AMERICAN EAGLE OUTFITTERS, INC. NYSE: AEO 10/11/2011 Aaron Czerkies Amrin Razwin Chris Tsoukalas Ya Zuo

A GENDA Investment history Company overview Industry analysis Competitors DuPont analysis Ratio analysis DCF model Multiple Valuation Recommendation 2

I NVESTMENT H ISTORY 3 Transaction history Dec 1999 – BOT $44 Jan 2000 – BOT $27 Mar 2000 – BOT $15.63 Feb 2001 – 3:2 Split Mar 2005– 2:1 Split Apr 2005 – Sold $ Nov 2005 – Sold $23.33 Nov 2006 – Sold $47.15 Dec 2006 – 3:2 Split Nov 2007 – Sold $22 Dec 2008 – BOT $9.07 Nov 2010 – Sold $17.00 Apr 2011 – Sold $16.04 Current Price: $12.05 Currently holds 1500 shares of AEO with a weighted average price of $5.23 and an unrealized gain of $10,237 As of 7-Oct-2011 Source: Yahoo! Finance

P ORTFOLIO A LLOCATION 4 As of 7-Oct-2011

C OMPANY O VERVIEW American Eagle Outfitters is a retailer of casual apparel, lingerie, accessories, and footwear targeted at teens and young adults. The retailer maintains control over its proprietary brand by designing and sourcing all of its own merchandise. The company operates 931 American Eagle, 151 aerie, and 21 77kids stores in the United States and Canada. American Eagle also ships to 76 countries worldwide through its retail website. 5 Source: 10K 2011 report

B RANDS American Eagle Targets 15 to 25-year old men and women aerie New brand launched in 2006 fall Intimates and personal care product for girls 77kids Introduced in Oct 2008 On trend, high quality clothing and accessories for kids and babies 6 Source: 10K 2011 report

S TORE G ROWTH 7 1/31/20041/29/20051/28/20062/3/20072/2/20081/31/20091/30/20101/29/20117/30/2011 Stores at Beginning ,098 1,103 Stores Opened Growth of stores opened %-25%-15%-28%39%60%53%-76%28% Stores Closed Growth of stores closed %75%29%44%-38%-50%175%118%113% Total Stores ,098 1,103 1, Growth of stores %7%5%3%5%8%11%0%-1%1.3% Total AE Brand stores Growth of AE Brand stores%2.88%2.69%-1.68%-0.96%0.21% Total aerie stores Growth of aerie stores% %197.44%18.10%8.03%2.03% Total 77kids stores921 Growth of 77kids stores%133.33% Total M+O stores Total Retail Sq. Ft. (Gross) 4,239,497 4,540,095 4,772,487 5,173,065 5,709,932 6,139,663 6,215,355 6,339,469 Total Retail Sq. Ft. (Net) 3,466,368 3,709,012 3,896,441 4,220,929 4,595,649 4,920,285 4,981,595 5,067,489 Retail Revenues (in millions of USD) 1, , , , , , , ,967.6 Sales/Sq. Ft., All (Gross) $ $ $ $ $ $ $ $ Sales/Sq. Ft., All (Net) $414.1 $ $ $ $ $ $ $ Source: 10K 2011 report

K EY R ISK F ACTORS Changing consumer preferences and fashion trends Economic pressures Raw material, labor, and energy prices increase New store openings and existing store remodels Internal development of new brands International merchandise sourcing strategy Seasonality International expansion through franchising 8 Source: 10K 2011 report

SWOT A NALYSIS Strength Strong brand Ample free cash flow Weakness Low customer switching cost 930 AE branded stores has saturated the domestic market Opportunities aerie and 77kids brands International markets Threats Intense rivalry Fast fashion trend Increase of labor and material cost Economic recession 9

MACRO-ECONOMY AND CONSUMER TRENDS GDP US Bureau of Economic Analysis Consumption expenditure Slowly increasing for clothing and footwear 10 YearGDP percent change based on current dollars

G LOBAL A PPAREL I NDUSTRY IBISWorld forecasts that industry revenue will grow by 3.7% over the five years through Growth expected to be dependent on population growth, disposable income and the sourcing of products from low- wage countries. [1] [1] 11 Revenue USD Billion Growth %

P ORTER ’ S F IVE F ORCES M ODEL Competitive rivalry within the industry (High) Competitive market with extensive price competition Bargaining Power of Buyers (Moderate) Consumers have high level of choice High product differentiation Bargaining Power of Suppliers (Low) Globalization has liberalized trade. Low switching cost for retailers Threat of New Entrants (Low) Clothing companies have high existing brand loyalty built up over time Threat of New Substitutes (Low) Brand image and loyalty important for consumers 12

C OMPETITORS GAP Own Old Navy Abercrombie & Fitch Own Hollister Pacific Sunwear Urban Outfitters 13

D U P ONT A NALYSIS AEO falls in the middle of its peers in the Dupont analysis 14

M ANAGEMENT O VERVIEW The planned opening of 11 new American Eagle stores, 12 new 77kids stores and 10 new aerie stores in the United States and Canada during Fiscal 2011; The selection of approximately 60 to 65 American Eagle stores in the United States and Canada for remodeling during Fiscal 2011; The planned closure of 15 to 25 American Eagle stores in the United States and Canada during Fiscal 2011; The planned opening of 18 new franchised American Eagle stores during Fiscal 2011; The expected payment of a dividend in future periods; The possibility to engage in future franchise agreements, growth through acquisitions and/or internally developing additional new brands; The possibility that our credit facilities may not be available for future borrowings; The possibility that rising prices of raw materials, labor, energy and other inputs to our manufacturing process, if unmitigated, will have a significant impact to our profitability; and The possibility that we may be required to take additional store impairment charges related to underperforming stores. 15

P ERFORMANCE 16 Source: 10K 2011 report

R ATIO A NALYSIS 17

DCF M ODEL 18

P UBLIC C OMPARABLES A NALYSIS Source: Capital IQ, Company Filings, I/B/E/S 19 Abercrombie & Fitch is trading at much higher premium relative to the other firms Gap is trading lower than its peers Most likely because it’s a more mature company with less growth opportunities Pacific Sunwear has been struggling, and with the weak economy, is expected to be in a worse financial situation than its peers

P UBLIC C OMPARABLES A NALYSIS AEO has a relative value ranging from $14.36 to $16.48 a share Based on fully dilutive shares 20 Source: Capital IQ, Company Filings, I/B/E/S

L IQUIDITY A NALYSIS 21 AEO has fairly strong cash position but takes on no debt, including a revolver which drastically reduces it’s liquidity Days cash is the number of days between when a firm disburses cash to when it collects cash Source: Capital IQ, Company Filings, I/B/E/S

S TOCK P RICE A NALYSIS The stock market as a whole, including these firms, have taken quite a dive over the last three months due to a weak economy and rising commodity costs AEO has outperformed its competitors over the last month 22 Source: Capital IQ, Company Filings, I/B/E/S

R ECOMMENDATION The DCF ranged from $12.21 to $15.64 Public Comparables ranged from $14.36 to $16.48 Less emphasis on the $16.48 because based on the P/B High market volatility and increasing costs make it a skeptical environment to buy HOLD 23