Does an American Eagle Outfitters bid for Abercrombie & Fitch add up?

American Eagle Outfitters and the private equity firm Cerberus Capital Management are working on a joint bid to acquire Abercrombie & Fitch (A&F), according to a Wall Street Journal report. News of the expected bid drove A&F’s share price up 10 percent in trading yesterday. A bid from the parties, which is likely to be rivaled by separate offers from other investment firms and the Express Inc. clothing chain, could be approved or rejected within the month, according to unnamed sources familiar with process who spoke with the paper. What’s not known at this point is how a deal between American Eagle and Cerberus would be structured. American Eagle reported a two-percent gain in same-store sales across its portfolio during the first quarter, down from the six percent jump it recorded during the same period in 2016. The teen clothing retailer greatly benefited from a 25 percent increase in same-store sales from its Aerie lingerie business. Gross profits fell as American Eagle increased promotions and absorbed shipping costs associated with a shift to more online sales. American Eagle CEO Jay Schottenstein told analysts that the company posted “record volumes in e-commerce” during the first quarter. Online sales accounted for 26 percent of the company’s total revenue in the period, up from 19 percent last year. “Effective digital marketing and increases in mobile contributed to the growth, investments and a more seamless and positive online shopping experience across digital channels also drove sales,” said Mr. Schottenstein (via Seeking Alpha). A&F, which has seen sales decline for four years, posted a decrease in same-store sales of 3 percent during the first quarter. The decrease, from Wall Street’s perspective, was mildly encouraging as analysts were expecting a drop of 3.4 percent. It also marks an improvement over the 13 percent decline in comp sales the company reported for the fourth quarter. Same-store sales for the company’s Hollister brand, a bright spot for A&F, increased 3 percent in the first quarter.

• American Eagle Outfitters Reports First Quarter Sales Increased 2%, Six Million Shares Repurchased – American Eagle Outfitters, Inc.
• American Eagle Outfitters' (AEO) CEO Jay Schottenstein on Q1 2017 Results (Earnings Call Transcript) – Seeking Alpha
• Cerberus, American Eagle Work on Joint Bid for Abercrombie & Fitch – The Wall Street Journal
• Abercrombie’s same-store sales beat on demand for Hollister brand – Reuters
• How long before Abercrombie & Fitch’s rebranding takes hold? – RetailWire