American Eagle is fighting a fickle foe: fugly jeans.

What makes jeans sit on the shelf instead of flying off the shelves? That’s up to the whims of American Eagle’s 15- to 25-year old target customer. The retailer’s summer offerings didn’t quite meet the expectations of its core audience, and sales suffered.

“We had a number of styles that just did not perform. And that hurt us very, very much,” American Eagle’s Chief Executive Jim O’Donnell said on a call with analysts.

“We’ve identified those (styles). We’ve taken appropriate action, both from a mark down point of view and also from a repositioning of holiday for ‘08,” O’Donnell continued.

While O’Donnell declined to identify the worst selling styles, the retailer says it’s changing things up for the holiday season and next spring, bringing in at least four new styles for women and a few new lines for men “that we think are going to be very brand appropriate,” O’Donnell said.

 American Eagle posted sharply lower profits on Tuesday, hurt by weaker sales and increased markdowns needed to move unsold merchandise, and forecast third-quarter results below analysts’ estimates. 

(Photo/American Eagle)

Check out how bad retail sales can actually mean good earnings.
 
It all comes down to inventory management. Retailers have aggressively cut inventory levels in order to cope with the slumping economy.
 
The bad news resulting from that strategy came last week when many retailers posted disappointing sales, in part because they had less goods on hand to sell.
 
“Our inventory levels in … clearance and transitional categories were significantly lower than last year, affecting sales results, but leading to improved gross margins,” Kohl’s Chief Executive Larry Montgomery said in a statement.
 
But the good news could come over the next several weeks, when retailers report second-quarter earnings. Those slashed inventories should have helped them preserve margins, which help profits.
 
So it’s not like the U.S. consumer is buying that much. But at least retailers didn’t get left with shelves of unwanted inventory.
 
Also in the basket:
 
Giant retailers look to sun for energy savings (N.Y. Times)
 
InBev seen posting modest profit growth in Q2

(Photo: Reuters)

Check out what we learned this week.
 
After a busy week of earnings, it is time to step back and see what we learned about the state of the U.S. consumer and the companies that serve them.
 
They are still buying food and for the most part swallowing the price increases food companies are pushing through in order to mitigate rising commodity costs.
 
Kraft Foods soundly beat analysts estimates, while Kellogg Co was a penny ahead of Wall Street’s expectations and raised is forecast for the year.
 
Consumers are balking at expensive coffee drinks. Starbucks posted its first quarterly loss as a public company and said the chain would shrink in the coming year. It also had yet another management shake-up.
 
Consumers are not buying clothes for the fall yet in earnest, but some are buying shoes and handbags. Jones Apparel said revenue fell in the quarter on flat apparel sales at stores open at least a year. Comparable store sales rose 5.8 percent at its shoe stores.
 
The economy looks better from Paris than New York, as Louis Vuitton handbag maker LVMH reported stronger-than-expected profit and said things should not get worse on the economic front. At the same time, U.S. rival Coach met expectations and gave a very cautious outlook, saying the “consumer malaise” would last well in to 2009.
 
Companies expect commodity costs to continue to rise in the coming year. Clorox, on Friday lowered its forecast for the current fiscal year because of rising costs.
 
People in the rest of the world are buying cosmetics, which helped Avon overcome slow U.S. sales.
 
And lastly, if you sell cigarettes outside the United States, especially in emerging markets, your business might be doing better than if you sell them in the United States.
 
Also in the basket:
 
July jobless rate highest in four years
 
Crisis in Credit: One year on, what’s next?
 
An offer for Jil Sander (WWD, subscription required)

(additional reporting by Martinne Geller)

 (Photo: Reuters)

Is it Last Call for Wall Street at Anheuser-Busch?

On Anheuser-Busch’s conference call Wednesday to discuss second-quarter earnings, the tone was more like a wake than the tailgate parties of old.

Well, previous calls never really had galloping Clydesdales, singing frogs or a hard-partying Bull Terrier. But quarter after quarter, investors and analysts from both the ”buy” and ”sell” sides would still dial in after the close of New York trading for the latest color on beer sales.

