American Eagle Q3 Profit Down 68%, But Matches View; Issues Weak Q4 Outlook

(RTTNews) - Teen clothing retailer American Eagle Outfitters, Inc. (AEO) on Friday reported a 68 percent decline in profit for the third quarter from last year, reflecting lower revenues and margins that were weighed down by higher promotional activity, in addition to one-time charges. However, adjusted earnings per share matched analysts' estimates.

The company's shares are down more than 2 percent in pre-market trades after it provided earnings forecast for the fourth quarter, that includes the crucial holiday season, below Street view.

Robert Hanson, CEO of American Eagle Outfitters said, "Our financial performance is clearly unsatisfactory and not consistent with our objectives. As we continue to navigate through an intensely promotional North American retail landscape, we are making improvements in merchandising and marketing, while aggressively pursuing efficiency gains, expense reductions and ensuring disciplined inventory management."

The Pittsburgh, Pennsylvania-based shopping mall fixture reported net income for the third quarter of $24.90 million or $0.13 per share, down from $78.61 million or $0.39 per share in the prior-year quarter.

The latest quarter's results include non-cash charges of $0.06 per share associated with the company's previously disclosed plans to close its Warrendale, Pennsylvania distribution center upon the opening of its new facility in Hazleton, Pensylvania.

Excluding special items, adjusted income from continuing operations for the quarter was $0.19 per share, compared to $0.41 per share in the prior-year period. On average, 25 analysts polled by Thomson Reuters expected the company to report earnings of $0.19 per share for the quarter. Analysts' estimates typically exclude special items.

Total net revenue for the quarter decreased 6 percent to $857.31 million from $910.37 million in the same quarter last year, but beat analysts' consensus revenue estimate of $848.98 million.

Consolidated comparable store sales, including AEO Direct, declined 5 percent for the quarter, compared to an increase of 10 percent in the year-ago period.

The company's AEO direct business, including ae.com, and aerie.com, reported a 17 percent increase in comparable store sales, compared to an increase of 26 percent in the prior-year period. Comparable store sales at American Eagle brand stores declined 5 percent, while it decreased 3 percent at Aerie brand stores.

Gross margin dropped 670 basis points from the year-ago period to 34.9 percent, primarily as a result of higher promotional activity and the deleverage of rent on negative comparable sales. Operating income margin contracted 930 basis points from last year to 4.8 percent.

Looking ahead to the fourth quarter, American Eagle forecast adjusted earnings in a range of $0.26 to $0.30 per share, based on a mid single-digit decline in comparable sales. The guidance excludes potential asset impairment and restructuring charges. This compares to adjusted earnings per share of $0.55 in the prior-year period.

Street expects the company to report earnings of $0.39 per share for the quarter.

Separately, American Eagle Outfitters said it has appointed Chad Kessler as EVP, Chief Merchandising and Design Officer for the American Eagle Outfitters brand. He will report to CEO Robert Hanson.

Kessler begins in his new role on February 3, 2014, succeeding Fred Grover, who will stay with the company to ensure a smooth transition through mid-year, at which point he will retire from AEO.

Kessler joins AEO with an extensive background in retail apparel, including his most recent role as Chief Merchandising Officer for the Urban Outfitters Brand.

From 1994 to 2010, he served in merchandising roles at Abercrombie & Fitch, rising to EVP, Female Merchandising, and was instrumental in the successful launch of new brands. He also served as SVP of Corporate Merchandising for Coach from 2010 to 2011.

AEO closed Thursday's regular trading session at $16.40. In Friday's pre-market trades, the stock is down $0.41 or 2.50 to $15.99.