What happened

American Eagle Outfitters (NYSE:AEO) stock fell as much as 12% during the trading day today after the company's fourth-quarter and full-year 2016 disappointed the market, with below-expected earnings and weak same-store sales guidance for Q1 2017.

So what

For the fourth quarter ended Jan. 28, American Eagle Outfitters reported revenue of $1.1 billion, down 1% year over year, and earnings of $54.6 million, or $0.30 per share, down nearly 30% from Q4 2015 and below analyst expectations. For full-year 2016, however, revenue was up 2% year over year, and earnings per share were $1.16, compared to $1.09 for fiscal 2015.

A group of young adults poses in American Eagle brand clothing.

Image source: American Eagle Outfitters.

What seems to really have shaken the market today, though, is that same-store sales during the fourth quarter were essentially flat, up just 0.4% year over year, and management guided for flat or even slightly down comps in the quarter ahead. For Q1, the company said that it expects earnings per share of $0.15 to $0.17, which would be a 27% drop year over year at the midpoint.

Now what

American Eagle has had some success with its women's activewear line, which was still a highlight of this earnings -- comparable sales of that line, called Aerie, were up 17% year over year for the quarter and 23% for the year. Still, the company is facing some challenges ahead for 2017, including a 13% rise in inventory by unit during the fourth quarter year over year; at this slow sales growth, that could lead to needed discounting, and even more margin and earnings pressure in the quarters ahead.