American Eagle Outfitters Liu Yi Xu Wenqiang (Wayne) Nov 7, 2013

Agenda Introduction & Holding Review Macroeconomic Factors & Industry Overview Company Overview Management Outlook Financial Analysis Valuation Conclusion & Recommendation

Introduction: Founded in 1977 and went public in 1994, AEO is an apparel retailer targeting teenagers and young adults 2010: Expands internationally 2007: Traded on NYSE 2006: Aerie, an intimates brand just for her, launches 2001: Annual sales surpass $ 1 bn; Cross the border to Canada 2000: AE opens its 500th store 1999: First flagship store in San Francisco 1994: AE goes public on Nasdaq 1977: The first AE store opens Source: Company Website

Holding Review: We’ve been holding AEO for a long time Transaction history Dec 1999 – Buy 200 @ $44 Jan 2000 – Buy 200@ $27 Mar 2000 – Buy 600 @ $15.63 Feb 2001 – 3:2 Split Mar 2005 – 2:1 Split Apr 2005 – Sell 600 @ $26.284 Nov 2005 – Sell 700@ $23.33 Nov 2006 – Sell 400 @ $47.15 Dec 2006 – 3:2 Split Nov 2007 – Sell 450 @ $22 Dec 2008 – Buy 1000 @ $9.07 Nov 2010 – Sell 500 @ $17.00 Apr 2011 – Sell 500 @ $16.04 Current Price: $ 14.65 Current Position: Long 1500 shares of AEO with a weighted average price of $5.2252 Source: Yahoo Finance

Macroeconomic Factors: Disposable personal income, retail sales, and etc. are key drivers to apparel retail industry United States Disposable Personal Income YOY %, 2003 – 2012 Source: US Bureau of Economic Analysis

Macroeconomic Factors: Disposable personal income, retail sales, and etc. are key drivers to apparel retail industry (cont’) United States Retail Sales YOY %, 2003 – 2013 Source: US Census Bureau, www.tradingeconomics.com

Industry Overview: US apparel retail industry is growing at 4 Industry Overview: US apparel retail industry is growing at 4.7%, with women’s wear as the largest segment United States apparel retail industry value $ billion, 2008 – 2017 United States apparel retail industry category segmentation % share, by value, 2012 CAGR (2012 - 2017): 4.7% Source: Market Line Apparel Retail in the United States, Feb 2013, P8 - P11

Industry Overview: Fairly fragmented market, moderate growth and independent consumers result in a moderate level of competition in the industry Apparel Retail Industry Five Forces Analysis Rivalry Competition Suppliers’ Bargaining Power Strong (4.3)1 The US apparel retail market is fairly fragmented All kinds of players are in this market, such as branded retailers, department stores, hypermarkets, discount stores and etc. Fast pace of change in fashion and low level of product differentiation add to competition Weak (2.7) Suppliers are clothing manufacturers and wholesalers, who usually are small to medium sized businesses Branded retailers usually source from Asia Substitutes Medium (3) Though there is no substitute to apparel, there are some to retail. One option is buying online Major retailers are all building their online stores There are growing number of online fashion stores Home made and custom made clothing are niche alternatives Buyers’ Bargaining Power Medium (3) All buyers are large amount of individual consumers Low switching cost among brands Retailers can differentiate themselves through styles, price ranges Retailers need to offer what buyers want Threat of New Entrants Strong (4) Barriers to entry are not high There is little regulation in this industry Low switching costs and low level of product differentiation make it easier for new entrants to compete with existing players Footnote: 1. Number in the brackets is the overall rating for this factor, larger number means stronger power Source: Market Line Apparel Retail in the United States, Feb 2013, P12 – P17

Company Overview: AEO operates 2 major brands, while it also has a fast growing online business AEO Brand Targets 15 to 25-year old men and women Denim is the cornerstone of the brand’s assortment Gaining market share through differentiated fashion in key categories is a primary focus 921 stores by first half 2013 aerie by AEO Collection of intimates and personal care product for AEO girl 135 stores by first half 2013 AEO Direct (Online business) An extension of the lifestyle conveyed in the stores Currently ship to 81 countries Comparable sales increased 25% in 2012 Source: 2012 10-K, P3

