http://www.morningstar.com/earnings/14333799-american-eagle-outfitters-aeo-q1-2010.aspx

American Eagle Outfitters AEO
Q1 2010 Earnings Call Transcript

Transcript Call Date 05/26/2010

Operator: Greetings, and welcome to the American Eagle Outfitters First Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Judy Meehan, Vice President of Investor Relations. Thank you. Ms. Meehan, you may begin.

Judy Meehan - IR: Good morning, everyone. Joining me today are Jim O'Donnell, Chief Executive Officer; Joan Hilson, Executive Vice President, Chief Financial Officer. If you need a copy of our first quarter press release, it is available on our website, ae.com.

Before we begin, I need to remind everyone that during this conference call, members of management will make certain forward-looking statements based upon information, which represent the Company's current expectations or beliefs. The results actually realized may differ materially from those expectations or beliefs, based on risk factors included in our quarterly and annual reports filed with the SEC. And now, I'll turn the call over to Jim.

James V. O'Donnell - CEO: Thanks, Judy. Good morning, everyone. The first quarter demonstrated real progress towards our goals. We achieved higher sales and stronger profitability. This was the second consecutive quarter of positive comps and we achieved the 55% increase in earnings per share, excluding M&O. The AE brand continued to gain momentum with both women's and men's posting positive comp store sales. Further, we effectively capitalized on store traffic (to bring) near record high conversion rate in the first quarter. Both of these metrics speak to the overall consumer appeal of the AE brand to strengthen the assortments as well as our value pricing. aerie also produced strong positive comps in the first quarter and have improved its bottom line results as well. While profitability is not yet where we wanted to be, we have implemented targeted initiatives, which will put us on the path to deliver improved second half results and ultimately lead to a targeted mid-teen operating margin in 2011.

First, we are well into the process of winding down MARTIN+OSA's operations, which is within our estimates. The decision to close the brand, while certainly difficult enabled us to focus on talent and resources towards our most attractive opportunities, which are the AE brand, aerie and 77kids.

We are continuing to streamline our entire organization from top to bottom to be faster, more efficient and more productive. We have made pivotal hires in design and merchandising for each of the brands and have forged essential alignment across creative functions.

Additionally, we are looking at each aspect of the business for opportunities to reduce costs and improve processes.

Our mantra is to work smart, combining small company entrepreneurial spirit with the big Company power and discipline. Specifically we have made changes within our buying and allocation process. We have positioned more sourcing in the western hemisphere for both cost opportunities and shorter lead times. We are leveraging our buying power in fabrics and expanding the vendor base, where we see opportunities.

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