American Eagle Doesn't Really Soar

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American Eagle Outfitters (NYSE: AEO) is a trendy retailer in more ways than one; it is also following the current trend of retailers that report lackluster quarters that are better than analysts expected. Still, that's not really any reason for celebration.

First-quarter net income fell by half to $22 million, or $0.11 per share, including a tax benefit of $0.04 per share. American Eagle's total sales dropped 4%, to $612 million, and same-store sales plunged 10%.

Other dismal news was a major decrease in gross margin, which fell to 36.1% of sales from 41.2% this time last year. The fall was caused by a higher rate of markdowns used to move merchandise as well as a lower initial markup on its wares -- clearly not a great combination.

American Eagle also expects second-quarter results to be much lower than last year, anticipating earnings of $0.12 to $0.15 per share, compared to $0.29 in that period last year.

This retailer does have one thing going for it, and that's a clean balance sheet that features $682 million in cash and securities and no debt -- a clear edge in the nasty economic environment. And while its second-quarter projections are pretty depressing, they're not nearly as scary as the slowdowns peers such as Abercrombie & Fitch (NYSE: ANF) and Ann Taylor (NYSE: ANN) have been experiencing.

Still, American Eagle is clearly on a downward trend amid a challenging consumer spending environment. It's probably better to search for retail outliers like The Buckle (NYSE: BKE) and Aeropostale (NYSE: ARO) at this time since a lot of retailers are looking a bit like fashion casualties these days.

Meanwhile, American Eagle doesn't look cheap at about 19 times trailing earnings. Like I said, The Buckle and Aeropostale are both illustrating better business performance despite the tough times; The Buckle trades at just 15 times earnings, and Aeropostale has a P/E of just 14. There are better deals out there than American Eagle shares, so it's a bad time to take a flyer.