American Eagle Outfitters, Inc. NYSE: AEO 11/2/2010 Ruonan Ding Meiling Liu Cardo Martinez Rajani Meka Prateek Sharma

Agenda Industry Analysis Competitors Company Overview SWOT Management Discussion Financial Performance Analysis DuPont Analysis DCF Model Multiple Valuation Recommendation

RCMP Investment History Dec 1999 – BOT 200 @ $44 Jan 2000 – BOT 200@ $27 Mar 2000 – BOT 600 @ $15.63 Feb 2001– 3:2 Split Mar 2005– 2:1 Split Apr 2005 – Sold 600 @ $26.284 Nov 2005 – Sold 700@ $23.33 Nov 2006 – Sold 400 @ $39.19 Dec 2006 – Splits 3:2 Nov 2007 – Sold 450 @ $22 Dec 2008 – BOT 1000 @ $9.07

Current Position RCMP Currently Holds 2500 shares of AEO with a weighted average price of $6.766 and an unrealized gain of $22,142 (as of 1-Nov-2010) Source: Yahoo! Finance

Portfolio Allocation

American Eagle Overview American Eagle Outfitters is a clothing and accessories retailer based in Philadelphia, PA. It was founded in 1977 by Mark and Jerry Silverman as a subsidiary of Retail Ventures, Inc. The Silverman’s sold their ownership interest in 1991 The company started trading on the NASDAQ in 1994 as AEOS Targets teens and young adults

American Eagle Overview cont. Brands Include The American Eagle Outfitters – targets 15-25 year old boys and girls. 934 stores in US and Canada aerie® by american eagle – offers dorm-wear and intimates for girls – 144 standalone stores in US and Canada 77kids by american eagle – targets kids up to 14 yrs of age Online via www.ae.com and www.aerie.com – ships to more than 76 countries Source: http://phx.corporate-ir.net/phoenix.zhtml?c=81256&p=irol-homeprofile

Industry Overview Total revenues of Family Clothing Stores Industry for 2009 was $2,862 billion. Representing a CAGR of 5.1% from 2005-09 The breakdown of sales across the globe: Asia Pacific 46.2% Europe 30.4% Americas 22.8% Rest of the world 4.2% Sources: www.bloomberg.com and Data Monitor Industry Profile Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code-0199-2005 Persistent Link:  http://search.ebscohost.com.proxy2.library.uiuc.edu/login.aspx?direct=true&db=bth&AN=51689167&site=bsi-live

Industry Demand Key External Drivers for Demand: Number of young adults Consumer sentiment Per capita disposable income Competition from substitutes such as department stores www.ibisworld.com/report44841, Page 6 Source: IBISWorld Industry Report 44814 Family Clothing Stores in the US September 2010

Competitive Landscape The Family Clothing Stores industry is a highly competitive one, facing threats from within and from outside the industry. Competitive Factors: Having a clear market position Ability to control stock on hand Established brand names Production of goods currently favored by the market Attractive product presentation Experienced workforce

Porters Five Forces Industry Rival is High: Buyer Power is High: Fickle demographic Fast fashion chains Depends on trends and seasonality Buyer Power is High: Demand is highly affected by consumers disposable income level Fashion taste and product mix Sensitive to price change

Porters Five Forces Supplier Power is Moderate: Purchasing from international suppliers Suppliers compete on the price and quality basis Eliminate import quotas in 2005 Threats of Substitutes is High: Substitute good from not only the competitors but also department stores Buyers Bargaining Power is High: Low switching cost

Industry Expectation There is a general positive outlook for the industry as consumer discretionary income increases Growth will be lead by the Asia Pacific region (CAGR of 8.3%) whilst the European region will only face a growth rate of 3.9%. Growth is expected to be the slowest in the Americas ttp://www.unescap.org/esid/psis/population/database/data_sheet/20

COMPETITORS Urban Outfitters (Ticker: URBN) Lifestyle Specialty Retail Urban Outfitters, Anthropologie, Free People and Terrain Brands Retail stores and e-commerce Wholesale Business Free People and Leifsdottir brands Core operating location: US FY 2009 Revenue : $1.9378B Source: Yahoo Finance, http://finance.yahoo.com/q?s=URBN

COMPETITORS Aeropostale, Inc (Ticker: ARO) Mall-based specialty retailer and online sales through aeropostale.com Target group: Aeropostale for 14-17 years old women and men; P.S for 7-12 years elementary school children Presence only in North America FY 2009 Revenue: $2.23B Source: Yahoo Finance, http://finance.yahoo.com/q?s=ARO

COMPETITORS Gap, Inc (Ticker: GPS) Specialty retailer Brands include Gap, Old Navy, Banana Republic, Piperlime, and Athleta brand Franchise agreements with unaffiliated franchisees Gap and Banana Republic stores Presence in United States, Canada, the United Kingdom, France, Ireland, and Japan. FY 2009 Revenue: $14.19B Source: Yahoo Finance, http://finance.yahoo.com/q?s=GPS

