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What: Shares of teen apparel retailer American Eagle Outfitters (NYSE:AEO) flew 10% this morning after its quarterly update topped Wall Street expectations.

So what: The stock has slumped in 2013 on sluggish teen spending, but upbeat guidance for the third quarter suggests that the worst is behind it. While revenue will be down about 6% to $857 million, it's far better than the 12% top-line decline that rival Abercrombie & Fitch reported yesterday, suggesting that American Eagle's competitive position is actually strengthening in the weak environment.

Now what: Management now sees Q3 adjusted EPS of $0.19, up significantly from its prior view of $0.14 to $0.16. "[I]n an extremely challenging environment, our bottom line results are slightly ahead of our prior expectations and we ended the period with clean inventory," CEO Robert Hanson said. "We remain highly focused on strengthening our merchandising, marketing and customer service execution, while maintaining disciplined inventory and expense management." More important, with American Eagle shares still off nearly 30% from its 52-week highs and trading at a forward P/E in the low teens, there's room for shareholders to benefit from that improvement. 

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.