American Eagle Outfitters Inc.’s (AEO) third-quarter 2010 adjusted earnings skipped to 29 cents per share from the year-ago earnings of 25 cents per share, but remained in line with the Zacks Consensus Estimate. The adjusted quarterly earnings excluded a loss of 12 cents per share on sale of investment securities.

During the quarter, American Eagle’s net sales edged up 2.2% year over year to $752.0 million, slightly ahead of the Zacks Consensus Estimate of $751 million. Same-store sales reported a slight increase of 1.0%. In the reported quarter, the company opened five American Eagle (“AE”) stores, three aerie and two 77kids stores, and remodeled six AE stores and one aerie store. The company closed 4 AE stores in the quarter.  

American Eagle’s gross profit increased 3.0% year over year to $312.0 million, while gross margin expanded 30 basis points (bps) to 41.6%. Merchandise margins recorded a growth of 90 basis points, attributable to higher sales during the back-to-school season. 

Selling, general and administrative expenses, as a percentage of sales, fell 50 bps year over year to 24.6% due to the company’s continuous effort to reduce expenses. Consequently, operating income increased a smart 7.1% year over year to $91.0 million, while operating margin expanded 70 bps to 12.2%.

American Eagle ended the quarter with cash and cash equivalents of $631.0 million, compared with $512.6 million in the year-ago period. Year to date, the company generated $146.4 million of cash from operations and received $177.5 million from sale of investments. The company also deployed $192.3 million of cash for share buybacks, $65.4 million toward capital expenditures and $30.0 million for debt repayment.

The company expects to incur capital expenditures in the range of $90 million to $100 million in fiscal 2010.

For fiscal 2010, the Zacks Consensus Estimate for American Eagle is $1.00 per share, which moved up a penny over the past 30 days as 14 of 27 covering analysts increased their projections.

We currently have a short-term Zacks #3 Rank (‘Hold’) rating and a long-term Neutral recommendation on the company.

 
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