American Eagle Outfitters, Inc. By, Pratik Kamdar Rajani Meka Raj Dhawle Patil Shih-Wei Huang Presented April 5, 2011

RCMP Portfolio Currently, Portfolio holds 2000 shares 1500 shares are held, remaining from three different purchases beginning in December 1999, at the split adjusted price of $5.23 per share. Currently, the position has an unrealized gain of 203% as on 3 rd April, 2011 Multiple sales of these three original purchases have been made since then, each producing sizable capital gains 500 shares were bought at the price of $9.07 per share on 3 rd Dec Currently, the position has an unrealized gain of 75% as on 3 rd April 2011 At present, AEO represents 28% of our portfolio holdings by Market Value

The Company An American clothing and accessories retailer based in Pittsburg, PA Sells its merchandise through stand-alone stores in malls and online through Key Facts: Founded in 1977 Headquarters: Pittsburg, PA Currently operates 1086 stores in US & Canada; Avg. store size-4700 selling sq.ft. CEO: James V. O'Donnell Employs around 39,900 people Stock trades on NYSE under symbol ‘AEO’

Recent News: On 9 th March’ 2011, Company CEO James V. O’Donnell expressed his intention to retire. Search for New CEO is on Recent Speculation regarding Company being an attractive LBO target; Reason: Company posted negative comparable sales growth during quarter fiscal 2010 but still cash rich On 31 st July’ 2010, Completed Closure of its brand ‘M+0’; Reason: brand was not achieving performance levels commensurate with investments.

History 1977-Funded by Mark & Jerry Silverman as a subsidiary of Retail Ventures, Inc., which operated ‘Silverman’s Menswear’ Bothers sold other businesses & decided to focus only on AEO 1991-Schottensteins, 50% owner in AEO bought out remaining 50% interest from Silverman family 2001-Opened AEO’s 1 st Canadian Store Company went Public 2006-Company launched new brand ‘M+O’ for Adults and Aerie for Women 2008-Launched new brand 77Kids for children 2010-Closed ‘M+O’; Opened first International Store in Dubai, UAE

What it Does & How? AEO Designers AEO Headquarters Garment Manufactures AEO Distribution Centre AEO Stores

Business Segments AEO, Inc. ‘AE’ Apparels & Accessories for Men & Women aged 15-25; Total 929 stores across US & Canada ‘aerie’ Apparel & Intimates Collection for college going Girls; 148 Stores across US & Canada ‘77Kids’ Clothing & Accessories for Babies & Kids aged 0-10 years ; 9 Stores across US & Canada ‘AE Direct’ Sells All Merchandise Online; Ships to 76 Countries worldwide

Management Outlook Company expects an improvement in sales on the basis of solid product line up, continued cost cuts & better managed Inventory Company Expects to Mitigate Rising Product Costs with Targeted Reduction in Mark-downs, Selective Price Increases & On-going Cost Savings Internal Development of New Brands Expansions Overseas though Franchise route while keeping an eye on Acquisition Opportunities

Growth Strategy: International Expansion: The company is entering into Multiple Franchise Agreements to open Series of AE Stores at International Locations: * No Capital/ Operational Involvement Opening New Stores: Depending on Geography and Demographics Remodel Old Stores to Current Store Format to Offer Unique Shopping Experience Strengthen e-commerce Operation Cut Costs & Manage Inventory YearPartyRegion 2009Alshaya Trading Co.Middle East, North Africa, Eastern Europe 2010Dickson Concepts Ltd.China, Macau (commences 2011) 2011Sumikin Bussan Co. & Fox Wizel Ltd. Japan, Israel (commences 2012)

Key Performance Indicators Comparable Store Sells: Provides measure of Sales Growth for Stores open more than a Year Net Sales Per Average Square Feet: Provides Measure of Store Productivity and Operational Efficiency Inventory Turnover: Measure how Productively Inventory is Bought & Sold. Slow Moving Inventory affects Profitability Gross Profit: Provides Measure of whether or not Company is optimizing the Price & Inventory Levels to Achieve Optimal Sales Levels Sufficient Cash Levels

