1. American Eagle Outfitters, Inc. (NYSE:AEO)
Tien Yun Chao
Qiang (Cindy) Fu
Shichao (Roman) Fan
Kyle Castner
Presented April 14, 2015

2. Agenda Introduction Macroeconomic Review Industry Overview
Business Overview
Recent Financial Performance
Financial Analysis
Financial Valuation
Recommendation

3. Introduction
Current Position: 1500 shares with a weighted average price of $5.22 (16.47% of current equity portfolio)
Price(4/13/2015): $17.90
Return: %
P/E:43.34
Beta: 1.07
Industry: Retail Apparel
Leading apparel and accessories retailer founded in 1977
Operates more than 1,000 retail stores in the U.S. and internationally
Market Capitalization: 3,442.1(mm)
Total Revenue(1/31/2015): 3,282.9(mm)
Source: Yahoo! Finance and RCMP portfolio history
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

4. Macroeconomic Analysis
With employment gains in recent months, coupled with anticipated increases in domestic wages, per capita disposable income is expected to increase a strong 3.1% in 2015.
Disposable income level is expected to steadily strengthen at an annualized rate of 2.4% over the five years to 2020.
Thomson Reuters/University of Michigan
IBISWorld
Source: US. Bureau of Economic Analysis Forecast: IBISWorld
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

5. Macroeconomic Analysis
Estimated value in 2015: 94.2 Index value.
Forecasted value for 2020: Index value.
Compound Growth: 2.5%.
Recovery will take place slowly
Estimated value in 2015: 66.5 US cents per pound.
Forecasted value for 2020: 64.5 US cents per pound.
Compound Growth: -0.6%.
Less volatile, relatively low price
Thomson Reuters/University of Michigan
IBISWorld
Source: Historical- Conference Board Forecast- IBISWorld
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

6. Apparel Industry Trends
Apparel market growth is decelerating
U.S. apparel market at close to $250 billion.
Market grew by 5.2% in 2012, 3.4% in 2013 and just 2.5% in 2014.
Competition is getting intense
Customers have tended to switch to Fast-fashion retailers, such as Zara, H&M, Forever 21.
Internet penetration, on-line purchases increase
U.S. buyers changed their shopping behavior. More purchases online and fewer visiting stores.
Source: Forbes
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

7. Porter’s Five Forces Competitive rivalry within the industry (High)
Threat from fast-fashion chain is high
Depends on fashion trend and seasonality
Intense price competition
Bargaining Power of Buyers (High)
Highly correlated to personal disposal income
Customer’s taste and price sensitivity
Bargaining Power of Suppliers (Low)
International suppliers from low labor cost countries
Intense competition among suppliers
Threat of New Entrants (Moderate)
Established brands with substantial resources
Exclusive distribution agreements
Threat of Substitutes (Moderate)
Many clothing choices
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

8. Business Overview
American Eagle Outfitters, Inc.: retailer of clothing, accessories, and personal care products in the United States and internationally, targeting at 15 to 25 year old men and women
Aerie: intimate and personal care products targeting at 15 to 21 year old girl
Source: AEO K
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

9. Business Priorities & Strategy
Real Estate
All of stores are leased, with initial terms of 10 years
International Operations (12% of AEO Total revenue)
Canada — 101 stores; International — 35 stores
Agreements with multiple third party operators to expand brands internationally
Purchasing
Design merchandise and source its manufacture from third-party factories.
Purchased substantial merchandise from non-North American suppliers
Merchandise Inventory, Replenishment and Distribution
Shipped directly from vendors and routed through third-party transloaders
Distribution centers in Pennsylvania, Kansas, and Ontario
Opened a third-party distribution center in the Netherlands to support European international store and e-commerce growth in 2014
Source: AEO K
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

10. AEO Management Jay Schottenstein- Chairman and Interim CEO
Also serves as the chairman for Value City Furniture
Diverse retail experience
Roger Markfield- Vice Chairman and Chief Design/Creative Officer
Served as president from
Formerly worked for R.H. Macy Co., The Gap and DSW Inc.
Jennifer M. Foyle- Global Brand President of Aerie
New to the company, has significantly aided in the growth of Aerie
Source: AEO K
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

11. Management Numbers Intro Macro Industry Business Financial Analysis
Source: Bloomberg
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

12. SWOT Analysis Strengths Weaknesses Opportunities Threats
Strong brand name
Aerie brand growth
No debt capital structure
Management holdings
Target customer base is small and has limited consumption capability
Potential closure of 70 stores
No permanent C.E.O
Opportunities
Threats
International expansion
Engage in future franchise/license agreements
Expands Global Presence with New License Agreements in Chile(2015Q3) and Peru(2016)
AEO Direct
online business, ships to 81 countries worldwide
Possibility that rising prices of raw materials, labor
Additional store impairment charges related to underperforming stores
Fluctuations in foreign currency exchange rates
-“omni-channel”, which provides a seamless customer experience through both traditional and non-traditional channels, including four wall store locations, web, mobile/tablet devices, social networks, , in-store displays and kiosks
-American Eagle Outfitters currently has 102 licensed stores in 17 countries, including the United Arab Emirates, Kuwait, Russian Federation, Kingdom of Saudi Arabia, Lebanon, Jordan, Morocco, Egypt, Israel, Japan, Poland, the Philippines, Colombia, Panama, Thailand and Indonesia. The company currently expects to open approximately 40 licensed stores in 2015.
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

13. Financial Performance
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

14. Financial Performance
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

15. Recent Earnings Release
March 4 Fourth Quarter 2014 Results
EPS of $0.36 beat estimates by $0.02
Revenue of $1.07B beat estimates by $10.0M
Shares up 20.84% since the news
Source: Wall Street Journal
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

16. Relevant Stock Market Data
Source: Stock Charts
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

17. Industry Comparables Intro Macro Industry Business Financial Analysis
Source: Yahoo Finance
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

18. Assumptions Intro Macro Industry Business Financial Analysis
Financial Projection
Valuation
Recommendation

19. DCF Intro Macro Industry Business Financial Analysis
Financial Projection
Valuation
Recommendation

20. Comp Set and Weights Intro Macro Industry Business Financial Analysis
Financial Projection
Valuation
Recommendation

21. Multiple Values and Price
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation

22. SELL AEO 500 shares @MKT Recommendation DCF:$10.87 Comps: $13.84
Price: $17.90
SELL AEO
500
Intro
Macro
Industry
Business
Financial Analysis
Financial Projection
Valuation
Recommendation