American Eagle Outfitters (AEO) Could Shut 100 Stores by 2012

American Eagle Outfitters (NYSE: AEO) is considering shutting close to 100 stores in the next two years in response to pressures to reduce overhead costs and given the difficulty the retailer is having. As AEO and competitors like Gap (NYSE:GPS), Abercrombie & Fitch (NYSE:ANF) and Aeropostale (NYSE:ARO) have reported Q1 results, we have witnessed varying degrees of success in revamping sales after the downturn.

Our price estimate of almost $20 is over 60% ahead of the market price and is based on our view that the retailer will improve its financial performance and that consumer spending will return in earnest.

The apparel retailers have come under immense pressure to reduce overhead costs as the industry faces high commodity costs. American Eagle, the Pittsburgh based apparel retail company currently owns close to 1,000 stores and is the latest to announce plans of closing down its retail outlets this year. The company is considering closure of as many as 25 stores in 2011 and close to 100 over the next two years. ^[1]

Last week, American Eagle Outfitters’ CEO James O’Donnell said “this year, you’re going to see somewhere between 25 and 35 stores that probably will close. Based on the financials as of today, 85 to 100 would be considered for potential closing.” However, he did not specify the target stores and added that this doesn’t “necessarily mean we’re going to close them, but we would look at them and contemplate closing.”  The company also has plans to remodel 60-65 of the American Eagle stores in United States and Canada during the fiscal 2011.

In an attempt to keep the closures to a minimum, management plans to return to the company’s roots as a denim and back- to-school clothing outlet. The company will roll these out in the fall.

See our full estimates for American Eagle stock here.

1. American Eagle Outfitters considers closing 100 stores [↩]