Recent Financial Performance Fiscal Year ended Jan 29 th ’2011 Net Sales were up 1% over 2009 figures Annual Comparable Store Sales were down 1% over comparable figure in 2009 Net Income (from Cont. Operations) was 6% against 7% of Sales in 2009  owed to loss from selling Inv. Securities Cash Decreased by $155.8 million to $740.6 million Overall Results were affected by Loss Recognized from Closure of “M+O” & Selling Investment Securities Company Paid a Quarterly Dividend of $0.11 per share and Special Dividend of $0.50 per share in Fiscal 2010 Repurchased 15.5 million shares in fiscal New Store openings were Funded by Operating Cash Flows

Recent Stock Performance Source: finance.yahoo.com

SWOT Analysis

MARKET OVERVIEW MARKET VALUE: The global apparel retail industry grew by 2.1% in 2009 to reach a value of $1,078.2 billion. MARKET VALUE FORECAST: In 2014, the global apparel retail industry is forecast to have a value of $1,222.7 billion, an increase of 13.4% since MARKET SEGMENTATION: Women's wear is the largest segment of the global apparel retail industry, accounting for 51.3% of the Industry’s total value. GEOGRAPHIC SEGMENTATION: The Americas account for 35.7% of the global apparel retail industry value. MARKET RIVALRY: Despite the current global economic downturn, the apparel retail industry continues to grow at a healthy rate and this, coupled with the absence of switching costs for consumers and great product differentiation, means that rivalry within the industry is no more than moderate.

Historic Growth TABLE 1: Global Apparel Industry Value :$ billion Year$billion% Growth CAGR

Historic Growth

Key Revenue Driver Consumer Sentiment Index – Higher the consumer confidence higher is the spending on retail on clothing. Number of Youth Disposable Household Income

Segmentation by Age

Forecasted Growth

Forecasted Growth

MARKET SEGMENTATION

PORTERS FIVE FORCE MODEL Rivalry among competitors (High) Low entry barriers Extensive price competition Bargaining Power of Buyers (Moderate) Individual consumers High Product differentiation Price Sensitive Retailers cannot forward integrate Bargaining power of Suppliers(low) Liberization of trade. Industry is mostly labor intensive Low switching cost for retailers

PORTERS FIVE FORCE MODEL Threat of New Entrants ( Low to Moderate) Setting up single store does not require large capital outlay. It might trigger a price war with players with multiple stores and brands. Economies of scale Threat of New Substitutes(Low) Signifier of socio economic class Substitutes for apparel retail include buying directly from manufacturers, which is facilitated by the growth of online sales. Home-made and custom-made (couture) clothing are also niche alternatives to retail of ready-made clothes

Sales Per Square Feet American EagleAbercrombie and Fitch GAP Aeropostale $422$420$339$390$365$ American Eagle (%) Abercrombie and Fitch(%) GAP (%) Aeropostale (%) Same Store Sales Growth

Competitors Abercrombie and Fitch, Inc (Ticker: ANF) Presence in North America, Europe and Asia FY 2010 Revenue : 3.47B Aeropostale, Inc (Ticker: ARO) Presence only in North America FY 2010 Revenue: 2.40B Urban Outfitters (Ticker: URBN) Core operating location: US FY 2010 Revenue: 2.27B Gap, Ins (Ticker: GPS) Presence in United States, Canada, the United Kingdom, France, Ireland, and Japan. FY 2010 Revenue: $14.66B

Stock Price Movements 2006 Jan Apr 01 Source:

Key Ratios of Retailers Operational Asst Utilization 1/31/20091/30/20101/29/2011 Net Sales/Working Capital Net Sales/Net Plant&Equip Net Sales/Current Assets Net Sales/Total Assets Inventory and A/R Management 1/31/20091/30/20101/29/2011Industry Receivables Turnover Receivables Days Sales Inventories Turnover Inventories Days Sales Source:

Ratio Comparisons with Competitors Inventory and A/R Management ANFAROURBNGPSAEO Receivables Turnover Receivables Days Sales Inventories Turnover Inventories Days Sales Operational Asset Utilization ANFAROURBNGPSAEO Net Sales/Working Capital Net Sales/Net Plant&Equip Net Sales/Current Assets Net Sales/Total Assets Source:

