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WARRENDALE, PA-American Eagle Outfitters Inc. is ramping up expansion of its aerie by American Eagle brand not only with the opening of additional free-standing units, but also by expanding the merchandise mix. By year-end, the parent company is on track to open 37 freestanding units of the brand that began with intimates and dormwear within American Eagle stores.

That will take the total number of aerie units to 40, and “at least 50 more aerie stores will open in 2008,” Susan McGalla, president and chief merchandising officer, said during a conference call. “All aerie units will evolve during the second half,” she added, noting that “aerie fit,” featuring fitness apparel will be added for the holidays, and bath and body products are also in plans for the brand.

Despite emphasis on growing the aerie brand, McGalla also said the American Eagle brand represents “our most powerful opportunity for growth,” and that brand’s reach is broadening through AE.com. During second quarter six new AE units were opened, and 26 were remodeled.

A new AE store format will launch this November. The goal is improved productivity, according to James O’Donnell, CEO. He said 250 AE stores are targeted for expansion and renovation during the next few years. Sales per sf in the locally based retailer’s flagship brand reached $540 per sf this year, he said.

In all, the company expects to have increased total retail sf by 10% this year. The growth includes approximately 32 new and 53 remodeled AE units this year and the addition of 14 Martin+Osa units in addition to the aerie stores.

While the flagship brand targets 15- to 25-year-olds, Martin+Osa aims at men and women between the ages of 25 and 40 years old. There are now 10 Martin+Osa stores. Of this brand, O’Donnell said, “we’ve made significant progress on the brand. We’ve added color and energy, and we’re absolutely committed to Martin+Osa.”

Total store sales for second quarter climbed 17% to $703.2 million. Same-store sales were up 2%. The second-quarter comps were negatively impacted by a later back-to-school season and a shift of tax-free calendars in some states from July to August, management said, also noting that this quarter’s comp-store gains came on top of a 9% comp-store gain in the same quarter a year ago. “We are pleased with August sales to date,” McGalla added.

Net income for the quarter rose 13% to $81.3 million, compared with $72.1 million for second quarter 2006. Operating income this second quarter increased 12% to $122.7 million, up from $109.3 million for the same quarter a year ago.

The quarter ended this Aug. 4 represented the company’s 14th consecutive quarter of record sales and earnings, O’Donnell said. “We also made progress in the quarter toward our key goals of building brands for growth, optimizing our channels of distribution, and strengthening our operations for productivity improvements and continued profitable growth.”

The company currently operates 852 stores in 50 states, the District of Columbia and Puerto Rico, and 74 AE stores in Canada and also sells direct at AE.com.

On March 8, AEO common stock shifted trading from the Nasdaq to the NYSE. Shares hit a 52-week high of $34.80 on Jan. 18 this year and the 52-week low of $21.46 a share occurred on this Aug. 16. Following the Aug. 21 conference call, shares closed at $22.76 a share, down nearly 1.1% for the day.

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