What's Ahead for American Eagle Outfitters?

Shares of American Eagle Outfitters (NYSE: AEO  ) closed Friday down more than 9% following a third-quarter report that beat estimates but included a guidance disappointment. The quarter was rough on teen retailers as mall traffic lightened and wallets tightened. But how did American Eagle Outfitters stack up against the competition -- and how does the company plan to have a better 2014?

Analysts had predicted revenue of $844 million and earnings per share of $0.15.American Eagle reported $857 million -- a 6% drop year over year -- and EPS of $0.19. Consolidated comparable-store sales decreased 5% compared to 10% growth in last year's quarter. Investors balked at the fourth-quarter guidance of $0.20 to $0.30 -- well below the $0.39 consensus estimate from analysts. 

although American Eagle's quarter wasn't as dismal as the quarters of Abercrombie & Fitch (NYSE: ANF  ) or Aeropostale (NYSE: ARO  ) , the company still needs a game plan for improving in the future. And the company outlined two of those strategies during the third-quarter earnings call. Here's what to watch next year. 

Increased focus on e-commerce 
Direct sales for the third quarter were up 17%. That's down from the 26% growth last year but is still a strong performance in the current climate. The recent Black Friday holiday weekend included record e-commerce sales for the company. And the company has plans next year to sweeten online shopping for customers. 

American Eagle Outfitters will open a new distribution center next year that will double the inventory the company can stock for online sales. The center will cut transportation costs up to 20% and allow American Eagle to offer one-day shipping to select shoppers. Online customers will also have the option to ship the purchase to a nearby store starting in the spring. 

Plans for improving fashions
In the second quarter, the women's segment was called out as an under-performer. Styles stocked for the important back-to-school shopping period didn't connect with customers. But American Eagle scurried to restock with different trends with a focus on fleece and sweaters. The change seems to have worked as the women's segment finished the third quarter nearly even with men's at mid-single-digit comps drops.

American Eagle hopes its new, speedier production techniques will help move products through faster if certain styles aren't selling. But that's not the only change that's coming on the style front. Chad Kessler steps up in February as the new chief merchandising and design officer. Kessler comes most recently from Urban Outfitters (NASDAQ: URBN  ) , which was one of the only youth oriented clothing brands to manage positive comps this quarter.

Urban Outfitters had total comps growth of 7% in the third quarter. The strength came from double-digit growth for the brands Anthropologie and Free People, which are aimed at an older and more financially secure audience. But the Urban Outfitters stores were only down 1% in a quarter where many teen retailers had double-digit drops.That suggests Urban's merchandise connects better with its audience than most.

Kessler could rejuvenate American Eagle if he's able to replicate that success. And he's in a good starting position since American Eagle is at least doing better than its direct competition. 

How do Abercrombie & Fitch and Aeropostale stack up?
Analyst estimates for Abercrombie & Fitch's third quarter included $1.1 billion in revenue and EPS of $0.44.Abercrombie reported $1.0 billion and a net loss of $0.20. Total comparable-store sales were down 14%. But the overall comps were helped by the inclusion of direct-to-consumer, which grew net sales 10% on the year.  Abercrombie forecasts full year EPS between $1.40 to $1.50 compared to the analyst estimated $1.56. 

Aeropostale reported revenue of about $515 million -- a 15% drop year over year --and a net loss of $0.33.  Analysts had predicted third-quarter revenue of $519 million with a $0.24 loss per share.Total comps including e-commerce were down 15%. But e-commerce net sales were flat on the year, which was surprising considering the company's attempts to expand its online presence. But a newly launching partnership with YouTube fashion guru Bethany Mota could drive stronger e-commerce sales in the next quarter.  

Aeropostale issued a fourth quarter guidance with a net loss per share between $0.24 and $0.32 compared to the $0.06 loss predicted by analysts.  

Foolish final thoughts
American Eagle suffered less in the quarter than Abercrombie and Aeropostale but it's still a long road up to actual success. But the doubling down on e-commerce and Chad Kessler coming aboard could make 2014 a more solid year at American Eagle Outfitters.

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