This summary is based on the first quarter fiscal 2008 earnings call conducted by American Eagle Outfitters. (AEO: chart) on May 28, 2008.

Management:

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

Key Investors Issues

- Sales were up 5% to $640.3 million.
- Net income declined 44% to $43.9 million or 21 cents a share from $78.8 million or 35 cents a share in 2007.
- Capital expenditures totalled $74 million and were related to store growth and renovations, headquarters, and distribution centres.

First Quarter Highlights

Sales were up 5% to $640.3 million from $612.4 million in the prior year with comparable store sales declining 6%, following weaknesses in AE Girls, resulting in significant markdowns and impacting profitability.

- The firm experienced a decline in traffic and lower transactions per store and the average unit retail price was down as a result of higher markdowns.
- The gross margin rate of 41.2% was a decline of 750 basis points compared to last year due to an increase in markdowns caused by lower than expected sales and clearance in gross denim as the firm transitioned to a new assortment this Back to School.
- Within gross margin there was a modest increase in INU reflecting lower first costs and a reduction in shipment by air versus ocean.
- Net income declined 44% to $43.9 million or 21 cents a share from $78.8 million or 35 cents a share in the prior year due to higher costs resulting in a lower gross margin rate.

Rent deleveraged 140 basis points due to new store openings and the first quarter comp decline, while fuel surcharges resulted in higher delivery costs.

- SG&A as a rate to sales rose to 26.5% from 25.6% in the prior year due to the negative comparable as the firm deleveraged direct compensation and benefits, services purchased, travel, and communications.
- However, incentive compensation, advertising, and supplies improved as a rate to sales.
- The operating margin declined 880 basis points to a rate of 10.1% as other income decreased to $6.5 million, a result of lower investment balances and investment rates.

American Eagle ended the quarter with a total cash and investment balance of $705 million, including $368 million in auction rate securities.

- Inventory, excluding the direct business, decreased 17% on a cost-per-square-foot basis at the end of the quarter.
- Capital expenditures totalled $74 million and were related to store growth and renovations, headquarters, and distribution centres.
- The firm is seeing increasing growth and great potential for the aerie brand and is moving full speed ahead with 80 new stand-alone stores opening this year.
- It is getting prime locations and attractive rents combined with tenant allowances.

Update on MARTIN + OSA

- Of the 22 stores now operating seven locations have been operating for more than a year.
- Same store sales for the seven stores increased by more than 50% against modest sales levels from last year as merchandise improvements and accessible price points are driving the sales gain.
- The firm experienced increases in traffic and higher conversion rates and it continues to make progress on 77kids.
- This new concept is being built to leverage the organization and the power of the AE brand.
- In October, the firm will launch the e-commerce site which will enable it to gain insight into the brand positioning and target customers so that it can fine tune brand offerings before investing in brick and mortar.

Operational Highlights:

- There was strength across Miss categories, including denim, fleece, woven shirts, and graphics, however, the AE girls business was challenging with an 11% comp decline.
- Accessories and bottoms, including pants, shorts, and denims, were the most difficult areas., with the shorts business off to a very late start this spring.
- The firm believes its styles are on trend, but the timing of spring breaks combined with cool weather contributed to inconsistent results to date.

On the positive side in women’s, the firm is continuing to see stronger performance in graphics, bearnet, sweaters, fleece, and dresses as a result of the focus on girls’ tops in on trend execution.

- The national research initiative confirmed that customers consider value as an important component of the AE brand.
- As a result, going forward, the firm is expanding value offerings to include fashion items as well.
- The company also sees an opportunity to become a 24-hour brand offering greater versatility and outfitting that takes customers from day to night.
- In aerie, bras and undies are volume destination categories and the firm is pleased with these businesses.
- For Back to School, it will launch an incentive program designed to build customer loyalty and create repetitive store business.

Fiscal 2008 Outlook:

- In 2008, the firm expects to spend $250 million to $275 million on capital expenditure with the the majority of capital spend relating to store growth and remodels. The infrastructure projects will largely be completed.
- Earnings expectation is 28 cents to 30 cents compared to 37 cents last year.

Key questions and answers from the first quarter earnings call conducted by American Eagle Outfitters. (AEO: chart) on May 28, 2008.