1. American Eagle Outfitters Review for partial sale April 21 st, 2005 By Adam Freda

2. Introduction We currently own 3000* shares of American Eagle and purchased shares on three separate dates: – 200 shares on 12/10/99 at $44 – 200 shares on 3/10/00 at $27 – 600 shares on 5/3/00 at $15 5/8 Total cost of position = $23,575.00 Market value of position - $78,140 for a gain of $54,565 as of 4/20/05 market close of $26.38 *3/2 stock split on 2/26/01, 2/1 stock split on 3/8/05

3. Relevant Financial Statistics 52 Week Range: $12.66 - $30.45 Market Cap: 4.04B P/E: 17.68 EPS (ttm): $1.49 Dividend: $.20 Dividend Yield: 0.72%

4. Brief Background Lifestyle retailer that designs, markets, and sells casual clothing for 15 to 25 year olds Distribution – Stores – E-Commerce Business – Catalogs Products – Jeans and Cargo Pants – Graphic T-shirts – Accessories – Outerwear – Footwear

5. Brief Background (cont’d) Continue expansion throughout the United States and Canada by filling in existing markets – U.S. AE opened 37 new stores in the during fiscal 2004 Operates a total of 777 stores in 49 states Plans on opening 2 new stores in Alaska – Canada Opened 5 stores in Canada in fiscal 2004 Operates a total of 69 Looking for a long term potential of 80 stores across the country

6. Macroeconomic Review AE operates in the services sector and the retail (apparel) industry Competitors include The Limited, The Gap, Abercrombie & Fitch, Pacific Sunwear, Aeropostale, and The Buckle Fashions at all these retailers are subject to short-term fads as well as long-term trends

7. Macroeconomic Review March 2005 – Revenue increased 38.5% to a record $184.6 million, compared to $133.3 last year – Comparable store sales increased 29.2% for the March period 1 st Quarter – Revenue increased 39.8% to $311.5 million, compared to $222.8 million last year – Comparable store sales increased 30.5% for the nine-week period Based on strong March results, the company is raising its first quarter earnings guidance to a range of $0.30 to $0.31 per share

8. Stock Market Prospects (cont’d)

12. Company Strategy 2004 – Looking forward – Enthusiastic about the opportunity for sales and earnings growth – Return to the level of sales productivity and profitability that the company and its brands were built to generate – Improve merchandise assortments to provide a clear and focused point of view at target customers

13. Company Strategy (cont’d) Remodel stores and increase square footage from 4,000 to 6,000 – Remodeled 36 stores in fiscal 2004 Sell merchandise through its e-commerce site, www.ae.com – Ships internationally to 24 countries, allowing AE to compete in locations that it doesn’t have physical stores

14. EPS Sensitivity Healthy EPS growth at 12% revenue growth, 2% and 7% are much less attractive Cost of goods sold and margin estimates are also not aggressive in the model

15. Free Cash Flow Calculation Above is a free cash flow sensitivity analysis for various levels of revenue growth Note the +/- 10% range

16. Combined Sensitivity Low P/E = 10 Current P/E in Market = 18 Industry P/E = 20 Wide range of prices when revenue growth and P/Es are sensitized Low revenue growth caps the price

17. Considerations Add to position – Downsides Volatile industry that is very dependent on the overall health of the economy and consumer spending Short-term fashions, which revenue growth depends on, are difficult, if not impossible, to predict Already significantly exposed to American Eagle as well as the fashion retail sector Sell all – Downsides AE is still posting positive guidance If AE is able to grow at the expected rates, there is still solid growth left in the stock

18. Recommendation Sell 600 shares of American Eagle at the market as a first step to selling up to one-half of our position total Due to the fast appreciation, AE represents about 25% of our total portfolio We can lock in some gains and diversify the portfolio into other areas in which we have no exposure