American Eagle Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen retailer American Eagle Outfitters (NYS: AEO) were being sent away from the cool-kids table today. Investors pushed the stock down as much as 14% after a disappointing earnings report.

So what: If you've had your eyes on the teen retail space in general, it's a lot of the same old story here. Results were ugly and management is cautious about the upcoming quarters. Total sales for the second quarter were up 4% from last year, but higher product costs and selling and administrative spending helped push earnings per share down 23% to $0.10. Wall Street analysts were looking for $0.11 in per-share profit on $651 million in sales.

As for guidance, management projected an earnings-per-share range of $0.22 to $0.27 for the third quarter and $0.85 to $0.95 for the full year. Average analyst estimates of $0.27 and $0.94, respectively, fall in those ranges, but at the upper ends.

Now what: What is there to say, really? American Eagle is getting it from all sides -- the sluggish economy is dousing cold water on consumers' shopping passion while rising commodity prices are pushing up costs. Meanwhile, the company still has to stay competitive in a crowded space that includes Aeropostale (NYS: ARO) and Abercrombie & Fitch (NYS: ANF) . This is going to be an uphill battle.

If we're looking for a bright spot, American Eagle still has a fantastic balance sheet with more than $500 million in cash and investments and no debt. Also, as the stock's price continues to fall, its dividend yield continues to rise. Right now the stock sports a near-4% yield.

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At the time this article was published The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorMatt Koppenhefferdoes not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter@KoppTheFoolorFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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