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.

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.