American Eagle Outfitters May Close Stores Geared Toward Adults

American Eagle Outfitters Inc. (AEO) may be preparing to close its Martin + Osa stores, which the teen retailer began operating three years ago to broaden its appeal to adults.

The decision may come as soon as next month, when American Eagle posts fourth-quarter results, a company spokeswoman said on Monday.

Martin + Osa is dragging on American Eagle's bottom line as the concept, meant to appeal to 28 to 40 year olds, lost its president late last year and American Eagle Chief Executive Jim O'Donnell was a bit cagey about the stores' future at a recent industry gathering.

The stores are making progress, with design and production processes having improved, O'Donnell told attendees at the ICR XChange Conference on Jan. 13. "It is also important that we continue to differentiate the Martin + Osa brand within the competitive landscape as well as create an emotional connection with the customers."

But O'Donnell implied the money-losing unit may not yet have achieved its goal, saying, "We are still evaluating our plans and we'll provide additional information...during our fourth quarter earnings call."

American Eagle reports earnings on March 10. Kimberly Greenberger, retail analyst with Citigroup, estimates that Martin + Osa lost as much as $40 million in the fourth quarter, which would tug to about a 12 cents a share drag from American Eagle's earnings for the period.

American Eagle teen stores appear to be doing well, posting the best January same-store sales gain, at 10%, among its peer group, Thomson Reuters said.

Martin + Osa stores are seen as a way for teen retailer American Eagle to reach a broader audience with well-turned out stores featuring high quality preppy and sporty-type clothing. But the timing of the lunch, as the recession dug in, and perhaps some missteps, appear to have compromised ambitions for the store.

"The stores are beautiful, but there is always a lot of merchandise on clearance and very little customer traffic," said Chandi Neubauer, retail analyst at Majestic Research of the Martin + Osa store she visits in Newport Beach, Calif. Neubauer said Martin + Osa stores are larger than the average mall-based apparel retailer and might be doing better in scaled-down size. American Eagle operates 28 Martin + Osa stores, having opened the first in the fall of 2006.

American Eagle is sending mixed signals about the future of Martin + Osa, said Todd Slater, retail analyst at Lazard Capital Markets.

While Martin + Osa has seen the departure of Laura Dubin Wander, who was president of the unit since spring 2007, "just last week, (Martin + Osa) posted listings for senior level merchandising and store level positions, leading us to believe it has not yet pulled the plug," Slater said.

The closing of Martin + Osa would not be the first time a teen retail has missed the mark when trying to broaden its concepts. Abercrombie & Fitch Co. (ANF) is closing its Ruehl division, and Pacific Sunwear of California Inc. (PSUN) shut its D.e.m.o. chain in 2008.

American Eagle Outfitters shares recently traded up 1.3% to $15.94.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

Abercrombie and Fitch (NYSE:ANF)
Historical Stock Chart
From May 2024 to Jun 2024