American Eagle Gains After Profit Tops Estimates

American Eagle Outfitters Inc. (AEO) climbed the most since 2000 after reporting preliminary first-quarter profit that topped analysts’ estimates as the apparel chain was able to sell more merchandise at full price.

The shares rose 17 percent to $20.90 at the close in New York for the biggest increase since Aug. 3, 2000. The Pittsburgh-based company’s stock gained 17 percent this year before today.

First-quarter profit per share rose to 18 cents to 20 cents, from 14 cents a year earlier, the operator of American Eagle Outfitters, Aerie and 77kids brands said today in a statement. The average of 27 analysts’ estimates compiled by Bloomberg was 10 cents a share.

Chief Executive Officer Robert Hanson, who joined American Eagle in January from Levi Strauss & Co., has been cutting back inventory, pushing for faster fashion item turnaround and improving product assortments to boost revenue and margins. Sales in the quarter were better than expected and benefited from less promotional activity, American Eagle said.

“The magnitude of the beat indicates to us that the company’s spring assortment has resonated very well with its core consumer and we are encouraged by management’s indication that promotional levels are controlled,” Jeffrey Klinefelter, an analyst at Minneapolis-based Piper Jaffray & Co., wrote in a note today. He rates the shares outperform, the equivalent of a buy.

Teen Spending

Teen spending on apparel is rising at a double-digit rate this spring for the first time since 2003 to 2004, according to a Piper Jaffray survey.

With the resignation of former CEO James O’Donnell in January, that’s given executive creative director Roger Markfield greater freedom on merchandising decisions and the chance to build a stronger team, said Richard Jaffe, a New York- based analyst at Stifel Nicolaus & Co., who raised his recommendation on the stock to a buy from hold today.

Business Differentiation

“The fruits of those labors are becoming evident this spring,” Jaffe said in a telephone interview. “Hanson is the new CEO who has not had much impact, positive or negative, but more importantly, Roger Markfield has been free to do his thing, to differentiate the business.”

Hanson will offer further room for earnings improvement by controlling inventory and operationally, advancing the turnaround story, Jaffe said.

Hanson’s appointment as CEO has been “a significant positive for this story,” Randal Konik, an analyst at Jefferies Group Inc. in New York, said today in a report.

“We like his laser focus on returns and commitment to moving the company in a clear and stable direction,” said Konik, who rates the shares buy.

First-quarter sales rose 18 percent to $719 million, the company said. That is the strongest first quarter for the company in its history, according to data compiled by Bloomberg. Same-store sales rose 17 percent.

The company is scheduled to report full first-quarter results on May 23.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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