COMPETITORS Abercrombie and Fitch, Inc (Ticker: ANF) Specialty retailer Stores and direct-to-consumer operations Brands include Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands Presence in North America, Europe and Asia 1,096 stores FY 2009 Revenue: $2.928B Source: Yahoo Finance, http://finance.yahoo.com/q?s=ANF

AEO SWOT ANALYSIS Strengths: Strong brands Strong distribution channels Little-to-zero debt on Balance Sheet Weakness: Needs to maintain hype to sustain “teen” loyalty. Research shows that most teens are not loyal customers Currently in excess of 90% of its revenues are generated in the USA (stores are now primarily in USA and Canada)

SWOT Continued Opportunities: Increased demand for women’s accessories Expansion into global markets (Asia) via franchising agreements Threats: Strong dependency on consumer spending. Accessories especially dependent on “discretionary spending” Merchandizes from limited suppliers

PERFORMANCE Source: AEO 10-K, pg.17 http://www.sec.gov/Archives/edgar/data/919012/000095012310028815/l39237e10vk.htm

Highlights from Management’s Discussion Increase in sales through e-commerce in ‘09 Depreciation increased by 11% in ‘09 compared to ’08 due to greater PP&E driven by their capital expenditures Complete closure of Martin +OSA 2010 Outlook Expecting ‘10 to be more favorable than ’09 Focus on controlling expenses and keep it less than ’09 Low inventory levels Source: 2009 Annual 10-K report

Highlights from Management’s Discussion Growth Strategy: Through new internal brands and franchising Open 40 new stores in US and Canada in ’10 Franchising in Asia Franchising in the Middle-East Acquisitions Capital Expenditures: Reduced to $127.4 million in ‘09 as opposed to $265.3 million in ’08 Aiming at keeping CAPEX between $100-$120 million in ’10 Source: AEO 10K, FY 2010

Aerie initiative started in ’06, exclusively for women’s apparel For the Fiscal year ’09, 60% of their sales attributed to women’s apparel and accessories Aerie initiative started in ’06, exclusively for women’s apparel International Expansion: Franchising agreements in the Middle-East, China and Hong-Kong Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code-0199-2005 Persistent Link:  http://search.ebscohost.com.proxy2.library.uiuc.edu/login.aspx?direct=true&db=bth&AN=51689167&site=bsi-live

Financial Performance YEAR SALES ($MM) NET INCOME ($MM) EPS ($) 2010 2,990.52 169.02 0.82 2009 2,988.87 179.06 0.87 2008 3,055.42 400.02 1.85 2007 2,794.41 387.36 1.74 2006 2,321.97 293.71 1.29 5 YEAR GROWTH RATE % 6.5 -12.9 -10.7 Source: AEO 10-K, FY 2010, ‘09, ‘08

Key Ratios of Retailers Inventory and A/R management Operational Asset Utilization

DuPont Analysis Amount in $millions, except ratios Source: Form 10-K, FY 2010, FY 2009

Discount Rate Metric Value Weight Weighted Value Cost of Equity from CAPM 8.31% 60% 4.99% Cost of Equity from ROE 22.24% 10% 2.224% Cost of Equity from HPR (5-year) 18.74% 30% 5.622% Total 12.836% RFR is the yield on 10-Year T-Bond The company has no long-term debt outstanding and does not intend to change its capital structure in the near future

DCF Model

Sensitivity Analysis

COMPARABLES All amount in $millions, except per share data and ratios Company Name Ticker Mkt Cap P/E (ttm) P/B (mrq) P/S (ttm) ROE (ttm) Abercrombie and Fitch ANF 3,760 40.56 2.08 1.21 6.62% Aeropostale, Inc ARO 2,240 9.49 4.58 0.97 53.54% Urban Outfitters, Inc URBN 5,000 19.72 3.77 2.39 20.99% Gap, Inc GPS 11,840 10.90 2.77 0.81 26.35% American Eagles Outfitters, Inc AEO 3.050 23.52 2.27 1.03 11.58% Minimum 9.54 2.04 0.77 Median 20.35 2.62 1.04 Mean 21.28 3.04 1.27 Maximum   40.87 4.38 2.44 Normalized EPS $0.88 Revenues 2990.5 Book Value Per Share $8.07 Shares Outstanding 206.17m Per Share Valuation (Median) 17.91 21.15 15.91 Per share Valuation (Mean) 18.73 24.52 19.48 Max 35.97 35.36 37.32 Min 8.40 16.47 11.78 max-min 27.57 18.89 25.54 Source: Yahoo! Finance

Recommendations DCF model values the stock in the range $16-18. The multiples analysis values the stock between $18-22. At a market price of $15.62 (as of 11/1/2010), we think the stock is fairly valued with limited upside potential, pending any news event. We recommend selling 500 shares (20% of current holding) at a limit price of $17/share (Good till 12/6/2010)

Recommendation Impact *Approximate representation of market value