American Eagle Outfitters Chris Glotzbach, Efe Faydali and Tom Van Spankeren 12/4/2014

Agenda 1.Introduction 2.Macroeconomic Review 3.Relevant Stock Market Prospects 4.Company Review 5.Financial Analysis 6.Financial Projection 7.Application of Valuation Methodologies 8.Recommendation

Current Position Dec 1999 – Buy $44 Jan 2000 – Buy $27 Mar 2000 – Buy $15.63 Feb 2001 – 3:2 Split Mar 2005– 2:1 Split Apr 2005 – Sell $ Nov 2005 – Sell $23.33 Nov 2006 – Sell $47.15 Dec 2006 – 3:2 Split Nov 2007 – Sell $22 Dec 2008 – Buy $9.07 Nov 2010 – Sell $17.00 Apr 2011 – Sell $16.04 Long 1,500 shares at $5.22 Cost Basis: $7,830 Current Value: $21,540 Gain: $13,702.2 (174.82%)

Allocation in Portfolio Sector: Services Industry: Retail Apparel K Page 17

Macroeconomic Outlook St. Louis Federal ReserveSt. Louis Federal Reserve, St. Louis Federal ReserveSt. Louis Federal Reserve

Teenage Apparel Industry Here's How Teens Really Spend Money, What They Like, And Where They Shop

Teenage Apparel Industry ●Sales at retail stores increased 3.8% in 2013 versus 5.5% in 2012 o Projected at roughly 4% for all of 2014 ●Comparable same store sales for teen retailer is down 5.3% ●H&M, Zara and Forever 21 gaining market share as teens prefer cheaper generic clothing ●"The one commonality they all share is that the brand concepts are much less relevant to the way kids shop and live today."-Craig Johnson, president of Customer Growth Partners Is less bad good enough for teen retailers? Changing Teen Tastes Send Retailers Reeling

Company Overview ●Apparel Retailer targeting 15 to 25 year old men and women o Cornerstone is denim products ●Founded in 1977 and headquartered in Pittsburgh, PA ●40,000 Employees o 7,000 full time k Page 3, 9

Fundamentals ●2014 sales expected at -5.25% ●Efficiency: o % change in inventory to sq. feet -11%, -16% and -8% (expected) respectively in 2012, 2013 and 2014 o Sales/ selling sq. foot declined from $ in 2013 to $635 (expected) in 2014  Gross square footage has increased annually ~2% ●Gross margin declined from 40% in 2012 to 34.6% in 2013 o Due to weak traffic and deep-discount “box off” promotions Wells Fargo Equity Research – Senior Analyst Paul Lejuez CFA

Brands ●American Eagle o Denim is considered the cornerstone o Branded shirts, shorts, hats and outdoor wear o Growth rate: -8% 2 nd quarter y-o-y growth ●aerie o Intimate clothing A.K.A lingerie o Faster growing segment o Growth rate: 9% 2 nd quarter y-o-y growth ●Sale of 77kids in 2012 after losing $35 million since its launch in 2008 o Store for younger teenagers and children o Sold to Ezrani 2 Corporation for 65% of the cost of acquired inventory 2 nd Quarter 2014 Results Presentation

Management ●Interim CEO Jay Schottenstein o Began in January of 2014 o Was CEO from ●Still searching for a new permanent CEO after Robert Hanson left ●Company performance→ Stock up 10x while under CEO since 1994 American Eagle Investor Relations

Management Strategy For Growth Fortify the brands, processes and capabilities Grow in North America through under-penetrated U.S. markets, factory stores, Mexico and e-commerce Transform the company into an omni-channel retailer with both domestic and international presence Return value to the shareholders through profitable growth K Page 4

S.W.O.T. S: Brand Awareness, improvements with inventory, omni-channel retail experience, dividend yield, debt free B/S O: Store-to-Door program, E- Commerce, un-penetrated domestic market, Mexico and aerie W: Target market is becoming less brand dependent, no permanent C.E.O., low gross margins, in mature stage of market cycle T: Weak economy, continuing changes in consumer trends, intense competition especially cheaper non- “A’s”

Porters Five Forces Power of Supplier → Low Power of Buyers → High Competition → Very High Threat of Substitution → Medium Threat of New Entry → Medium

Key Risks ●Changes in consumer preferences and fashion trends ●Decline in disposable income ●Increase in input costs ●Balancing the opening and closing of stores and the management of existing stores ●Seasonality ●Inventory management K Pages 10, 11

Revenue Origination K Page 51, Investor RelationsInvestor Relations

Technical Analysis Yahoo! Finance

Financial Analysis-Ratios

Financial Analysis-R.O.E.

Comparable Analysis EV/EBITDAP/BP/RevenueTrailing P/EEV/RevenueForward P/E Multiples Implied Price $10.34 $16.61 $13.30 $13.34 $14.29 $5.86 Weighting 20%10%25%10%25%10% Components $2.07 $1.66 $ 3.32 $1.33 $3.57 $0.59 Price $12.55 Weighting Enterprise Value Market Cap EBITDA EPS Shares Outstanding Net Income Book Value Revenue Abercrombie & Fitch 40.0%$1,950,000$2,010,000$420,350 $ $37,112$1,546,154$4,117,000 Aeropastle 0.0%$231,260$250,000($104,190) $ (3.01) ($238,061)$247,525$2,091,000 Urban Outfitters 20.0%$3,950,000$4,190,000$497,720 $ $226,916$1,406,040$3,087,000 Express 20.0%$1,150,000$1,200,000$227,480 $ $78,278$468,750$2,219,000 The Gap 20.0%$17,140,000$16,720,000$2,620,000 $ $1,182,960$2,853,242$16,148,000 American Eagle N/A$3,309,925$2,708,431$303,377 $ $82,983 $1,153,191 $3,305,802 EV/EBITDAP/BP/RevenueTrailing P/EEV/RevenueForward P/ESales/Ft SqInventory Turnover Abercrombie and Fitch Aeropastle Urban Outfitters Express The Gap American Eagle

Weighted Average Cost of Capital

Financial Projections

Discounted Cash Flow Analysis

Target Price

Conclusion Weak topline growth Earnings are driven by the cost management Industry is at the mature stage Intense competition Uncertain management

Decision Sell 300 shares at market price

Questions?