LOGO

American Eagle  Presented April 5, 2006 by Kevin Cowell and Narayan Subramanian  American Eagle Outfitters is a leading retailer that designs, markets and sells its own brand of laidback, current clothing for 15 to 25 year-olds, providing high-quality merchandise at affordable prices. AE's original collection includes standards like jeans and graphic T's as well as essentials like accessories, outerwear, footwear, basics and swimwear.  798 stores in US and Puerto Rico  71 stores in Canada

Our AEOS Position  Our Original Position:  12/10/1999 – Bought 200 $44  3/10/2000 – Bought 200 $27  5/3/2000 – Bought 600 $15 5/8  Stock Splits  2/23/2001 – 3:2  3/28/2005 – 2:1  Shares Sold:  4/25/2005 – Sold $26.28 and $  11/16/2005 – Sold  Average Position:  Adjusting for Splits and Buying at Different Prices our Position is equivalent to buying 1700 $7.84 on Dec. 10, 1999

Our Position (cont.)  Sold 1300 shares out of 3000 in the past year  Diversification of risk  Stock Price = $29.86 a/o March 31, 2006  Current Value of AEOS position is $50,762 out of 294,749 for the Portfolio  ~17% of current portfolio  % Gain

Macroeconomic Trends  Increased Energy Costs Causing Inflation  Consumer Confidence down from to  Consumers worried about job prospects and short- term health of economy  Increasing Interest Rates  Could Affect Spring Retail Sales Accordingly

Retail Industry Outlook  Predicted 4.7% growth in retail sales for 2006  Down from 6.1% from 2005  Clothing retailers expected to see solid sales growth  4.0 – 5.0% range * According to National Retail Federation’s 2006 Retail Sales Forecast

Demographic Changes  age group expected to grow 11% to 67 million people between  only expected to grow by 6%  New Opportunity for Retailers

Store Openings/Closings  2005 [CapEx = $83 m]  36 Opened  11 Closed  43 Remodeled  2006 (est.) [CapEx = $175]  Open 50  Remodel 50  7% increase in sq. footage

Martin + Osa  New stores owned by AE to target the year old population  4 Definite locations for Fall 2006 with 2 more stores pending  Tysons Corner Center (McLean, VA), Fashion Island (Newport Beach, CA), NorthPark Center (Dallas, TX) and San Francisco Center  Not test stores  Plan on opening more stores in 2007  6,500 to 7,500 square feet/store  Possible $1B opportunity per year (about 50% of current Rev)  Long-term goal

Product Life Cycle AE M+O

Martin + Osa - Challenges  Very challenging demographic: Different Tastes Different Incomes Already proven difficult for Abercrombie and GAP  Increasing Competition Abercrombie- Ruehl GAP- Forth and Towne Polo- Rugby Aeropostale- Jimmy’Z J Crew Banana Republic

Ruehl by ANF  Failing entry into the y.o. niche market  Already adjusting their strategy  Possibly falling into Gap’s blunders Same products, different price tag  Can AE avoid this pitfall?

Aerie by American Eagle  Focuses on bras, panties, and casual dormwear for girls and young women.  “Take girls from the dorm room to the coffee shop.”  Will incorporate the Aerie brand in existing stores through renovations to create a “store within a store.”  Also plan on constructing side-by-side and free- standing stores with about sq. feet per store  Short-term goal

More Expansion  Many online sales going to Japan  AE is considering forming a partnership with an established Japanese retailer  Stores  AE International  530,000 sq foot increase in Kansas distribution center (est. $55M)

AE Stock Prospects CompanyStock PriceEPSP/EForward P/EMkt. CapBeta A & F B1.44 Aeropostale B1.62 AE B1.92 GAP (GPS) B1.82 PACSUN (PSUN) B1.14

Cyclical Nature of Industry

Q4 Conference Call  Overall Sales Increased 13.4% in 2005 from 2004  Same-Store Sales up 8%  Margins Down  Gross Margin Down 2.97%  Op. Margin Down 2.68%  Net Margin Down.9%  Margins Decreased Due to Markdowns and Increased Warehousing Costs

Valuation  See Spreadsheet  Intrinsic Value using Discounted Cash Flow Analysis = $ %  Implied Stock Price Using EPS*P/E = $ %

Sensitivity Analysis COGS as a % of Sales 52.00%52.50%53.00%53.50%54.00%54.50%55.00% y/y growth rate of sales 7%$22.98$22.36$21.73$21.10$20.47$19.85$ %$24.09$23.43$22.78$22.13$21.47$20.82$ %$25.23$24.55$23.87$23.19$22.51$21.83$ %$26.40$25.70$24.99$24.28$23.57$22.87$ %$27.62$26.88$26.15$25.41$24.68$23.94$ %$28.88$28.11$27.34$26.58$25.81$25.05$ %$30.17$29.38$28.58$27.78$26.99$26.19$ %$31.51$30.68$29.86$29.03$28.20$27.37$ %$32.89$32.03$31.17$30.31$29.45$28.59$27.73

Summary  Martin + Osa Uncertainty  Does Market Exist?  Other Ventures:  Aerie Intimate Brand  AE International  COGS Sensitivity  Forecasting Trends and Inventory  Can CAPEX Increases Drive More Sales?

Recommendation  Final Recommendation: HOLD all 1700 shares  Too early to determine the impact of Martin + Osa, Aerie, and AE International on sales  Projects have the potential to become huge growth opportunities and profit drivers in the future  Share price was slightly overvalued using DCF Model and fairly priced using EPS Approach but both techniques did not account for potential sales growth due expansion activities but did take into account increased capital expenditures