This summary is based on the second quarter fiscal 2007 earnings call conducted by American Eagle Outfitters (AEO: chart) on August 21, 2007.

President, Chief Merchandising Officer: Susan P. McGalla
Vice President, Investor Relations: Judy Meehan
Chief Financial Officer, Executive Vice President: Joan Hilson
Chief Executive Officer: James V. O’Donnell

Key Investors Issues

- EPS were 37 cents a share compared to 31 cents a share last year.
- Net income rose to $81.3 million from $72.1 million in the year-ago period.
- Net sales rose to $703.2 million from $602.3 million a year ago.

Second Quarter Highlights

Total sales increased 17% to $703.2 million.

- Comparable store sales increased 2%, up against a 9% increase for the same period last year. They were negatively affected by later back-to-school and tax-free events, which impacted July.
- Comparable store sales by geographic region were as follows:

- Canada increased in the mid teens.
- The Northeast rose in the high single digits.
- The Midwest and mid-Atlantic regions increased in the mid single digits.
- The west and Southwest declined in the low single digits.
- The Southeast was negative mid single digits.

Ae.com performed well, with sales increasing 32%.

New site enhancements and redesign, along with unique content, have resulted in a meaningful increase in unique user sessions over the prior year.

Gross margin rate of 45% declined from 45.7% last year.

Merchandise margin declined 50 basis points due to a higher level of markdown, which in part was offset by a strong initial markup.

Buying, occupancy and warehousing costs increased 20 basis points.

This was primarily due to rent expense from the new aerie stores, which are opening over the next few months. The company experienced start-up costs related to transitioning e-commerce fulfillment in-house.

SG&A as a percent of sales was flat to last year’s historically low rate of 23.7%.

Within SG&A, incentive compensation was lower and the company continued to leverage selling payroll. This was offset by increases in expenditures related to in-store improvements and professional services.

- Effective tax rate was approximately 38%, which is also what the company expects for the third quarter.
- Operating income margins declined 80 basis points to 17.4% from 18.2%.
- The company repurchased 3.7 million shares of common stock, bringing total for the year to 6.5 million shares with an investment of $184.7 million. The company has 23.5 million shares available for repurchase.

- Capital expenditures were approximately $55 million.
- Total merchandise inventories were $321 million, an increase of $54 million compared to last year.
- AE Brand inventory, excluding direct, increased 7% on a per square foot basis from a year ago.

Men’s business was strong, delivering a high single digit comparable store sales increase.

Strength was broad-based across most major categories, including men’s shorts, knit-tops, and woven shirts.