American Eagle Outfitters (AEO)
Q1 2009 Earnings Call Transcript
May 27, 2009 9:00 a.m. ET

Executives

Judy Meehan - Vice President, Investor Relations
James V. O''Donnell – President, Chief Executive Officer & Director
Joan Holstein Hilson - Executive Vice President & Chief Financial Officer

Analysts

Paul Lejuez - Credit Suisse
John Morris - BMO Capital Markets
Anna Andreeva – JPMorgan
Todd Slater - Lazard Capital Markets
Richard Jaffe - Stifel Nicolaus & Co.
Stacy Pak – SP Research
Janet Kloppenburg - JJK Research
Michelle Clark - Morgan Stanley
Betty Chen – Wedbush Morgan
Kimberly Greenberger - Citigroup
Michelle Tan - Goldman Sachs
Lorraine Hutchinson - Bank of America/Merrill Lynch
Dorothy Lakner - Caris & Company

Presentation

Operator

Greetings and welcome to the American Eagle Outfitters Incorporated first quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer will follow the formal presentation. If anyone should require operator assistance during the conference, please press “*0” on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Judy Meehan, Vice President of Investor Relations. Thank you, Ms. Meehan. You may begin.

Judy Meehan

Thanks, Rob. Good morning, everyone. Joining me today are Jim O’Donnell, Chief Executive Officer; and Joan Hilson, Executive Vice President, Chief Financial Officer. If you need a copy of our first quarter press release, it is available on our website, www.ae.com.

Before we begin, I need to remind everyone that during this conference call, members of management will make certain forward-looking statements based upon information which represents the company’s current expectations or beliefs. The results actually realized may differ materially from those expectations or beliefs based on risk factors included in our quarterly and annual reports filed with the SEC.

And now I would like to turn the call over to Jim.

James V. O''Donnell

Thanks, Judy. Good morning. While the first quarter continued to be challenging, there are early indications that the business is stabilizing. I will elaborate further as I give you the results for the quarter.

Sales declined 4% and comparable store sales were down 10%. This was the result of lower traffic and conversion. We also experienced margin pressure which led to a 58% decline in operating margins.

We clearly have issues in our business that have yet to be resolved. They include further progress and assortments across AE categories and strengthening merchandise margins. That said, a sharp decline of the fourth quarter seems to have leveled off. Following are a few examples and proof points.

AE women’s comp performance improved to a 13% decline from a negative 23% in the fourth quarter of last year. AE denim comped positively in both men’s and women’s, as well as other key categories, such as men’s tops, women’s dresses, skirts, accessories, and certain fashion tops.

Traffic and conversion, while still negative, improved relative to fourth quarter. The conversion rate was 3% higher and the store traffic improved to a 3% decline from a 9% decline.

AEO’s new concepts are performing well and met our first quarter earnings expectations. Aerie standalone stores delivered a positive comp of 17%. The bra business is healthy and growing and we continue to expand the assortment with new fits, styles, colors, and patterns. Aerie Fit, the work outline, is a rising star. Customers tell us that it’s differentiated in the marketplace and truly complements the Aerie lifestyle.

MARTIN + OSA comped at a positive 7%, driven by increased traffic and conversion. Leadership is focused on continuing to improve assortments with a more cohesive point of view for this customer.