1. American Eagle Outfitters, Inc.
NYSE: AEO
11/2/2010
Ruonan Ding
Meiling Liu
Cardo Martinez
Rajani Meka
Prateek Sharma

2. Agenda Industry Analysis Competitors Company Overview SWOT
Management Discussion
Financial Performance Analysis
DuPont Analysis
DCF Model
Multiple Valuation
Recommendation

3. RCMP Investment History
Dec 1999 – BOT $44
Jan – BOT $27
Mar 2000 – BOT $15.63
Feb 2001– 3:2 Split
Mar 2005– 2:1 Split
Apr 2005 – Sold $26.284
Nov 2005 – Sold $23.33
Nov 2006 – Sold $39.19
Dec 2006 – Splits 3:2
Nov 2007 – Sold $22
Dec 2008 – BOT $9.07

4. Current Position
RCMP Currently Holds 2500 shares of AEO with a weighted average price of $6.766 and an unrealized gain of $22,142 (as of 1-Nov-2010)
Source: Yahoo! Finance

5. Portfolio Allocation

6. American Eagle Overview
American Eagle Outfitters is a clothing and accessories retailer based in Philadelphia, PA.
It was founded in 1977 by Mark and Jerry Silverman as a subsidiary of Retail Ventures, Inc.
The Silverman’s sold their ownership interest in 1991
The company started trading on the NASDAQ in 1994 as AEOS
Targets teens and young adults

7. American Eagle Overview cont.
Brands Include
The American Eagle Outfitters – targets year old boys and girls stores in US and Canada
aerie® by american eagle – offers dorm-wear and intimates for girls – 144 standalone stores in US and Canada
77kids by american eagle – targets kids up to 14 yrs of age
Online via and – ships to more than 76 countries
Source:

8. Industry Overview
Total revenues of Family Clothing Stores Industry for 2009 was $2,862 billion. Representing a CAGR of 5.1% from
The breakdown of sales across the globe:
Asia Pacific %
Europe %
Americas %
Rest of the world %
Sources: and Data Monitor Industry Profile
Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code
Persistent Link: 

9. Industry Demand Key External Drivers for Demand:
Number of young adults
Consumer sentiment
Per capita disposable income
Competition from substitutes such as department stores
Page 6
Source: IBISWorld Industry Report Family Clothing Stores in the US September 2010

10. Competitive Landscape
The Family Clothing Stores industry is a highly competitive one, facing threats from within and from outside the industry.
Competitive Factors:
Having a clear market position
Ability to control stock on hand
Established brand names
Production of goods currently favored by the market
Attractive product presentation
Experienced workforce

11. Porters Five Forces Industry Rival is High: Buyer Power is High:
Fickle demographic
Fast fashion chains
Depends on trends and seasonality
Buyer Power is High:
Demand is highly affected by consumers disposable income level
Fashion taste and product mix
Sensitive to price change

12. Porters Five Forces Supplier Power is Moderate:
Purchasing from international suppliers
Suppliers compete on the price and quality basis
Eliminate import quotas in 2005
Threats of Substitutes is High:
Substitute good from not only the competitors but also department stores
Buyers Bargaining Power is High:
Low switching cost

13. Industry Expectation
There is a general positive outlook for the industry as consumer discretionary income increases
Growth will be lead by the Asia Pacific region (CAGR of 8.3%) whilst the European region will only face a growth rate of 3.9%. Growth is expected to be the slowest in the Americas
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14. COMPETITORS Urban Outfitters (Ticker: URBN) Lifestyle Specialty Retail
Urban Outfitters, Anthropologie, Free People and Terrain Brands
Retail stores and e-commerce
Wholesale Business
Free People and Leifsdottir brands
Core operating location: US
FY 2009 Revenue : $1.9378B
Source: Yahoo Finance,

15. COMPETITORS Aeropostale, Inc (Ticker: ARO)
Mall-based specialty retailer and online sales through aeropostale.com
Target group: Aeropostale for years old women and men; P.S for 7-12 years elementary school children
Presence only in North America
FY 2009 Revenue: $2.23B
Source: Yahoo Finance,

16. COMPETITORS Gap, Inc (Ticker: GPS) Specialty retailer
Brands include Gap, Old Navy, Banana Republic, Piperlime, and Athleta brand
Franchise agreements with unaffiliated franchisees
Gap and Banana Republic stores
Presence in United States, Canada, the United Kingdom, France, Ireland, and Japan.
FY 2009 Revenue: $14.19B
Source: Yahoo Finance,

17. COMPETITORS Abercrombie and Fitch, Inc (Ticker: ANF)
Specialty retailer
Stores and direct-to-consumer operations
Brands include Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands
Presence in North America, Europe and Asia
1,096 stores
FY 2009 Revenue: $2.928B
Source: Yahoo Finance,

