AEO will end upscale brand

Mar 10, 2010 — The Pittsburgh Tribune-Review

Kim Leonard and Rick Stouffer

Mar. 10, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- Martin + Osa is disappearing from American Eagle Outfitters Inc.'s (NYSE:AEO) lineup of clothing brands.

The South Side-based retailer said Tuesday it decided to close the chain of 28 stores, including a Ross Park Mall location, plus the online sales business, because of weak sales.

The brand was designed for men and women in their late 20s through around age 40. While there were improvements from fiscal 2008, the company said, sales of the brand's casual sweaters, jeans and other styles weren't reaching the bar that would have justified further investment.

In fiscal 2009, the company said, Martin + Osa generated an after-tax loss of about $44 million. Stores are expected to close by midsummer.

"Closing Martin + Osa was a difficult decision, particularly in light of the progress that was made over the past year," CEO Jim O'Donnell said.

The company said after the shutdown of the four-year-old brand, it will continue to focus on its AE, aerie and 77Kids brands, which have "a greater potential of creating long-term shareholder value."

American Eagle is to release quarterly earnings today. Shares closed yesterday at $17.15, up 35 cents.

Wall Street analysts weren't surprised. "A smart move. (OOTC:SMVE) It's always sad to see things like this, but this is what good businesses do," said Craig Johnson, president of Customer Growth Partners in New Canaan, Conn.

"Even Babe Ruth struck out a number of times during his career."

Adrienne Tennant of FBR Capital Markets (NASDAQ:FBCM) and Co. of Arlington, Va., also was pleased. "Martin + Osa was just such a big drag on the company," she said.

The brand was named for Martin and Osa Johnson of Kansas, who were early 20th century adventurers.

Todd Slater of Lazard Capital Markets LLC in New York said the brand either had to quickly start contributing to American Eagle's earnings, or shut down. Either would be a win for shareholders," he said.

As to why the concept failed, "Management probably suffered more than anything else, from bad timing" by opening the stores right before a recession that brought widespread job losses, he said.

Kim Leonard is a Pittsburgh Tribune-Review staff writer and can be reached at 412-380-5606 or via e-mail.

Newstex ID: KRTB-0288-42735471