1. American Eagle Outfitters, Inc.
(AEO)
Presented April 26, 2007

2. Investment Managers Jessica Boghosian Ashley Qiao jboghos2@uiuc.edu

3. Presentation Outline The Company RCMP Position Comparable Analysis
Company Overview
Store Expansion
Business Risks
RCMP Position
Role in Portfolio
Correlation Matrix
Comparable Analysis
Competitors
1&5 Year Comparables
Ratio Analysis
DCF Analysis
Assumptions
DCF Model
Sensitivity Analysis
Recommendation

4. The Company

5. Company Overview
American Eagle Outfitters was founded in 1972 and is headquartered in Warrendale, Pennsylvania.
In 1977 and 2001, the first American and Canadian stores were opened, respectively.
As of February, 2007, AEO operated 911 stores in Canada and the U.S.
Designs, markets, and sells its own brand of laidback, current clothing targeting 15 to 25 year-olds.
Sells jeans, graphic Ts, accessories, outerwear, footwear, basics, and swimwear.
Provides high-quality merchandise at affordable prices.
Distributes merchandise via e-commerce in 41 countries.

6. Merchandise Groups 35% 34% 60% 61% 5% Total 100% FY 2006 FY 2005
Men’s apparel and accessories
35%
34%
Women’s apparel, accessories & intimates
60%
61%
Footwear – men’s and women’s 5%
Total
100%

7. Company Overview
In 2006, American Eagle launched its new aerieTM intimates sub-brand.
This collection sells dormwear and intimates including bras, undies, camis, hoodies, robes, boxers, and sweats for girls.
In the fall of 2006, American Eagle introduced MARTIN +OSA.
Encompasses a new sportswear concept targeting year old men and women which sells apparel, accessories, and footwear for sports.

8. Store Expansion
In fiscal 2006, total store based increased by 5% and gross square footage increased by 8%.
Currently targeting the western and southwestern U.S., with these regions accounting for 66% of store openings in 2006
50% of AEO store base is in these regions

9. Store Expansion
In Fiscal 2007, AEO plans to open new stores, 15 aerie stores, and 12 MARTIN + OSA stores. Square footage growth is expected to be 10%.
Fiscal 2002
Fiscal 2003
Fiscal 2004
Fiscal 2005
Fiscal 2006
Stores at beg. of per.
678
753
805
846
869
Stores opened during per. 79 59 50 36
Stores closed during per.
(4)
(7)
(9)
(13)
(8)
Total stores at end of per.
911
Up from 8 % in fiscal 2006

10. Business Risks Changing consumer preferences and fashion trends
The specialty retail apparel business fluctuates according to changes in the economy and customer preferences, dictated by fashion and season.
Retail must be ordered well in advance of the selling season.
Changes in fashion trends could lead to lower sales, excess inventories and higher markdowns, which could negatively affect AEO’s financial condition.

11. Business Risks Current level of sales and earnings growth
The 12th consecutive quarters of record high sales and earnings was recorded in the 4th quarter of Fiscal Gross margin & operating margin rates are near historic highs.
“It is difficult to maintain this level of performance and to continue to reach higher levels.”
AEO has in place growth initiatives to increase earnings by at least 15% per year long-term.

12. Business Risks
The success of American Eagle operations depends significantly on discretionary consumer spending
U.S. Department of Commerce, Bureau of Economic Analysis

13. Business Risks Growth through the development of new brands
MARTIN + OSA and aerie by American Eagle were launched in FY 2006.
Ability to succeed in these new brands requires significant expenditures and management attention.
These new brands are subject to risks of customer acceptance, competition, product differentiation, and the ability to obtain suitable sites for new stores.

14. Business Risks Seasonality
The fourth and third quarters have historically provided a large portion of net sales & income to American Eagle due to the year-end holiday season and back-to-school selling season, respectively.
60% of sales and 65% of income are accounted for in these quarters.
Any factors affecting the performance in these quarters can have adverse financial effects.

15. RCMP Position

16. Transaction History December 10, 1999 January 10, 2000 May 3, 2000
BOT 200 shares at $44.00
January 10, 2000
BOT 200 shares at $27.00
May 3, 2000
BOT 600 shares at $15.63
February 23, 2001
3-2 split
March 8th, 2005
2-1 split
April 25th, 2005
SLD 600 shares at $26.28
November 16th, 2005
SLD 700 shares at $23.33
December 28th, 2006
3-2 Split

17. RCMP Position
Currently own 1,950 shares of AEO, trading at $29.93 as of April 25th, 2007 for an unrealized gain of $48, or %.
American Eagle Outfitters accounts for 19% of our portfolio.

18. Correlation Matrix

19. Comparable Analysis

20. Competition FAsHiOn SeRViCe QuALiTy SeLeCTiOn PRiCe
The retail apparel industry, including retail stores and e-commerce, is highly competitive.
FAsHiOn
SeRViCe
QuALiTy
SeLeCTiOn
PRiCe

21. Competitors Who Why Abercrombie & Fitch, Co. (ANF)
Aeropostale Inc. (ARO)
Gap Inc. (GPS)
Why
Industry Specific
Similar Size
Similar Target Market

22. 5-Year Comparables

23. 1-Year Comparables

24. American Eagle Outfitters, Inc. Abercrombie & Fitch, Inc.
Ratio Analysis
American Eagle Outfitters, Inc.
Abercrombie & Fitch, Inc.
Gap Inc.
Aeropostale Inc.
Industry
Market Cap
6.59B
7.27B
15.17B
2.21B
1.11B
P/E
17.65
18.07
19.98
21.58
20.03
Profit Margin
13.86%
12.72%
4.88%
7.55%
3.78%
Operating Margin
21.22%
19.83%
7.36%
12.29%
10.63%
ROE
30.11%
35.18%
14.68%
35.73%
16.76%
Price/Sales
2.37
2.18
0.96
1.56
1.50
Current Ratio
2.60
2.14
2.21
2.42
2.30
Payout Ratio
16.00%
15.00%
34.00%
N/A
17.02%

25. DCF Analysis

26. Ratio Analysis DuPont Breakdown

27. Assumptions

28. Assumptions

29. Discounted Cash Flow

30. Discounted Cash Flow

31. Sensitivity Analysis

32. Recommendation HOLD HOWEVER THEREFORE
Management expects there to be a significant amount of success with the launch of their new brands, MARTIN + OSA and aerie.
AEO continues to expand their store base, with the goal to open stores in FY 2007
Relatively good diversifier against other holdings
HOWEVER
We expect there to be a significant slow of growth in the future. Historically, AEO has realized growth rates that are not possible to sustain in the long-term.
THEREFORE
It is important to watch AEO with a close eye, especially to see if the expected success of the two new brands is realized. Upon this success, we foresee AEO continuing to grow at a relatively pleasing rate that will prove profitable to our investor.