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Presented by Robert Eberhard, Rob Jannusch and Jeffrey Li March 13, 2014.

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Presentation on theme: "Presented by Robert Eberhard, Rob Jannusch and Jeffrey Li March 13, 2014."— Presentation transcript:

1 Presented by Robert Eberhard, Rob Jannusch and Jeffrey Li March 13, 2014

2 Company Overview Investment History Recent Events/Earnings Analysis Macroeconomic Analysis & Industry Stratification Industry Analysis & Comparables Valuation Metrics Recommendation 2

3 Founded in 1977, American Eagle is a retailer that designs, markets and sells apparel to its target audience of year-old males and females primarily via its retail stores in the United States and Canada and online via ae.com. As of February 1, 2014, the Company operated 1,066 stores in the United States, Canada and Puerto Rico under the American Eagle Outfitters and aerie brands as well as 66 international stores. AEO Direct, its e-commerce operation subsidiary, ships to more than 80 countries worldwide. 3

4 Founded in 1977 by brothers, Mark and Jerry Silverman Currently headquartered in Pittsburgh, Pennsylvania Publicly traded since 1994 (NASDAQ: AEOS) Listed on NYSE as of March 8, 2007 (AEO) Approximately 44,000 employees as of February 2, 2013 Operates 3 main divisions: 4

5 TRANSACTION HISTORY Dec 1999 – Buy $44 Jan 2000 – Buy $27 Mar 2000 – Buy $15.63 Feb 2001 – 3:2 Split Mar 2005– 2:1 Split Apr 2005 – Sell $ Nov 2005 – Sell $23.33 Nov 2006 – Sell $47.15 Dec 2006 – 3:2 Split Nov 2007 – Sell $22 Dec 2008 – Buy $9.07 Nov 2010 – Sell $17.00 Apr 2011 – Sell $16.04 CURRENT PRICE: $13.10 (AS OF MARKET CLOSE 3/11/14) CURRENT POSITION: LONG 1500 SHARES OF AEO WITH A WEIGHTED AVERAGE PRICE OF $ Source: Yahoo! Finance and RCMP portfolio history

6 March 2010 : Closed all 28 Martin + Osa stores for a loss of $44 million August 2012 : Shuttered all its 77Kids stores at a cost of $24 million and sold off to Ezrani Corp. January 22, 2014 : CEO Robert Hanson unexpectedly steps down; Jay Schottenstein named interim CEO March 11, 2014 : Earnings disappoint; stock drops 9.64% 6

7 Company acknowledges that they failed to drive traffic to their stores Markdowns and promotions affected both the top line and margins Aerie brand delivering online and globally Expanding pilot program of “ship from store” by fall New distribution center opens this summer CapEx over FY2013 and FY2014 expected to be ~$508M Nearly 900 full and partial day weather-related store closures in February CEO search continues, but focus remains “on doing what’s right for the customer, what’s right for the company.” 7 Source: Seeking Alpha transcript of earnings call

8 8 StrengthsWeaknesses No debt Increased global expansion in 2014 Continued Factory Store expansion for “omni-channel capability” “We have got great pants” “Inconsistent merchandise assortments” from earnings report means poor speed-to-market Weak competitive position as # of value retailers and premium luxury brands increases Cater to young, fickle customers in an industry with multiple competitors/price points OpportunitiesThreats Continued growth in AEO Direct and “ship from store” capabilities Can use financial leverage to expand their business internationally if they choose Slower increases in discretionary spending income among core customer demographics Highly competitive retail segment vying for middle-class discretionary income Competitors like A&F, Urban Outfitters show sales growth without blaming weather

9 9 Source: FRED – St. Louis Federal Reserve Bank

10 Low $ Medium $ High $

11 11 Source: Yahoo! Finance

12 12

13 13 Source: Yahoo! Finance

14 14

15 15 Source: Yahoo! Finance

16 16 Source: Yahoo! Finance

17 Based on our weighted valuation, we feel the stock is worth $15.34 a share. It is currently trading at $12.75, so we have room to hold onto our shares. The company is competing well with its main competitors, has no debt, and is investing for the future by expending capital over the next two years. 17

18 HOLD 18


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