American Eagle Outfitters (NYSE: AEO) 4/20/2010 Konstantinos Chatziioannou Catherine Lien Michelle Oboarekpe Kuralay Seitalina Yang Shen-Ho American Eagle Outfitters (NYSE: AEO) 4/20/2010

Agenda Business Overview Business Strategy Ratios/DuPont Analysis Current Financial Position Competitors Multiples Valuation Industry Breakdown SWOT Macroeconomic Analysis Pro Forma Assumptions DCF Recommendation Portfolio Correlation

Business Overview Founded in 1977, “high-quality, on-trend clothing, accessories and personal care products at affordable prices” American Eagle® 15-25 year old boys/girls Sweaters, graphic t-shirts, fleece, outerwear, and accessories 939 in US and Canada www.ae.com – ships to more than 75 countries

Business Overview Other Brands aerie® by American Eagle® Launched Fall 2006 15-25 year old AE® girl Dormwear, intimates, personal care products 137 standalone stores in US and Canada, www.aerie.com

Business Overview Other Brands 77kids ® by American Eagle® MARTIN+OSA® Kids ages 2-10 years Only available online : www.77kids.com MARTIN+OSA® Clothing and accessories 28-40 year old men and women

Recent Financial News MARTIN+OSA® closed as of 3/5/2010 Board approved management’s recommendation Not achieving performance levels to warrant further investment Closes all 28 stores, terminate all online and corporate operations for FY 2010 Could use some financials in here about decline in same store sales or overall profitability; how much revenue is expected to be lost/ cost savings to occur from this

Business Strategy Organic store growth International expansion Leasehold improvements Improving in-store experience AEO Direct International expansion Middle East franchising presence

Ratios/DuPont Analysis

Current Financial Position AEO

Current Financial Position AEO Peer Average

Competitors Aeropostale, Inc. (NYSE: ARO) 895 stores in 49 states and Puerto Rico; 44 stores in Canada Targeted demographic Primary: 14 to 17 year-old young women and men Graphic t-shirts, tops, bottoms, sweaters, jeans, and outerwear, and accessories Secondary: Elementary school children between 7-12 year-old Casual clothing and accessories FY 2009 Total Revenue = $2.23B

Competitors Abercrombie & Fitch Co. (NYSE: ANF) 1,096 stores in North America, Europe, and Asia Abercrombie & Fitch, abercrombie kids, Hollister Knit and woven tops, graphic t-shirts, fleece, bottoms, outerwear, personal care products, and accessories Gilly Hicks Bras, underwear, sleepwear, and at-home products for women In store, direct-to-consumer, and website retail outlets FY 2009 Total Revenue = $2.928B

Competitors The Gap, Inc. (NYSE: GPS) 3,100 stores in the United States, UK, Canada, France, Japan, and Ireland Gap, Old Navy, Banana Republic, Piperlime, and Athleta Clothing, accessories, and personal care products for men, women, children, and babies In store, catalogue, and website retail outlets FY 2009 Total Revenue = $14.197B

Competitors Urban Outfitters (NasdaqGS: URBN) 155 Urban Outfitters, 137 Anthropologie, 34 Free People stores, and 1 Terrain garden center in the United States, Canada, and Europe Urban Outfitters, Anthropologie, Free People, and Terrain brands; apparel wholesale under the Free People and Leifsdottir In store and website retail outlets FY 2009 Total Revenue = $1.9378B

Comparables Valuation Key Ratios for Comparison Competitors Comparables Valuation Key Ratios for Comparison Ticker Gross Profit margin Debt to Equity ROA AEO 38.7% 14.1% 3.73% ARO 38.0% 12.8% 7.29% ANF 64.3% 23.4% 0.00% GPS 40.3% 19.5% 5.81% URBN 40.6% 5.2% 3.19% “On June 16, 2009, A&F’s Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations.”

Multiples Valuation minimum $ 13.76 maximum $ 39.68 2.78 1.12 2.32   Ticker P/E 5y expected PEG TEV/Gross Profit P/Sales P/BV AEO 23.43 1.51 3.91 1.327 2.514 ARO 13.04 0.70 3.713 1.250 6.416 ANF 532.12 0.96 2.780 1.448 2.321 GPS 15.05 1.27 3.313 1.118 3.245 URBN 29.70 1.13 8.771 3.383 5.056 minimum 2.78 1.12 2.32 maximum 8.77 3.38 6.42 minimum $ 10.56 $ 8.79 $ 12.72 $ 15.99 $ 17.52 maximum $ 431.02 $ 15.94 $ 45.91 $ 48.40 $ 48.45 weights 0% 25% minimum $ 13.76 maximum $ 39.68

Industry Breakdown GICS: Apparel Retail (25504010) Concentrated 50 largest companies generate 65% revenue Geographic Segmentation OneSource Total Stores OneSource

Industry Breakdown Ibisworld.com Ibisworld

Industry Breakdown REVENUE GROWTH RATE Ibisworld

Industry Outlook Predicted Revenue Growth Predicted Revenue Growth Rate Ibisworld

SWOT - Strengths Operates through multiple format Broad product offerings across age group Strong customer relationship initiatives to enhance brand loyalty Strong brand equity Rated second coolest brand in a survey in 2007 by Teen Research unlimited

SWOT - Weaknesses Limited Investor Confidence Low multiple value Geographical Concentration 80% from US Seasonality International Merchandise Purchase significant portion on small number Of sources

SWOT - Opportunities Growth in online sales Remodeling stores to enhanced customer experiences Business expansion through new stores, or new brands Middle East

SWOT - Threats Changing in consumer preferences Slow economy recovery According to a survey, majority of buyers wouldn’t make a purchase if there was no deal attached Intense competition reduce prices which further reduce margins

Macroeconomic Factors Personal Income Consumer Spending Consumer Confidence Credit Market Add numbers

Personal/Consumer Income Bloomberg.com

Consumer Confidence Bloomberg.com

Consumer Credit Bloomberg.com

Macroeconomic Analysis Interest rate risk Earnings can be affected due to exposure in money market funds and auction rate securities Debt, expiring in Apr 2010 and May 2010 bear floating interest rates at prime or LIBOR As of Jan 30, 2010: weighted average interest rate of borrowing = 2.1% If base rate changes by 50bps, could increase interest expense by $313,000

Macroeconomic Analysis Foreign exchange rate risk Exposure through Canadian operations No hedging instruments Credit facility of 325mm USD, and 25mm CAD

Management Assessment Meets expectation well Number of new stores, remodeled stores Opened 8 AE stores, 21 aerie stores, 22 remodeled Expected 11 AE stores, 17 aerie, 25-35 remodeled Management seems pretty optimistic about growth

DCF Sales growth 2010-2012 = 3%-5% 2013-2017 = 6%-7% CapEx is $120M and lower but normalizes in 2014 Abnormally high cash level Closure of M+O Auction Rated Securities in 2010 Discount rate 12.72% Intrinsic share value of $9-$11

Sell Stop Order of 1,000 shares at $16 Recommendation Current holding: 2,500 shares Dec 1999-1,500 shares bought at $5.23 Dec 2008-1,000 shares bought at $9.07 Multiple Valuation $13-$39 DCF Valuation $9-$11 Current share price = $17.74 Sell Stop Order of 1,000 shares at $16