Why American Eagle Outfitters' Shares Soared

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 fashion retailer American Eagle Outfitters (NYS: AEO) were pulling a Steve Miller today and flying like an eagle. Shares were up as much as 18% before closing with a near-17% gain.

So what: It's not quite time for American Eagle to report its full first-quarter numbers, but it couldn't help sharing the good news with investors: The quarterly results are going to be better than expected. Full details will come out May 23, but for now, management let investors know that earnings per share are now expected to be between $0.18 and $0.20. That's better than the company's previous guidance of $0.08 to $0.10 and ahead of the $0.10 that Wall Street analysts had been anticipating. Revenue of $719 million is up 18% from the prior year and also beat analysts' numbers.

Now what: American Eagle, along with fellow teen retailers like Abercrombie & Fitch (NYS: ANF) , have had a tough time clawing their way back from the recession. Tighter consumer wallets and intense competition in the industry have squeezed margins and have made it a relatively disappointing experience to be a shareholder.

However, for American Eagle, nice free cash flow and a very strong, debt-free balance sheet have been a helpful backstop. With a glimmer of hope in these first-quarter results, perhaps the company is getting on a stead path back in the right direction.

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