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UPDATE 2-American Eagle expects strong holiday earnings but lower margins

UPDATE 2-American Eagle expects strong holiday earnings but lower margins
From Reuters - December 6, 2017

(Reuters) - American Eagle Outfitters Inc (AEO.N) on Wednesday joined other U.S. apparel makers in forecasting strong earnings for the key holiday selling season but said it expected lower profit margins compared with a year earlier.

Shares of American Eagle rose more than 5 percent to $16.99 in early trading but gave up most gains after the company gave the gross margin forecast on a call with analysts.

We expect markdowns in promotional environment to remain pretty consistent with last year, which is what weve seen in the beginning of the holiday season thus far, Chief Financial Officer Robert Madore said.

Madores remarks signaled the company might be as aggressive on promotions as it was last December in the aftermath of Aeropostales bankruptcy, when it sought to keep shoppers from flocking toward heavily discounted Aeropostale apparel.

American Eagles gross margin - gross profit as a share of revenue - fell 1.2 percentage points to 39 percent in the third quarter ended Oct. 28, hurt by higher warehousing and shipping costs on online orders as well as more promotions.

Still, American Eagle delivered third-quarter earnings and comparable sales ahead of Wall Street targets, driven by robust demand for its Aerie line of lingerie as well as surprisingly strong sales for its namesake brand.

Aerie has driven much of the companys growth in recent quarters. Comparable sales from the brand rose 19 percent in the latest quarter, while those for American Eagle inched up 1 percent, reversing several quarters of declines.

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