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American Eagle's Pain

It's been a rough week for teen retailer American Eagle Outfitters (Nasdaq: AEOS  ) . On Monday, it was supposed to present at a Lehman Brothers investment conference, but pulled out without comment. The move was interpreted by some as a sign that its October results must have been terribly disappointing, and the stock fell 7%.

Well, its October sales were, in fact, disappointing. American Eagle announced late yesterday that total sales dropped 8% to $96.1 million, and consolidated same-store sales tanked 18.1%. Comparable-store sales for the American Eagle brand fell 18.7%, while those for the company's Canadian clothing chain Bluenotes/Thrifty declined 9.2%.

American Eagle has been in a funk for several quarters now, with earnings consistently coming in lower versus the year-ago period. Fashion mishaps and the struggling Bluenotes/Thrifty have plagued the retailer. Unfortunately for shareholders, who've seen their shares fall 32% from a 52-week high of $23.37 in August of this year, the earnings pain will continue.

American Eagle warned that third-quarter earnings will now come in between $0.22 and $0.24 a share, not counting an $0.11 per share markdown in goodwill for the Bluenotes chain. That's much worse than the $0.28 a share forecasted by analysts and significantly below the $0.37 a share American Eagle earned a year ago. (And that's also below the $0.42 a share it earned in 2001's Q3.)

At least, the company's trying to take steps to make things right. It recently named Jim O'Donnell its sole CEO. He had been sharing the job with Roger Markfield, who will now serve as president of the American Eagle division. Hopefully, by having Markfield closer to the American Eagle brand, he'll be able to lead its merchandising and marketing back towards growth.

Still, investors should wait to see some solid evidence that the company's operations are finally strengthening before wading back in here. This is one injured bird, and a turn-around won't happen overnight.

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