American Eagle Update
Presented 10-31-00
James Charehsazen
Mike Delaney
Robert Don
Kerri Lin
Dave Zydek
Recommendation:
Hold
What is AEOS?
Specialty retailer of casual apparel,
accessories, and footwear for men and
women ages 16-35
Design and market a versatile line of timeless
and relaxed clothing like jeans, khakis, and Tshirts
Operate in over 45 states nationwide with 519
stores, up from 426 stores same time last
year
Located in mall type settings in high traffic
urban settings
Growth
Expanding average store size to 5,500 sq
feet up from 4,800 sq feet in 1999
Plan to open 43 more stores during fiscal
year 2000
Purchase of Dylex Thrifts, Braemar, and
National Logistics Services for $110 million to
expand into the Canadian market
Opening of additional distribution centers and
expansion of existing distribution centers
which lowered payroll costs by 8% in 1998
and 12% in 1999
AE.Com for the holidays
Competitors
Abercrombie & Fitch
Gap Stores
The Buckle
Pacific Sunwear
Comparables
Net sales increased 17% to $209 million
from $178.6 million
Units sold increase of 29.7%, offset by
9.8% decrease in price due to
markdowns
Profit margin went from 9.5% to 1.3%
due to expansion costs
September same store sales up 7.4%
Top Down - Apparel
Industry
Growth Strategies
Industry has consolidated over last few
years
 Company acquires another in same line of
business to:

improve market share
 increase profitability
 expand in new direction with new products
 new sources of revenue

Top Down - Apparel
Industry
The Internet



E-commerce expanding at increasing rate
Sales are doubling every year through internet
More of a complement than replacement to
existing stores
Economy


Increase in interest rates affect consumer
confidence
Rising fuel costs causes a rise in utility bills


Consumers reconsider their spending options
Merchants have to compete for dollars
Top Down - AEOS
Reduced leverage on buying and
occupancy expenses due to:
Weak sell-through of apparel lines
 Increasing costs of store expansion

Marketing programs are helping to
boost brand awareness
Official clothier of “Dawson’s Creek”
 Improvements to Web site & catalog
 Plans to advertise on certain TV networks

Top Down - AEOS
Company expected to expand store
base by 19% in fiscal 2000
Prices well positioned for target market

Lower than closest competitors
AEOS Stock
Stock plunge from April 2000 to July 2000


Dramatic, but expected, decrease in earnings for
2nd quarter resulting from poor sales of spring and
summer merchandise
Drastic discounts on unsold spring and summer
merchandise to make way for strong fall line
Stock surge since July 2000


Very strong back-to-school shopping sales results
Stumbles from its competition (Gap and
Abercrombie & Fitch)
Results from Back-to
School Sales
 For August, its total sales shot up
29.6%, with same-store sales (or
"comps") increasing by a surprisingly
strong 9.1%.
 In September, American Eagle's total
sales grew by 28.1% to $90 million.
Comps increased by 7.4%
Competitors
Gap’s Problems


Gap has had several earnings warnings, flubs in
shipments to Old Navy, and an ugly listing of
declines in same-store sales have grounded
Young customers have simply been finding more
of what they like recently from American Eagle,
compared to the Gap and its Old Navy division
Abercrombie & Fitch’s Problems


Difficulties with product mix resulting in stocking
merchandise customers didn’t want
The cheaper clothes offered by American Eagle
pulled some unhappy Abercrombie shoppers away
Future for American
Eagle
 Abercrombie has taken steps to fix its
merchandising problems, and looks like
it is probably headed back the right way
now
 Abercrombie lowered the prices of its
clothes in an attempt to compete better
with alternatives like American Eagle