18. AEO SWOT ANALYSIS Strengths: Strong brands
Strong distribution channels
Little-to-zero debt on Balance Sheet
Weakness:
Needs to maintain hype to sustain “teen” loyalty. Research shows that most teens are not loyal customers
Currently in excess of 90% of its revenues are generated in the USA (stores are now primarily in USA and Canada)

19. SWOT Continued Opportunities: Increased demand for women’s accessories
Expansion into global markets (Asia) via franchising agreements
Threats:
Strong dependency on consumer spending. Accessories especially dependent on “discretionary spending”
Merchandizes from limited suppliers

20. PERFORMANCE
Source: AEO 10-K, pg.17

21. Highlights from Management’s Discussion
Increase in sales through e-commerce in ‘09
Depreciation increased by 11% in ‘09 compared to ’08 due to greater PP&E driven by their capital expenditures
Complete closure of Martin +OSA
2010 Outlook
Expecting ‘10 to be more favorable than ’09
Focus on controlling expenses and keep it less than ’09
Low inventory levels
Source: 2009 Annual 10-K report

22. Highlights from Management’s Discussion
Growth Strategy:
Through new internal brands and franchising
Open 40 new stores in US and Canada in ’10
Franchising in Asia
Franchising in the Middle-East
Acquisitions
Capital Expenditures:
Reduced to $127.4 million in ‘09 as opposed to $265.3 million in ’08
Aiming at keeping CAPEX between $100-$120 million in ’10
Source: AEO 10K, FY 2010

23. Aerie initiative started in ’06, exclusively for women’s apparel
For the Fiscal year ’09, 60% of their sales attributed to women’s apparel and accessories
Aerie initiative started in ’06, exclusively for women’s apparel
International Expansion: Franchising agreements in the Middle-East, China and Hong-Kong
Source: Industry Report titled "Apparel Retail Industry Profile: Global", Data Monitor- Reference Code
Persistent Link: 

24. Financial Performance
YEAR
SALES ($MM)
NET INCOME ($MM)
EPS ($)
2010
2,990.52
169.02
0.82
2009
2,988.87
179.06
0.87
2008
3,055.42
400.02
1.85
2007
2,794.41
387.36
1.74
2006
2,321.97
293.71
1.29
5 YEAR GROWTH RATE %
6.5
-12.9
-10.7
Source: AEO 10-K, FY 2010, ‘09, ‘08

25. Key Ratios of Retailers
Inventory and A/R management
Operational Asset Utilization

26. DuPont Analysis Amount in $millions, except ratios
Source: Form 10-K, FY 2010, FY 2009

27. Discount Rate Metric Value Weight Weighted Value
Cost of Equity from CAPM
8.31%
60%
4.99%
Cost of Equity from ROE
22.24%
10%
2.224%
Cost of Equity from HPR (5-year)
18.74%
30%
5.622%
Total
12.836%
RFR is the yield on 10-Year T-Bond
The company has no long-term debt outstanding and does not intend to change its capital structure in the near future

28. DCF Model

29. Sensitivity Analysis

30. COMPARABLES All amount in $millions, except per share data and ratios
Company Name
Ticker
Mkt Cap
P/E (ttm)
P/B (mrq)
P/S (ttm)
ROE (ttm)
Abercrombie and Fitch
ANF
3,760
40.56
2.08
1.21
6.62%
Aeropostale, Inc
ARO
2,240
9.49
4.58
0.97
53.54%
Urban Outfitters, Inc
URBN
5,000
19.72
3.77
2.39
20.99%
Gap, Inc
GPS
11,840
10.90
2.77
0.81
26.35%
American Eagles Outfitters, Inc
AEO
3.050
23.52
2.27
1.03
11.58%
Minimum
9.54
2.04
0.77
Median
20.35
2.62
1.04
Mean
21.28
3.04
1.27
Maximum
40.87
4.38
2.44
Normalized EPS
$0.88
Revenues
2990.5
Book Value Per Share
$8.07
Shares Outstanding
206.17m
Per Share Valuation (Median)
17.91
21.15
15.91
Per share Valuation (Mean)
18.73
24.52
19.48
Max
35.97
35.36
37.32
Min
8.40
16.47
11.78
max-min
27.57
18.89
25.54
Source: Yahoo! Finance

31. Recommendations DCF model values the stock in the range $16-18.
The multiples analysis values the stock between $18-22.
At a market price of $15.62 (as of 11/1/2010), we think the stock is fairly valued with limited upside potential, pending any news event.
We recommend selling 500 shares (20% of current holding) at a limit price of $17/share (Good till 12/6/2010)

32. Recommendation Impact
*Approximate representation of market value