American Eagle Shares Jumped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen retailer American Eagle Outfitters (NYSE: AEO  ) were looking quite trendy to investors in early trading, as they rose as much as 11%. The excitement faded quickly, though, shares finished the day up 3.5%, which was behind the Dow's 3.8% jump.

So what: It's been a tough slog for retailers as consumers continue to muddle through deleveraging their balance sheets and dealing with high unemployment. American Eagle, though, showed a bright spot on the top line in its third quarter by growing total sales 11% to $832 million and easily exceeding the $791 million expectation from Wall Street analysts. Comparable-store sales rose 5% after gaining just 1% for the same period in 2010.

The bottom line wasn't quite as exciting, but the $0.27 in earnings per share matched expectations. It was, however, down from the adjusted $0.29 earned a year ago.

Now what: When it comes to earnings releases, investors are often less concerned about what the company earned last quarter and more concerned about what it will earn next quarter. On that point, American Eagle's guidance was worth cheering. The company said:

"Strong sales over Thanksgiving weekend were driven by increased traffic and conversion. Powerful unit sales growth reflected a positive customer response to the holiday assortment and planned promotions."

The strong Thanksgiving weekend encouraged management to set its fourth-quarter per-share profit guidance at a range of $0.40 and $0.44, easily above the $0.39 that Wall Street had on its radar.

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