Image source: American Eagle Outfitters.

What happened

Shares of American Eagle Outfitters (NYSE:AEO) are down nearly 14% as of noon EST today, following the company's third-quarter earnings, released after the market closed Tuesday. Though investors were cautiously optimistic about the company's prospects, the declining same-store sales and weak holiday outlook sent the stock tumbling.

So what

For the third quarter ended Oct. 29, American Eagle Outfitters reported sales up 2.3% year over year, and net income of $75.8 million was also up 2.3% year over year -- in line with analysts' estimates. Earnings per share of $0.41 were up nearly 8% year over year, and up 17% when adjusted for discontinued operations.

While those numbers look encouraging, what worried the market was declining same-store sales and weak holiday season estimates. Same-store sales during the period increased 2%, below analyst estimates, and are estimated to be flat to slightly up in the fourth quarter. The company forecasts Q4 earnings per share of $0.37 to $0.39, substantially below what analysts were expecting from the company during the holiday season, and the stock got punished for it.

Image source: American Eagle Outfitters.

Now what

American Eagle Outfitters has been an icon of teen fashion, rising and falling through the early 2000s. Like many of its competitors, AEO has suffered from fickle consumer tastes and sharp sales declines as consumers seemed to move en masse to new trends and new brands.

Still, things had looked good for American Eagle Outfitters so far this year, with the stock up 22% year to date before today's sell-off. The company still believes its current transition will work out; it will spend $160 million this year on store remodeling projects and new openings, as well as digital and omnichannel investments.

CEO of American Eagle Jay Schottenstein said:

I'm pleased that we continued to deliver strong results in a tough retail climate, with the third quarter reaching record sales and marking the 9th consecutive quarter of profit improvement. We are sharply focused on delivering the best innovation, consistent quality and outstanding value to our customers day-in and day-out. The holiday season is off to a solid start and our brands are well-positioned. We will continue to leverage our leading capabilities to maintain momentum and build on the progress we've made over the past few years.

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