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American Eagle Update Presented 10-31-00

This update on American Eagle (AEOS) discusses their growth strategies, expansion plans, and competition in the apparel industry. It also highlights their strong performance in back-to-school sales and the challenges faced by competitors like Gap and Abercrombie & Fitch.

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American Eagle Update Presented 10-31-00

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  1. American Eagle Update Presented 10-31-00 James Charehsazen Mike Delaney Robert Don Kerri Lin Dave Zydek Recommendation: Hold

  2. 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 T-shirts • 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

  3. 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

  4. Competitors • Abercrombie & Fitch • Gap Stores • The Buckle • Pacific Sunwear

  5. 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%

  6. 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

  7. 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

  8. 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

  9. Top Down - AEOS • Company expected to expand store base by 19% in fiscal 2000 • Prices well positioned for target market • Lower than closest competitors

  10. 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)

  11. 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%

  12. 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

  13. 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

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