Wednesday’s get-together — likely the second-to-last one before the brewer gets swallowed by Belgian brewer InBev – was different. 

First, the earnings were released at 11:12 a.m. ET, (instead of the usual 2:30 p.m.), just as Wall Street’s beverage analysts were listening to PepsiCo CEO Indra Nooyi , on her conference call, discuss ways the company is changing its business to cope with the current economic uncertainty.

The Bud call started at noon, immediately following the Pepsi call.

While Chief Financial Officer W. Randy Baker said the teleconference was “earlier to accommodate the increased interest of European investors and analysts,” one U.S.-based analyst, who agreed to speak on the condition of anonymity, guessed that the near overlap with Pepsi’s presentation was no coincidence.

“Structurally, they set it up so that they wouldn’t really have to talk. I understand why they did that,” said the analyst, adding that the context and timing of the call kept off a lot of analysts, who were likely tied up with Pepsi.

Gone was the typically long Q&A session with analysts including Morgan Stanley’s Bill Pecoriello, Stifel Nicolaus’s Mark Swartzberg, UBS’s Kaumil Gajrawala, Deutsche Bank’s Marc Greenberg, JP Morgan’s John Faucher and Goldman Sachs’ Judy Hong. Bryan Spillane from Banc of America and Anthony Bucalo from Credit Suisse lobbed the only questions from the usual suspects.

In their places were London-based analysts who cover InBev, such as Chris Pitcher of Redburn Partners and Philip Morrisey of Citigroup.  

“It was partially timing and partially like, ‘Hey guys, if you’re not going to make our lives easy, we’re going to go out and try to talk to our clients about a stock that matters now,” the analyst said. 

Edward Jones analyst Jack Russo, who said he was on the conference call but did not ask a question, told Reuters that timing wasn’t the only issue.

“I think a lot of people are pretty much assuming this deal is done, that the company is going to no longer be an independent company by the end of the year, so I think interest kind of trails off as a result of that.”

He noted that some people might have tuned in for an update on the status of the deal, but that they’ll probably have to listen to an InBev call for that.

InBev, or the soon-to-be-called Anheuser-Busch InBev, will release earnings on August 14. Let’s hope InBev CEO Carlos Brito changes its call time to make it more convenient for the U.S. investors.

(Photo: Reuters)     

Check out Macy’s profit, or loss, depending on how you count.
 
The department store operator posted a $59 million loss in the first quarter, hurt by a drop in sales and the costs of restructuring.
 
So of course its stocks jumped.
 
Restructuring charges are seen by the investment community as “one-time items” and are generally disregarded when looking at how well a company did in any given quarter. 
 
So without ”one-time items” Macy’s posted a profit of 2 cents a share from continuing operations. That was better than the 2-cents-a-share loss that analysts expected.
 
Macy’s also affirmed its forecast for a profit of $1.85 to $2.15 a share for the year, possibly a sign that things at least are not getting worse for the company, which, like most department store operators, has been hurt by the slumping U.S. economy.
 
Of course, that forecast excludes “one-time” items.
 
Also in the basket:
 
Barney’s Socol quits, no clear successor (WWD)
 
Benetton Q1 profit, sales up, outlook confirmed

(Photo: Reuters)

Check out things looking a little better in retail?
 
Ann Taylor raised its forecast for first-quarter earnings, citing improved results at its LOFT chain and stronger expense control.
 
This comes a few days after many retailers posted better-than-expected sales in April and could mark the start of a trend.
 
Goldman Sachs said the better April could lead to modest first-quarter earnings beats.
 
“This will be particularly evident across the department store sub sector as most management teams reduced their earnings outlook post March results, which fell short of plan. Kohl’s has already kick started this trend stating EPS would ‘exceed’ previous 40 cents to 42 cents guidance. We suspect J.C. Penney will follow suit, beating management’s 50-cent forecast … given high end of plan sales,” Goldman said in a research note.
 
Retail earnings get going in earnest this week with reports from Wal-Mart, Macy’s, J.C. Penney and others.
 
Also in the basket:
 
April retail sales barely budged: SpendingPulse
  
Luxury brands Prada, Ferragamo risk competing IPOs

(Photo: Reuters)