American Eagle Outfitters (NASDAQ:AEOS) might have been one injured bird not too long ago, but signs continue to build that it's taking wing once again. Judging from the company's first-quarter earnings today, the teen retailer seems to be experiencing a reversal in fortunes.
It's hard to imagine, but American Eagle's first-quarter net income skyrocketed 292% to $25.1 million, or $0.34 per share. Its sales zoomed 20% to $350 million, while same-store sales increased 9.8%. Gross margin hit what American Eagle said in its conference call (courtesy of CCBN StreetEvents) is an all-time high of 42.8%; the company said that markdowns were utilized less in moving merchandise, a good indication that its fashions have gotten back in the good graces of teenage shoppers.
However, it bears noting that in the first quarter of last year, American Eagle was in the grips of a challenge, having reported a disappointing quarter that it blamed on the usual culprits: weather and the war in Iraq. At that time, its net income decreased by nearly half, while same-store sales fell 5%. Along with the depressed economy, though, it was time to wonder if fashion lines like "romantic military" just weren't hitting it off with the kids.
Ah, fickle youth. The teen-oriented apparel sector has been tough over the last year, evidenced by difficulties faced by American Eagle and its rival, Abercrombie & Fitch (NYSE:ANF). Where had the kids gone? It's hard to tell, but for a long while, retailers like Aeropostale (NYSE:ARO), Hot Topic (NYSE:HOTT), and Urban Outfitters (NASDAQ:URBN) seemed to be giving the kids what they wanted.
With the current teen shopping environment, though, you could also use the old adage that when the sun shines, it shines all over. Last quarter, American Eagle showed strong signs of life. Furthermore, yesterday, rival Abercrombie reported a much more comforting quarterly report than it has in other recent times, with modest double-digit increases in sales and earnings (but with the caveat that same-store sales remained flat).
American Eagle's shares seesawed today. It's probably hard for investors to get too excited, considering the stock price has increased 64.5% just since the beginning of this year. Despite today's strong showing, investors have obviously been banking on a comeback like this one for quite some time. The company stood firm on its previous second-quarter guidance -- what some may view as an overly cautious stance or a sign of imminent change -- and that likely gave investors little to get hyped over.
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Alyce Lomax does not own shares of any of the companies mentioned.
