1. Presented By Jiaqi (Tommy) Jiang
Ming Li
Yen-Ju (Annie) Lin
Lu Han
Yanan (Phoebe) Tan

2. Agenda Company Review Macroeconomic and Industry Review
Financial and technical Analysis
Comparable analysis and Projection
Valuation
Recommendation

3. Company Review Founded in Delaware in1977
A retailer of apparel and accessories in the U.S. and internationally
Two brands: American Eagle Outfitters & aerie
1056 retails stores, 920 in U.S., 101 in Canada, 18 in Mexico, 9 in China, 6 in Puerto Rico, 5 in HK, 3 in UK
Online business AE Direct ships to 81 countries.

4. Business model & Strategy
Design in NY
Third party suppliers overseas
Distribution Centers
Stores/ Customers
Factory stores
Profit improvement through more compelling products, marketing, and customer experience
Growing digital business through site enhancements, expanded product line, improved customer engagement
Improvement in profitability by repositioning the stores
2014 AEO 10-K

5. SWOT Analysis Threat Opportunity Weakness Strength
1.Strong brand image
2.No debt
1.Social media engagement-low
2.Brand loyalty-mild
1.Fast fashion retailers
2.Increased competition in factory outlet
1. Online business
2. International expansion
2014 AEO 10-K

6. Macroeconomic Review

7. Industry Review
Seasonal cyclical

8. Industry Review Seasonal adjustment of inventory sales ratio

9. Industry Review Cont’d
Source:

10. Porter’s Five Forces Porter’s Five Forces Competitive rivalry—High
Threat of substitutes-Low
Bargaining power of suppliers– Low
Porter’s Five Forces
Bargaining power of suppliers-There are many suppliers of raw materials worldwide. If a supplier raises the cost, the company can simply switch to other suppliers.
Threat of new entrants -Large capital costs are required for branding and advertising, which limits the entry of newer players in the apparel market.
Competitive rivalry:-The apparel industry is highly competitive with various clothing companies. As fashion constantly changes, companies have to be quick respond to consumer preferences.
Bargaining power of customers– Low
Threat of new entrants—High

11. Financial Analysis
AEO 10-K

12. DuPont Analysis DuPont Analysis 2010 2011 2012 2013 2014 Tax Burden
44.32%
55.12%
57.73%
58.41%
50.36%
Interest Burden
93.47%
102.18%
101.88%
100.72%
102.40%
Profit Margin
11.53%
8.63%
11.35%
4.27%
4.74%
Assets Turnover
1.64
1.88
1.92
1.94
Leverage Ratio
1.38
1.44
1.45
1.49
AEO 10-K

13. Technical Analysis Yahoo Finance

14. Comparable Analysis Comparable Companies Similarities Differences
Apparel Retailers based in US
Similar product lines and target
Major competitors
Differences
Gap has much bigger size
A&F and Express have smaller sizes
URBN has more product lines such as electronics
Express has formal apparel
Source: Company information from Yahoo Finance

15. Market Performance Yahoo Finance

16. Comparable Analysis Gross Profit Margin Net Profit Margin Sales/Ft^2
Inventory Turnover
Source: LTM Data of ANF, GPS, URBN, EXPR and AEO from Capital IQ

17. Comparable Analysis Output
Calculation for Implied Price
EV/Revenue
EV/EBITDA
Trailing P/E
Forward P/E
P/B
Median Multiples
0.7x
5.3x
13.7x
13.8x
2.8x
Implied Price
14.61
13.25
9.89
10.00
16.72
Weightings for each multiple
20%
Price
$12.89
Implied Price: $12.89
Downward Potential: 14.24%
Source: Company information from Yahoo Finance

18. Revenue Projection Gross Sales Gross Square Feet
Average Square Feet Per Stores
Estimated Stores Numbers
Sales Per Square Foot
Past Sales Per Square Foot
Short-term Growth Rate

19. Assumption Quarter Data Store Numbers
Short-term and Long-term Growth Rate
New Stores Sales Are Included

20. WACC

21. Discounted Cash Flow

22. Recommendation Sell – 1000 shares # of Share Current Value Cost
Market Value
Gain
1000 Shares
$15.03
$5.23 $
$ /187.64%
Sell – 1000 shares