Other Ratio Comparisons Other Ratio Comparables ANFAROURBNGPSAEO Industry Operating Margin8.15%16.11%18.21%13.42% 10.65%14.49% Net Margin4.33%9.64%12.00%8.21% 6.13%9.11% ROA6.12%30.64%15.11%16.35% 9.06%14.81% ROE8.08%53.36%20.16%26.84% 12.42%28.29% Payout Ratio42.00%N/A 21.00% %19.60% PEG Ratio(5 yr expected) N/A Source:

Float Number ANFAROURBNGPSAEO Shares Outstanding Float % Available for Trading 98.68%99.02%77.67%86.92%88.36% Source:

DuPont Analysis with Competitors Tax Burden*Interest Burden*Operating Profit Margin*Asset Turnover*Leverage = ROE ANF0.63*1.02*0.21*1.44*1.70=33.01%0.60*1.02*0.14*1.22*1.64=17.79%0.66*1.01*0.04*1.04*1.54=4.30%0.66*0.99*0.07*1.18*1.59=8.08% ARO0.62*1.03*0.13*3.09*2.02=50.73%0.60*1.00*0.13*2.87*2.38=54.09%0.60*1.00*0.17*2.81*2.01=58.13%0.60*1.00*0.16*3.05*1.81=53.35% URBN0.68*1.04*0.15*1.32*1.49=20.93%0.64*1.03*0.16*1.38*1.39=20.91%0.64*1.02*0.17*1.18*1.39=18.71%0.65*1.01*0.18*1.27*1.32=20.16% GPS0.62*1.07*0.08*2.01*1.66=18.35%0.61*1.02*0.11*1.92*1.75=22.33%0.61*1.00*0.13*1.78*1.72=23.76%0.61*1.01*0.13*2.08*1.58=26.84% AEO0.63*1.06*0.20*1.64*1.35=28.99%0.61*1.05*0.12*1.50*1.43=16.70%0.70*0.98*0.11*1.38*1.43=14.26%0.62*0.93*0.11*1.58*1.28=12.42% Source:

Comparable Approach Company NameTicker Market Cap ($mm) Price Diluted EPS ($/Share) Book Value Per Share Revenue Per Share EV ($mm) EBITDA ($mm) American Eagles Outfitters, Inc AEO3, Abercrombie and Fitch ANF5, Aeropostale, IncARO2, , Urban Outfitters, IncURBN4, Gap, IncGPS13, , Source:

Comparable Approach (Con.) Company NameTickerP/EP/BP/SEV/EBITDA American Eagles Outfitters, Inc AEO Abercrombie and FitchANF Aeropostale, IncARO Urban Outfitters, IncURBN Gap, IncGPS Average Multiple Ave P/E* EPS(AEO)13.39 Ave P/B* BPS(AEO)25.31 Ave P/S*RPS(AEO)20.95 TriangulationPriceWeightWeighted price P/E P/B P/S DCF Value Triangulated Value$15.83 Source:

Discounted Cash Flow Results 1/29/20121/29/20131/29/20141/29/20151/29/2016 Net Income D&A Capex(90.00)(96.19)(102.80)(109.87)(117.42) Changes in NWC(7.77)(9.09)(7.70)(5.89)(3.71) Cash Flow Terminal Value Free Cash Flow Enterprise Value$3, Net Debt Outstanding0 Shares Outstanding Share Price$15.49 Discount Rate12.39% Terminal Growth Rate 3.00%

Sensitivity Analysis Discount Factor %11.50%12%12.39%12.5%13.00%13.5%14.0% 2% % % % % % Terminal Growth Rate

DuPont Analysis Tax Burdan Interest Burden Operating Profit Margin Asset Turnover Levera geROE % % % % % % Source:

Recommendation DCF Valuation Range: $ $19.45 with Base case share price at $15.49 Triangulated Value at : $15.83 Current Market Price: $16.22 Sell 500 current market price

Current Portfolio Allocation

Unrealized Gains Initial Position 500 $ $5.23 Recommendation Sell 500 shares 78.83% %