Company Overview: AEO’s business model focuses on the two ends of the value chain Business Model of AEO Manufacture During fiscal year 2012, purchase all of the merchandise from non-North-American suppliers Rely on a small number of foreign sources for a significant portion of purchase Sell Through 1044 stores and online channel, as of end of 2012 950 stores in US 94 stores in Canada Co-branded credit card (AEO Visa Card) and private label credit card (AEO Credit Card) Ship & Distribute Merchandise shipped directly from vendors and routed through 3rd party trans loaders US distribution centers in Pennsylvania and Kansas Canada distribution centers in Ontario Jan 2013 newly opened 3rd party distribution center in Mexico City to support Mexican stores and e-commerce Certain products shipped directly to stores Source: 2012 10-K, P5 – P7

Company Overview: With number of stores at a ceiling, comparable sales growth is the key for future growth Revenue Total Comparable Sales1 Growth Number of stores Merchandise improvement, service improvement, store remodeling and etc. are the drivers to increase comparable sales. Footnote: 1. Comparable sales provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. Source: 2012 10-K, P17, 2011 10-K, P17, 2010 10-K, P16

Management Outlook: The story in 2013 is not that promising Results Store opening plan 2013 Approximately 50 AEO stores, primarily in North America, Mexico and China Remodel and refurbish plan 2013 Remodel and refurbish approximately 45 to 55 existing AEO stores and close approximately 20 to 30 AEO stores and 15 to 20 aerie stores 19 net openings for the whole company, as of Aug 3, 2013 10 in US, 1 in Canada 3 in China, 3 in HK, 2 in Mexico Total comparable sales declined 6% as of Aug 3, 2013 AE declined 7%, aeire increased 1%, AEO Direct increased 17% Source: 2012 10-K, P4, Second Quarter 2013 Financial Results, P5, P10

SWOT Analysis Strengths Weaknesses Strong brand with no debt aerie gains a niche in underserved teen intimate apparel market Strong in a few categories, such as denim Target customer base is small and has limited consumption capability Relatively small scale Opportunities Threats International expansion American Eagle Outfitters and aerie merchandise is available at 49 international franchise store locations in 13 countries, by end of 2012 Online sales AEO Direct comparable sales increased 25% in 2012, increased 17% in the first half of 2013 Potential raw material inflation and increase in labor cost Weak back-to-school and holiday sales this year Source: 2012 10-K, P23, 2013 Second Quarter 10-Q, P5

Financial Analysis – Ratios Above average capability of inventory control, a lot of cash at hand Source: Morning Star

Financial Analysis – Dupont Source: 2012 10-K

Dividend Signaling CEO Robert Hanson, who joined American Eagle from Levi Strauss & Co., has been cutting back inventory, pushing for faster fashion-item turnaround and improving product assortments to boost sales and reduce markdowns. “The special cash dividend is a component of our capital allocation plan, which balances continued investment in our business with top tier shareholder returns,” During Fiscal year 2012, and Fiscal 2011. American Eagle paid quarterly dividends as shown in the table above. Included in the above table for the quarter ended October 27, 2012 AEO paid a special cash dividend of $1.50 per common share. During Fiscal year 2013, American Eagle paid quarter dividends 0.125 each on June 27, 2013 and September 30, 2013. Source: 2012 10-K

Recent Stock Performance 20 & 200 Day Moving Average Stock Chart After March, 2013 American Eagle’s stock price has consistently been below the 200 day moving average While the trend of the 200 day moving average is going downward, there is a slightly increase trend for 20 day moving average Source: Yahoo Finance

Valuation – WACC Calculation We believe there is not that much volatility in this industry; therefore we add 0% premium into the WACC No debt Source: 2012 10-K

Valuation – Discounted Cash Flow Source: 2012 10-K

Valuation – Comparable Analysis Source: 2012 10-K

Comparable Stock Chart American Eagle’s recent stock performance has been underperformed to S&P 500 and underperformed most of its competitors. Retailers catering to the teen set are navigating a rough back-to-school season. Source: Yahoo Finance

Decision Drivers Strengths Strong brand with no debt Above average capability of inventory control Concerns Nov 15, 2013 quarterly results could miss expectation International expansion risk Quickly changing fashion trends of teens

Recommendation Valuation Current Price $14.65 per share Analyzed Price $14.48 based on Discounted Cash Flow $14.70 based on Comparable Analysis Recommendation Hold

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