Navigating teen trends
American Eagle Outfitters rebounds by focusing on what teens want.
By Corey Hajim, Fortune reporter

(Fortune Magazine) -- For a teenager, jeans that are so last year can be uncool. For teen retailers, they can be deadly. American Eagle Outfitters (Charts), with almost 900 stores, has managed to stay hip through most trends, pleasing its customers and shareholders by returning more than 2,600% over the past ten years (compared with 123% for the S&P 500). The company has also graced our Fastest-Growing Companies list three times since 1999.

But American Eagle, like most teen trends, has spent time being unpopular. Early this decade the company deviated from its core customers' desire for clothing that's fashionable and fairly priced. Business slowed, and operating margins fell to 9% in 2003, after hitting 18% in 1999. "Any time that we've ever tried to be a trend leader, we have done poorly. But by being on trend -- and we've been on trend for the past few years -- our results have been quite good," says CEO Jim O'Donnell.

After sending out teams of researchers to malls around the country to hear what teen shoppers really want, American Eagle is back on track. The company discovered that it doesn't always pay to be first out of the gate with edgy new styles -- sometimes the average teenager isn't looking for that. "They are more responsive to their customers, and that's resulted in more consistency in their same-store sales, earnings, and full-price sales," says Dana Telsey, CEO of Telsey Advisor Group, a research firm that specializes in retail stocks. O'Donnell's new style is working. Operating margins in 2005 hit 20%, nearly double the industry average. The company's second-quarter profits were up 27% on 17% revenue growth. It looks as though American Eagle is flying high again.

At a Glance

Headquarters

Warrendale, Pa.

CEO

Jim O'Donnell

Sales

$2.3 billion

Market value

$5.2 billion

Employees

23,000 Top of page

YOUR E-MAIL ALERTS
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.