American Eagle Outfitters' (NYSE: AEO) poor first-quarter earnings performance didn't appear to surprise much of anyone. Falling sales and sagging profits seem to be the norm and not the exception with this teen-clothing retailer.
Total sales for the quarter declined by 6%, to $610 million year over year. Lousy performance in the women's clothing segment weighed heavily on the top line.
Same-store sales in particular dropped 8% for the quarter. Despite curtailing operating expenses, the company saw operating income tumble almost 30% to $38 million year on year. As if investors needed anything else to worry about, the remodeling of old stores took a toll on margins as well.
Take a look
Cash and short-term investments came in at $605 million with no debt, meaning the company has nearly one-quarter of its market cap in cash.
Meanwhile, imbalances in the cotton supply from China and India have had their impact on everyone, including American Eagle. Aeropostale (NYSE: ARO) and Urban Outfitters (Nasdaq: URBN)have both been plagued by the same commodity squeeze. Yet, surprisingly, while the industry has underperformed in general, Abercrombie & Fitch (NYSE: ANF) has been the odd man in with outstanding quarterly results.
American Eagle management has "contemplated" shutting down 85 to 100 underperforming stores. What toll this decision takes, if carried out, we'll just have to wait and see.
The Foolish takeaway
Though the company seems optimistic about its second-quarter performance, I can't see anything to be bullish about. This is a risky investment.
