* Q2 EPS from cont ops 13 cents vs Street view 13 cents
* Q2 same-store sales down 1 percent
* Sees Q3 same-store sales flat to lower
* Shares up 6 percent (Recasts, adds CEO comment, analyst comment, byline, updates shares)
By Phil Wahba
NEW YORK, Aug 25 (Reuters) - American Eagle Outfitters Inc AEO.N reported lower quarterly earnings as excess merchandise fueled discounting, but shares of the teen retailer rose on news it would trim inventories and close stores.
The company, which has had to offer more promotions to clear unsold goods, also warned of weak sales during the back-to-school quarter.
But analysts noted profit margins could perk up if the retailer better controlled inventory.
“Cleaner inventory, better-controlled expenses could deliver ... better margins going forward,” said Wedbush Securities analyst Betty Chen.
American Eagle, based in Pittsburgh, said it plans to lower inventory on a square-foot basis by a mid-single digit percentage during the current quarter. It also plans to close about 50 to 100 stores in the next two to five years.
The company, known for its casual, preppy clothing, said net income was $9.7 million, or 5 cents per share, in the fiscal second quarter ended July 31, down from $28.6 million, or 14 cents per share, a year earlier.
Excluding costs related to the closure of its underperforming Martin+Osa chain, the company earned 13 cents per share, in line with analysts’ average forecast, according to Thomson Reuters I/B/E/S.
American Eagle expects same-store sales during the current quarter, which includes the key back-to-school season, to be flat to down by a low-single-digit percentage. The company said August same-store sales were up about 1 percent so far compared with last year.
American Eagle forecast a third-quarter profit from continuing operations of 23 cents to 26 cents per share.
The company’s shares were up 76 cents, or 6 percent, at $13.25 in midday trading.
Teen retailers, including American Eagle competitors such as Abercrombie & Fitch Co ANF.N, have been offering more promotions this summer to clear out a glut of inventory because shoppers are still reluctant to spend.
Analysts warn teen shoppers are waiting later to buy merchandise and worry the key back-to-school season will be weak.
“The company is being affected by price cuts from its competitors ... and that gains from top-line growth are limited,” noted Brean Murray Carret analyst Eric Beder in a note.
American Eagle Chief Executive Jim O‘Connell said “unpredictable consumer behavior” was hurting results, but acknowledged the retailer’s sales fell short, despite a strong performance from its jeans, because it ran out of some merchandise, including accessories.
“We need to demonstrate consistency in the tops and build solid, reliable business in categories such as accessories,” O‘Donnell told analysts on a call.
Net sales fell 0.7 percent to $651.5 million, below estimates of $654.6 million. Sales at stores open at least a year, or same-store sales, were down 1 percent.
Online sales at the three chains it operates were up 9 percent.
Gross margins fell 2.5 percentage points to 36.8 percent compared with the year-earlier period.
The company operates about 930 stores in North America. It also operates the five aerie and 77 kids chains. (Reporting by Phil Wahba; additional reporting by Emily Stephenson and Alexandria Sage; editing by John Wallace, Dave Zimmerman and Andre Grenon)