By Khadeeja Safdar and Austen Hufford 

American Eagle Outfitters Inc.'s sales suffered in the third quarter as shoppers were distracted by going-out-of-business sales being offered by one of its closest rivals.

The teen retailer said rival Aéropostale Inc.'s store closings and liquidation sales "clearly had an impact on traffic." Same-store sales at American Eagle locations near the distressed retailer's shops fell 2% to 4% from a year earlier.

Aéropostale has been closing stores since filing for chapter 11 bankruptcy protection in the spring. In September, a consortium that includes mall landlords General Growth Properties Inc. and Simon Property Group struck a rescue deal that would keep open several hundred Aéropostale stores. However, the chain has continued to push liquidation sales, including 70% discounts during Black Friday, the day after Thanksgiving.

On a conference call Wednesday, American Eagle CEO Jay Schottenstein said the discounting should normalize when Aéropostale locations reopen with new inventory. "They'll have to merchandise it just like they did the way before," he said. "What's going to be different? Well, only time will tell."

American Eagle posted 2% overall comparable sales growth in the quarter ended Oct. 29, below the 2.9% that analysts polled by Thomson Reuters were expecting. At its namesake brand, comparable sales inched up 0.4%, while at its lingerie brand, Aerie, sales increased 21%.

Earlier this month, Abercrombie & Fitch Co. posted its third straight quarter of declining same-store sales amid rebranding efforts. The retailer cleared inventory through unplanned promotions after trying to hold the line on discounts in previous quarters.

Analysts at Jefferies said American Eagle's results were pressured by both liquidation sales at Aéropostale and higher promotions at Abercrombie, but the analysts expect the traffic declines caused by Aéropostale liquidations to ease after the holidays.

Executives also cited softness in the men's business, which declined from a year ago. "While I was disappointed with the performance, I'm working hard with the team to make improvements," said Mr. Schottenstein.

Shares dropped 14% to $16.28 in Wednesday afternoon trading as the company released profit guidance that was below expectations.

American Eagle expects a fourth-quarter profit between 37 cents to 39 cents a share, below the 45 cents anticipated by analysts. Comparable stores sales are expected to be between flat and growing in the low single digits.

Mr. Schottenstein, the company's longtime chairman, retook the helm of the retailer in 2014. Recently, the company appointed a new chief financial officer and named its first chief technology officer.

For the third quarter, American Eagle reported profit of $75.8 million, or 41 cents a share, compared with a profit of $74.1 million, or 38 cents a share, a year prior. Revenue rose 2.3% to $940.6 million.

The company said it has flexibility to close underperforming stores as a result of 500 leases coming up for renewal during the next three years. At quarter's end, the company had 1,052 total stores.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

November 30, 2016 12:48 ET (17:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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