May 11, 2009
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Citigroup, Lazard upgrade American Eagle to buy

May 11, 2009

May 11 (Reuters) - Citigroup and Lazard Capital Markets upgraded American Eagle Outfitters Inc (AEO.N) to "buy" from "hold", citing improving margins and sales trends at the retailer's women's section.

American Eagle Outfitters Women's Beachwear Spring-Summer 2009

March and April same-store sales for women's clothing were equal to that of men's, a trend witnessed for the first time since July 2007, Citigroup said.

"We have also observed better fashion at American Eagle Outfitters including attractive skinny denim, a compelling short shorts assortment, & modern-looking M's graphic t's," analyst Kimberly Greenberger wrote in a note to clients.

The company is on track to improve denim, which is the highest priority as it is critical to back-to-school success, the analyst said.

The analyst, who raised the price target on the stock to $17 from $15, said stale looks at Hollister and expensive pricing at Abercrombie & Fitch should favor American Eagle Outfitters as it delivers improving fashion at a better value.

"Improving product at AEO has the potential to boost EPS through better same-sales growth and better gross margin on lower product costs and improved full price selling," Greenberger said.

Separately, Lazard said it expects margins to bottom in the first half of 2009 and improve significantly in the second half, even assuming same-store sales remain negative.

"The women's assortment is showing signs of improvement, a necessary catalyst for comparable-store sales to inflect positively and for the shares to outperform," said Lazard analyst Todd Slater, who has a price target of $22 on the stock.

Shares of the company were up 31 cents at $14.44 Monday morning the New York Stock Exchange.

(Reporting by Kunal Raina in Bangalore; Editing by Deepak Kannan)

(([email protected]; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800 +1 646 897 1898; Reuters Messaging: kunal.raina.reute[email protected])) Keywords: AMERICANEAGLE/RESEARCH CITIGROUP

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