American Eagle's Profit Falls 86%--Update

By Sara Germano and Tess Stynes 

American Eagle Outfitters Inc. is fast fashion's latest victim.

Hit by weak mall foot traffic and intense price competition, the teen retailing chain Wednesday said it plans to shutter 150 North American stores over the next three years. The company is also keeping a close eye on the performance of another 300 stores that have leases expiring over the period.

The store closures are one way American Eagle seeks to trim expenses, as it contends with lower margins, which dropped to 35% in the first quarter from 39% in the same period last year.

Profit plunged 86% to $3.9 million for the period ending May 3, while comparable same-store sales dropped 10%. Revenue fell 5% to $646 million.

Its stock was down 7% in afternoon trading at $10.54, and is down 26% so far this year.

American Eagle expects it can save between $10 million and $15 million in 2015 by closing locations across its 1,000-store chain, including 70 at its American Eagle and Aerie brands in North America this year. The retailer is also hoping to negotiate rent reductions at existing store locations.

American Eagle as well as competitors Abercrombie & Fitch Co. and Aeropostale Inc. have been under pressure from the rise of fast-fashion retailers like Forever 21 and Swedish company Hennes & Mauritz AB, known as H&M, which offer runway looks at competitive prices.

Jay L. Schottenstein, American Eagle's interim chief executive, said the retailer has currently implemented some fast-fashion strategies in 75 stores, out of its fleet of more than 1,000. He estimated that the fast-fashion component "should probably be 20% to 30% of the business."

American Eagle said it would continue to shy away from offering promotions, particularly as it focuses on its core business of jeans and so-called "heritage" clothing, with various ranges of fits and washes.

The average price of American Eagle jeans fluctuated between $27 and $43 from late March to early May, according to research by Goldman Sachs released last week. Comparatively, Abercrombie posted an average price range of $38 to $50, while Aeropostale's ranged between $15 to $17 over the same period.

American Eagle's results come as the teen retailer hunts for a new chief executive, following the departure of Robert Hanson in January. Competitor Abercrombie is also engaged in succession planning, as the company is seeking two new brand presidents, either of whom could be considered to replace longtime chief executive Michael Jeffries, the company has said.

Write to Sara Germano at [e-mail] and Tess Stynes at [e-mail]

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