American Eagle Update Presented 10-31-00

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American Eagle Update Presented 10-31-00

• James Charehsazen
• Mike Delaney
• Robert Don
• Kerri Lin
• Dave Zydek

Recommendation Hold
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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

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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

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Competitors

• Abercrombie Fitch
• Gap Stores
• The Buckle
• Pacific Sunwear

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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

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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

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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

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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 Dawsons Creek
• Improvements to Web site catalog
• Plans to advertise on certain TV networks

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Top Down - AEOS

• Company expected to expand store base by 19 in
  fiscal 2000
• Prices well positioned for target market
• Lower than closest competitors

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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)

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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

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Competitors

• Gaps 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 Fitchs Problems
• Difficulties with product mix resulting in
  stocking merchandise customers didnt want
• The cheaper clothes offered by American Eagle
  pulled some unhappy Abercrombie shoppers away

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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