AMERICAN EAGLE OUTFITTERS INC NYSE AEO 10 11 2011 Aaron

AMERICAN EAGLE OUTFITTERS, INC. NYSE: AEO 10/11/2011 Aaron Czerkies Amrin Razwin Chris Tsoukalas Ya Zuo

AGENDA Investment history Company overview Industry analysis Competitors Du. Pont analysis Ratio analysis DCF model Multiple Valuation Recommendation 2

INVESTMENT HISTORY • Current Price: $12. 05 • Currently holds 1500 shares of AEO with a weighted average price of $5. 23 and an unrealized gain of $10, 237 As of 7 -Oct-2011 Source: Yahoo! Finance 3 • Transaction history Dec 1999 – BOT 200 @ $44 Jan 2000 – BOT 200@ $27 Mar 2000 – BOT 600 @ $15. 63 Feb 2001 – 3: 2 Split Mar 2005– 2: 1 Split Apr 2005 – Sold 600 @ $26. 284 Nov 2005 – Sold 700@ $23. 33 Nov 2006 – Sold 400 @ $47. 15 Dec 2006 – 3: 2 Split Nov 2007 – Sold 450 @ $22 Dec 2008 – BOT 1000 @ $9. 07 Nov 2010 – Sold 500 @ $17. 00 Apr 2011 – Sold 500 @ $16. 04

PORTFOLIO ALLOCATION Cost of position % (excl. cash) Market price of position % (excl. cash) 4 WFR 3% WFR 11% ABT 14% ABT 11% WAG 17% AEO 10% WAG 17% AEO 19% MOS 11% DO 14% MOS 15% JKHY 5% MCD 14% DO 9% MCD 18% JKHY 12% As of 7 -Oct-2011

COMPANY OVERVIEW American Eagle Outfitters is a retailer of casual apparel, lingerie, accessories, and footwear targeted at teens and young adults. The retailer maintains control over its proprietary brand by designing and sourcing all of its own merchandise. The company operates 931 American Eagle, 151 aerie, and 21 77 kids stores in the United States and Canada. American Eagle also ships to 76 countries worldwide through its retail website. 5 Source: 10 K 2011 report

BRANDS American Eagle Targets 15 to 25 -year old men and women 6 aerie New brand launched in 2006 fall Intimates and personal care product for girls 77 kids Introduced in Oct 2008 On trend, high quality clothing and accessories for kids and babies Source: 10 K 2011 report

STORE GROWTH Total AE Brand stores Growth of AE Brand stores% Total aerie stores Growth of aerie stores% Total 77 kids stores Growth of 77 kids stores% Total M+O stores Total Retail Sq. Ft. (Gross) Total Retail Sq. Ft. (Net) Retail Revenues (in millions of USD) Sales/Sq. Ft. , All (Gross) Sales/Sq. Ft. , All (Net) 2/3/2007 869 50 39% 8 -38% 911 5% 903 2/2/2008 1/31/2009 1/30/2010 1/29/2011 7/30/2011 987 1, 098 1, 103 80 122 29 37 60% 53% -76% 28% 4 11 24 51 -50% 175% 118% 113% 987 1, 098 1, 103 1, 089 1103 8% 11% 0% -1% 1. 3% 7 Stores at Beginning Stores Opened Growth of stores opened % Stores Closed Growth of stores closed % Total Stores Growth of stores % 1/31/2004 1/29/2005 1/28/2006 753 805 846 59 50 36 -25% -15% -28% 7 9 13 75% 29% 44% 805 846 869 7% 5% 3% 929 2. 88% 39 1200. 00% 954 2. 69% 116 197. 44% 938 -1. 68% 137 18. 10% 929 -0. 96% 148 8. 03% 9 5 19 28 28 0 3 4, 239, 497 3, 466, 368 1, 435. 4 4, 540, 095 3, 709, 012 1, 889. 6 4, 772, 487 3, 896, 441 2, 322. 0 5, 173, 065 4, 220, 929 2, 794. 4 5, 709, 932 4, 595, 649 3, 055. 4 6, 139, 663 4, 920, 285 2, 948. 7 6, 215, 355 4, 981, 595 2, 940. 3 6, 339, 469 5, 067, 489 2, 967. 6 $338. 59 $414. 1 $416. 21 $509. 47 $486. 53 $595. 92 $540. 18 $662. 04 $535. 11 $664. 85 $480. 27 $599. 29 $473. 07 $590. 23 931 0. 21% 151 2. 03% 21 133. 33% $468. 11 $585. 61 Source: 10 K 2011 report

KEY RISK FACTORS Changing consumer preferences and fashion trends Economic pressures Raw material, labor, and energy prices increase New store openings and existing store remodels Internal development of new brands International merchandise sourcing strategy Seasonality International expansion through franchising 8 Source: 10 K 2011 report

SWOT ANALYSIS Strength Strong brand Ample free cash flow Weakness Low customer switching cost 930 AE branded stores has saturated the domestic market Opportunities aerie and 77 kids brands International markets Threats Intense rivalry Fast fashion trend Increase of labor and material cost Economic recession 9

