is on track for late 2006, "we think . . .(it) will be dual gender and target an older demographic."

Long-term expansion aside, Black singles out intimate apparel and accessories as areas that will contribute to this season's and this year's bottom line. Intimates, now often carried on small tabletops, are being tested in a few side-by-side locations. "These departments have grown substantially over the past few years and we think it could be a significant business in the future," he says in the report, noting that the category carries attractive gross margins. In addition to accessories, such as flip flops, mostly carried along the back wall, he points to product extensions in personal care and home accessories.

Of the stores' current spring fashion, Black says there is an "added element of cohesiveness to the merchandise assortment." He credits LeAnn Nealz, a new chief design officer, who came on board from babyGap and GapKids, along with Susan McGalla, chief merchandising officer, with strengthening the connection between the men's and women's teams as well as the design merchant teams, now all "working in lockstep." While praising the vibrant pinks, blues, purples and greens in the women's lines, he says, "the biggest confirmation of the trend is probably the success of color on the men's side, where pink and turquoise appear to be the best sellers."

Meanwhile, the stores continue grabbing more denim market share. "The current denim cycle is one of the stronger –and longer –cycles in recent memory," Black says. "AE has clearly been trend right in its denim assortment," he adds, noting that it nearly doubled its market share in the 2004 back-to-school season to become the second largest provider of specialty store jeans, behind Old Navy, and "appears to be gaining ground." He predicts AE will exceed its goal of a 10% comp store gain in this category this year.

While it expands its fashion right merchandise, AE is successfully tightening its productivity, according to Black. Technology initiatives, such as ShopperTrak and Profit Logic, "remain key in furthering operational benefits in sales productivity and gross margin," he says. Against a background of nearly $1.9 billion in total 2004 sales, AE stores "are now generating average sales in excess of $2.1 million," Black says, "which reflects a 10% increase in transactions per store and an 11% increase in sales units per store."By hiring managers with experience in running big box stores, which have higher sales volume and velocity, AE is poised for further efficiencies at the store level, according to Black. Inventory turns increased from 3.7 times to 4.3 times in 2004, and he says management is working to improve backroom efficiencies even more this year.

Marketing initiatives are also succeeding, Black reports. Teen Research Unlimited consistently ranks AE in its "coolest brands" category. Sponsorship of MTV's Spring Break broadcast looks like another plus.