American Eagle Outfitters released earnings for 1Q12 this morning, Wednesday, May 23rd. They reported net sales of $709mil compared to $603mil in 1Q11, which represents an 18% increase year-over-year. Sales were driven by a 17% increase in comparable store sales due to strong in-store traffic, a 20% increase in repeat customers, and an improved conversation rate. Revenue missed street expectations of $720mil, but an adjusted EPS of 22 cents beat the mean estimate of 20 cents per share. This marks a 40% increase in EPS year-over-year. Gross margin fell 0.1% to 37.9% mostly due to the higher cost of cotton and other products. Strong top line growth was able to take pressure off the increased cotton costs which is a good sign for the company going forward. AEO opened 7 new stores in 1Q12, and also closed 7 locations during the same period.
EPS estimate for the second quarter is between 13-15 cents which is right in line with EPS from 2Q11. For the year, adjusted EPS is expected to be $1.16 to $1.22 which assumes comp store sales growth in the low to mid single-digit range. Guidance is adjusted for the 10 cent per share 77kids operating loss due to the closing of that business. Management believes cotton costs will continue to weigh on bottom line growth until the 2nd half of 2012.