MACRO-ECONOMY AND CONSUMER TRENDS GDP percent change based on current dollars 2007 2008 2009 2010 4. 9 1. 9 -2. 5 4. 2 US Bureau of Economic Analysis Consumption expenditure Slowly increasing for clothing and footwear 10 Year

GLOBAL APPAREL INDUSTRY 2011 2012 2013 2014 2015 2016 [1] Growth % 448. 5 464. 2 480. 5 498. 2 517. 7 536. 8 3. 0 3. 5 3. 7 3. 9 3. 7 IBISWorld forecasts that industry revenue will grow by 3. 7% over the five years through 2016. Growth expected to be dependent on population growth, disposable income and the sourcing of products from lowwage countries. [1] http: //clients. ibisworld. com/globalindustry/summary. aspx? indid=470 11 Revenue USD Billion

PORTER’S FIVE FORCES MODEL Competitive rivalry within the industry (High) • Competitive market with extensive price competition • Bargaining Power of Buyers (Moderate) • Consumers have high level of choice • High product differentiation • Bargaining Power of Suppliers (Low) • Globalization has liberalized trade. • Low switching cost for retailers • Threat of New Entrants (Low) • Clothing companies have high existing brand loyalty built up over time • Threat of New Substitutes (Low) • Brand image and loyalty important for consumers 12 •

COMPETITORS GAP Own Old Navy Abercrombie & Fitch Own Hollister Pacific Sunwear Urban Outfitters 13

DUPONT ANALYSIS AEO falls in the middle of its peers in the Dupont analysis 14

MANAGEMENT OVERVIEW The planned opening of 11 new American Eagle stores, 12 new 77 kids stores and 10 new aerie stores in the United States and Canada during Fiscal 2011; The selection of approximately 60 to 65 American Eagle stores in the United States and Canada for remodeling during Fiscal 2011; The planned closure of 15 to 25 American Eagle stores in the United States and Canada during Fiscal 2011; The planned opening of 18 new franchised American Eagle stores during Fiscal 2011; The expected payment of a dividend in future periods; The possibility to engage in future franchise agreements, growth through acquisitions and/or internally developing additional new brands; The possibility that our credit facilities may not be available for future borrowings; The possibility that rising prices of raw materials, labor, energy and other inputs to our manufacturing process, if unmitigated, will have a significant impact to our profitability; and The possibility that we may be required to take additional store impairment charges related to underperforming stores. 15

PERFORMANCE 3, 500. 00 2, 794. 41 2, 948. 68 2, 940. 27 2, 967. 56 2, 321. 96 2, 500. 00 1, 889. 65 2, 000. 00 1, 371. 90 1, 500. 00 1, 382. 92 16 Millions in dollars 3, 000. 00 3, 055. 42 1, 435. 44 1, 000. 00 500. 00 105. 50 88. 11 59. 62 213. 34 294. 15 387. 36 400. 02 179. 06 169. 02 140. 65 0. 0 2002 2003 2004 2005 2006 Revenue 2007 2008 2009 2010 2011 Net Income 60. 00% 15% 50. 00% 12% 10% 40. 00% 5% 30. 00% 1% 0% 20. 00% -5% 10. 00% -10% 0. 00% 2000 2002 2004 Operating Magrin % 2006 2008 2010 2012 Gross Profit Margin % -15% 2007 2008 2009 2010 2011 -1% -4% -10% Comparable store sales Source: 10 K 2011 report

RATIO ANALYSIS 17

DCF MODEL 18

PUBLIC COMPARABLES ANALYSIS Abercrombie & Fitch is trading at much higher premium relative to the other firms Gap is trading lower than its peers Most likely because it’s a more mature company with less growth opportunities Pacific Sunwear has been struggling, and with the weak economy, is expected to be in a worse financial situation than its peers 19 Source: Capital IQ, Company Filings, I/B/E/S

PUBLIC COMPARABLES ANALYSIS AEO has a relative value ranging from $14. 36 to $16. 48 a share Based on fully dilutive shares 20 Source: Capital IQ, Company Filings, I/B/E/S

LIQUIDITY ANALYSIS AEO has fairly strong cash position but takes on no debt, including a revolver which drastically reduces it’s liquidity Days cash is the number of days between when a firm disburses cash to when it collects cash 21 Source: Capital IQ, Company Filings, I/B/E/S

STOCK PRICE ANALYSIS The stock market as a whole, including these firms, have taken quite a dive over the last three months due to a weak economy and rising commodity costs AEO has outperformed its competitors over the last month 22 Source: Capital IQ, Company Filings, I/B/E/S

RECOMMENDATION The DCF ranged from $12. 21 to $15. 64 Public Comparables ranged from $14. 36 to $16. 48 Less emphasis on the $16. 48 because based on the P/B High market volatility and increasing costs make it a skeptical environment to buy HOLD 23