1. American Eagle Outfitters (NYSE: AEO) 4/20/2010
Konstantinos Chatziioannou
Catherine Lien
Michelle Oboarekpe
Kuralay Seitalina
Yang Shen-Ho
American Eagle Outfitters (NYSE: AEO) 4/20/2010

2. Agenda Business Overview Business Strategy Ratios/DuPont Analysis
Current Financial Position
Competitors
Multiples Valuation
Industry Breakdown
SWOT
Macroeconomic Analysis
Pro Forma Assumptions
DCF
Recommendation
Portfolio Correlation

3. Business Overview
Founded in 1977, “high-quality, on-trend clothing, accessories and personal care products at affordable prices”
American Eagle®
15-25 year old boys/girls
Sweaters, graphic t-shirts, fleece, outerwear, and accessories
939 in US and Canada
– ships to more than 75 countries

4. Business Overview Other Brands aerie® by American Eagle®
Launched Fall 2006
15-25 year old AE® girl
Dormwear, intimates, personal care products
137 standalone stores in US and Canada,

5. Business Overview Other Brands 77kids ® by American Eagle® MARTIN+OSA®
Kids ages 2-10 years
Only available online :
MARTIN+OSA®
Clothing and accessories
28-40 year old men and women

6. Recent Financial News MARTIN+OSA® closed as of 3/5/2010
Board approved management’s recommendation
Not achieving performance levels to warrant further investment
Closes all 28 stores, terminate all online and corporate operations for FY 2010
Could use some financials in here about decline in same store sales or overall profitability; how much revenue is expected to be lost/ cost savings to occur from this

7. Business Strategy Organic store growth International expansion
Leasehold improvements
Improving in-store experience
AEO Direct
International expansion
Middle East franchising presence

8. Ratios/DuPont Analysis

9. Current Financial Position
AEO

10. Current Financial Position
AEO
Peer Average

11. Competitors Aeropostale, Inc. (NYSE: ARO)
895 stores in 49 states and Puerto Rico; 44 stores in Canada
Targeted demographic
Primary: 14 to 17 year-old young women and men
Graphic t-shirts, tops, bottoms, sweaters, jeans, and outerwear, and accessories
Secondary: Elementary school children between 7-12 year-old
Casual clothing and accessories
FY 2009 Total Revenue = $2.23B

12. Competitors Abercrombie & Fitch Co. (NYSE: ANF)
1,096 stores in North America, Europe, and Asia
Abercrombie & Fitch, abercrombie kids, Hollister
Knit and woven tops, graphic t-shirts, fleece, bottoms, outerwear, personal care products, and accessories
Gilly Hicks
Bras, underwear, sleepwear, and at-home products for women
In store, direct-to-consumer, and website retail outlets
FY 2009 Total Revenue = $2.928B

13. Competitors The Gap, Inc. (NYSE: GPS)
3,100 stores in the United States, UK, Canada, France, Japan, and Ireland
Gap, Old Navy, Banana Republic, Piperlime, and Athleta
Clothing, accessories, and personal care products for men, women, children, and babies
In store, catalogue, and website retail outlets
FY 2009 Total Revenue = $14.197B

14. Competitors Urban Outfitters (NasdaqGS: URBN)
155 Urban Outfitters, 137 Anthropologie, 34 Free People stores, and 1 Terrain garden center in the United States, Canada, and Europe
Urban Outfitters, Anthropologie, Free People, and Terrain brands; apparel wholesale under the Free People and Leifsdottir
In store and website retail outlets
FY 2009 Total Revenue = $1.9378B

15. Comparables Valuation Key Ratios for Comparison
Competitors
Comparables Valuation
Key Ratios for Comparison
Ticker
Gross Profit margin
Debt to Equity
ROA
AEO
38.7%
14.1%
3.73%
ARO
38.0%
12.8%
7.29%
ANF
64.3%
23.4%
0.00%
GPS
40.3%
19.5%
5.81%
URBN
40.6%
5.2%
3.19%
“On June 16, 2009, A&F’s Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations.”

16. Multiples Valuation minimum $ 13.76 maximum $ 39.68 2.78 1.12 2.32
Ticker
P/E
5y expected PEG
TEV/Gross Profit
P/Sales
P/BV
AEO
23.43
1.51
3.91
1.327
2.514
ARO
13.04
0.70
3.713
1.250
6.416
ANF
532.12
0.96
2.780
1.448
2.321
GPS
15.05
1.27
3.313
1.118
3.245
URBN
29.70
1.13
8.771
3.383
5.056
minimum
2.78
1.12
2.32
maximum
8.77
3.38
6.42
minimum $
$ 8.79 $ $ $
maximum $ $ $ $ $
weights 0%
25%
minimum $
maximum $

17. Industry Breakdown GICS: Apparel Retail (25504010) Concentrated
50 largest companies generate 65% revenue
Geographic Segmentation
OneSource
Total Stores
OneSource

18. Industry Breakdown
Ibisworld.com
Ibisworld

19. Industry Breakdown
REVENUE GROWTH RATE
Ibisworld

20. Industry Outlook Predicted Revenue Growth
Predicted Revenue Growth Rate
Ibisworld

21. SWOT - Strengths Operates through multiple format
Broad product offerings across age group
Strong customer relationship initiatives to enhance brand loyalty
Strong brand equity
Rated second coolest brand in a survey in 2007 by Teen Research unlimited

22. SWOT - Weaknesses Limited Investor Confidence
Low multiple value
Geographical Concentration
80% from US
Seasonality
International Merchandise
Purchase significant portion on small number Of sources

23. SWOT - Opportunities Growth in online sales
Remodeling stores to enhanced customer experiences
Business expansion through new stores, or new brands
Middle East

24. SWOT - Threats Changing in consumer preferences Slow economy recovery
According to a survey, majority of buyers wouldn’t make a purchase if there was no deal attached
Intense competition reduce prices which further reduce margins

25. Macroeconomic Factors
Personal Income
Consumer Spending
Consumer Confidence
Credit Market
Add numbers

26. Personal/Consumer Income
Bloomberg.com

27. Consumer Confidence
Bloomberg.com

28. Consumer Credit
Bloomberg.com

29. Macroeconomic Analysis
Interest rate risk
Earnings can be affected due to exposure in money market funds and auction rate securities
Debt, expiring in Apr 2010 and May 2010 bear floating interest rates at prime or LIBOR
As of Jan 30, 2010: weighted average interest rate of borrowing = 2.1%
If base rate changes by 50bps, could increase interest expense by $313,000

30. Macroeconomic Analysis
Foreign exchange rate risk
Exposure through Canadian operations
No hedging instruments
Credit facility of 325mm USD, and 25mm CAD

31. Management Assessment
Meets expectation well
Number of new stores, remodeled stores
Opened 8 AE stores, 21 aerie stores, 22 remodeled
Expected 11 AE stores, 17 aerie, remodeled
Management seems pretty optimistic about growth

32. DCF Sales growth 2010-2012 = 3%-5% 2013-2017 = 6%-7%
CapEx is $120M and lower but normalizes in 2014
Abnormally high cash level
Closure of M+O
Auction Rated Securities in 2010
Discount rate 12.72%
Intrinsic share value of $9-$11

33. Sell Stop Order of 1,000 shares at $16
Recommendation
Current holding: 2,500 shares
Dec ,500 shares bought at $5.23
Dec ,000 shares bought at $9.07
Multiple Valuation $13-$39
DCF Valuation $9-$11
Current share price = $17.74
Sell Stop Order of 1,000 shares at $16