Spotting American Eagle

The news from casual men's and women's apparel retailer American Eagle Outfitters (Nasdaq: AEOS) wasn't great today, with the company reporting substantial same-store sales decreases for both its core American Eagle and Canadian Bluenotes/Thrifty's operation. For the first 11 months of the fiscal year (through Jan. 4), American Eagle revenues are up 3.4%, but same-store sales fell 7%.

At Bluenotes/Thrifty's -- which the company characterizes as more "urban" and "denim-driven" than American Eagle and its generally preppy wares -- revenue gains were attributed mainly to currency effects, with same-store sales down nearly 8%. Bluenotes/Thrifty's has presented ongoing challenges to American Eagle, resulting in a string of managers for the chain. Fred Grover was appointed president of the division last January, replacing Lora Tisi, who herself got the nod in Jan. 2002 when Mickey Macklin retired.

All of this shouldn't be particularly surprising for retail watchers. Competitor Abercrombie & Fitch (NYSE: ANF), which stocks goods markedly similar to American Eagle's, has struggled this year, with December as no exception. (Abercrombie, of course, has been challenged on the PR front, as well as by market factors.)

Shares of American Eagle, however, held up in morning trading as the company said it was comfortable with current Street earnings estimates for its fiscal Q4. Under the circumstances, that's good news -- though it's clearly not operating from the position of strength we'd like to see. Investors must watch inventory levels and gross margins closely and continually.

Still, both American Eagle and Abercrombie are solid companies with a history of strong cash flows and good-looking balance sheets. As long as they continue to lag the S&P 500, there will almost certainly be opportunities for patient investors to pick up shares at fair prices.

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Dave Marino-Nachison can be reached at dmarnach@fool.com.