American Eagle Outfitters became the cool teen clothing retailer on Wednesday, at least among investors who sent the South Side company’s shares up almost 8 percent after it surprised the market with solid fourth quarter earnings even as competitors all around it in America’s malls have been failing.
Analysts also liked that the Pittsburgh company said the new year is off to a great start, and earnings should exceed their predictions.
Meanwhile, shares of longtime rival Abercrombie & Fitch slid toward the discount rack, ending the day down more than 15 percent after the Columbus, Ohio-based retailer released disappointing results.
“At this point, we prefer AEO among the teen retailers, which we believe is showing more compelling indications of fundamental recovery,” wrote Randal J. Konik, an equity analyst with Jefferies in a report issued Wednesday.
And that was in a report on Abercrombie.
It’s been a particularly rough time to be competing for the right to clothe America’s young people. Recent months have seen hundreds of stores closed by chains like Wet Seal, dELiA*s, Deb Stores and Body Central. And both American Eagle and Abercrombie have been trimming their store fleets as more shopping has moved onto smartphones and tablets.
Both American Eagle and Abercrombie also happen to be looking for new chief executive officers after disappointing results saw their CEOs leave last year.
So investors were thrilled to see American Eagle report fourth quarter sales at its stores that have been open at least a year — a key industry statistic known as same-store sales — were flat over the holidays.
By comparison, Abercrombie reported a 10 percent drop in same-store sales. Aeropostale had earlier reported a 9 percent drop.
Even without the comparisons, American Eagle officials seemed confident that they are now part of a turnaround story.
For the three months ended Jan. 31, the company reported earnings per share of 32 cents, compared to 5 cents a year earlier. Excluding one-time charges, earnings of 36 cents per share beat the average prediction of 34 cents of analysts polled by Thomson Financial.
Profit of $61.6 million in the fourth quarter compared to $10.5 million a year earlier.
Total revenue rose 3 percent to $1.07 billion, according to the American Eagle announcement.
Management emphasized that the second half of the year was much stronger than the first, something they attributed to better testing programs for new merchandise, better quality products and a willingness to hold off on discounts in the face of intense competition.
For the full year, American Eagle reported profit of $80.3 million, down from the previous year’s $83 million profit. Earnings per share dropped from 43 cents to 42 cents.
Total revenue for the year dropped 1 percent to $3.28 billion, and sales at stores open at least a year fell 5 percent.
“We are beginning to deliver positive sales and improved margins,” said Roger Markfield, the company’s executive creative director who put off retirement last year when American Eagle and its former chief executive parted ways.
Earlier this week, American Eagle announced the promotions of its two chief merchandising officers. Chad Kessler became global brand president for the mainline stores while Jennifer Foyle got the same position over the company’s dorm wear and lingerie brand Aerie. Mr. Kessler joined the company in February 2014, and Ms. Foyle started in 2010.
“Chad and Jen are the right leaders to take us into the future,” Mr. Markfield said.
The American Eagle brand posted a same-store sales drop of 1 percent in the fourth quarter while Aerie had a 13 percent same-store sales increase.
During Wednesday’s conference call with analysts, Mr. Markfield said he was pleased with the work the two had done last year. Mr. Konik’s note to investors praised the promotions as a way to give the executives accountability for the brands.
Pressed by an analyst on the conference call to give a little more color on American Eagle’s search for a new chief executive, Jay Schottenstein, the company’s interim CEO for the past year and major shareholder, said, “I want to make sure the person we put in is the right person.”
He said he is looking for someone who has the right temperament and who has a vision for the company that everyone can buy into.
Although American Eagle said it, like many other retailers, has been affected by a slowdown in inventory shipments from the West Coast over port labor issues, the company predicted earnings in the first quarter will be in the range of 9 cents to 12 cents, excluding potential asset impairment and restructuring charges.
Analysts had been looking for earnings of 7 cents in the first quarter.
American Eagle shares closed the day at $15.96, up $1.14.
First Published: March 4, 2015, 2:14 p.m.
