American Eagle Outfitters Earnings Call Nuggets: TV Commercials and Competition Analysis

American Eagle Outfitters (NYSE:AEO) recently reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

TV Commercials

Anna Andreeva – FBR Capital Markets: I had a couple of questions. Question on the TV commercials, I was just wondering if you could talk about the early return on investment that you are seeing there and what are some of the plans go forward for the holiday and spring of 2013. I think your advertising expense had been running at around 2% of sales give or take, how should we think about that going forward, and a just a question to Roger, stores do look terrific, could you remind us what are some of the merchandise opportunities in men’s and women’s as we go through the holiday?

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Robert L. Hanson – CEO: Sure, I’ll start and then I’ll let Mary and Roger, chime in. So, in terms of television commercials and as I mentioned we saw a 20% increase in our active customer base on our loyalty programs. We also saw in the quarter nice momentum across every one of the store level and direct level metrics that we are tracking from traffic to UPTs ADS conversion. So we feel like that is evidence of our driving a nice return from our marketing. It gave us confidence to be able to invest in the advertising that you are seeing during the current holiday period and obviously our intent is to continue to build further momentum behind the performance of both the American Eagle Outfitters and the Aerie brands. Mary?

Mary M. Boland – EVP, CFO and CAO: When you think about our advertising as a percent of revenue, this year we are likely to be in kind of the 2.6% range. I think as you look forward probably closer to the 3% range as we continue to invest behind our brands. We are opening a significant number of factory stores next year which will require some marketing effort behind that. We are opening new doors in Mexico next year. So as we continue to grow the portfolio, you expect to see that advertising start to uptick a little bit.

Roger S. Markfield – VC and Executive Creative Director: As I mentioned on this Friday night, the stores will do a completely new floor set. This is a new addition to prior years. It’s a whole new freshness factor of new fashion and I really invite everybody to this store on Saturday. I think it’s the best fashion and I appreciate everybody’s thanks for being so kind to us and how they think we look, but I think that this new set is even better and within it obviously the strength in the core is in sweaters and wovens which is so strong to this holiday.

Competition Analysis

Alex Pham – Wedbush Securities: It’s Alex Pham on for Betty. I was just wondering if you guys could comment on the competitive environment, some of the other teen retailers are quite promotional and how you guys were looking at the holiday season and then also quick question on input cost for next year, how you guys are viewing that?

Robert L. Hanson – CEO: Alex, as we’ve said it’s been quite competitive throughout the year and we’ve seen that competitive environment continue through not only the third quarter but obviously in all the activities we saw during the month of November including Black Friday weekend. We executed our strategy plan and our roadmap which was to be competitive when we need to be in the high traffic periods, but selectively pullback on promotions, so that we could drive fundamental improvements in our overall operating metrics. We delivered those results in the third quarter as we reported them today and as we mentioned we’re pleased with our results throughout the early start to the holiday season. There is no question it’s highly competitive out there, but throughout the year we’ve been able to demonstrate the ability to execute our roadmap which includes a selective pulling back promotion and still deliver the results that we’ve been committing to our investors and that’s what we intend to be moving forward.

Mary M. Boland – EVP, CFO and CAO: On average unit cost for the fourth quarter, we expect to see a slight improvement in average unit cost and then as we move forward into next year, we still expect to see continued improvements in the first half or the year as we continue to clear out the year-over-year impact of cotton through the first half of the year.

A Closer Look: American Eagle Outfitters Earnings Cheat Sheet>>

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