American Eagle Outfitters November 30 th, 2004

Introduction We currently own 1,500 shares of American Eagle and purchased shares on three separate dates: – 300 shares on 12/10/99 at $29.33 – 300 shares on 3/10/00 at $18 – 900 shares on 5/3/00 at $ Total cost of position – $23,575 Market value of position - $63,765 for a gain of $40,190 as of 11/29/04 market close of $42.51 Recommendation is to hold

Relevant Financial Statistics 52 Week Range: $ $44.59 Market Cap: 3.12B P/E: EPS (ttm): $1.371 Dividend: $.24 Dividend Yield: 0.55%

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

Brief Background (cont’d) Formerly operated the Bluenotes/Thriftys specialty apparel chain in Canada Recently agreed to sell Bluenotes to a private company controlled by Michael Gold, owner of Canadian retailer YM Inc. As of fiscal 2003, American Eagle Outfitters operated 805 American Eagle Outfitters stores in the United States and Canada – AE opened 43 new stores in the United States during fiscal 2003

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

Stock Market Prospects Entering the holiday season – Walmart revised November sales estimates downward recently which negatively affected the entail retail sector However, AE posted strong results Thursday, November 11 th – Quarterly Sales up 35% over last year's third quarter, Gross margins increased from 38% to 47%, – Year-to-date Sales climbed 26% Gross margins averaged 43.5%

Stock Market Prospects (cont’d)

Company Strategy Code of Ethics – American Eagle Outfitters, Inc. is built based on trust, honesty and integrity. These virtues are our most important assets 2003 Annual Report – Challenging year overall, yet the company “emerged stronger and more efficient”

Company Strategy (cont’d) Significant changes in 2003 – Improved merchandising, design, store operations, and marketing – Added new creative talent – Streamlined and upgraded processes – Reconnected with core customers

Company Strategy (cont’d) 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

Company Strategy (cont’d) In the fall of 2003, AE conducted the most extensive research in company history – Conducted over 3,000 in-depth, face-to-face interviews – Made adjustments based on the research and business improved measurably in the end of the year – “Compelling merchandise assortments combined with the power of the American Eagle brand will be our winning formula in 2004 and beyond.”

EPS Sensitivity Healthy EPS growth at 15% revenue growth, which is the Yahoo and Bloomberg estimate for the next five years Margin estimates are also not aggressive in the model

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

Combined Sensitivity Low P/E = 15 Industry P/E = 25 Current P/E in Market = 31 Wide range of prices when revenue growth and P/Es are sensitized Low revenue growth caps the price The current P/E of 31 may not be sustainable but solid revenue growth and growth in EPS should compensate

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 – Downsides Recent guidance is very positive If AE is able to grow at the expected rates, there is still solid growth left in the stock

Recommendation Hold 1500 shares of American Eagle AE has been a successful purchase and appears to be competing very well Must reassess AE after the critical holiday season to see if it met estimates and continued to provide positive guidance for the next year