Dissed by the cool kids at the mall, American Eagle Outfitters may soon be pursued by packs of private-equity investors.
The depressed teen retailer — which had for years traded as a lower-price alternative to Abercrombie & Fitch — has seen its profits pummeled as Abercrombie has cut prices and new low-price competitors like H&M and Forever 21 have lured away its shoppers.
As a result, the company’s share price has tanked, making it vulnerable to a possible leveraged buyout by a firm looking to overhaul the business, analysts say.
Last week, American Eagle shares got a boost when the retailer’s lavishly compensated chief executive, 70-year-old Jim O’Donnell, announced he will retire after years of disappointing fashions and flopped initiatives. On Friday, the shares rose 32 cents, or 2 percent, to $15.99 — just above the middle of their 52-week range.
“Without a firm direction from the upper management, it could be a prime candidate for leadership under private equity,” said R.J. Hottovy, director of consumer research at Chicago-based Morningstar, told Bloomberg Businessweek, which reported on the retailer in its current issue.
Chairman Jay Schottenstein has begun a search for a new CEO, but the company hasn’t given a timeline for a hire. Sources said Schottenstein is in talks with a number of executive-search firms, but “if he could find somebody himself without having to pay somebody else to do it, he’d love that,” according to one person close to the company.
American Eagle’s same-store sales dropped 11 percent in December, even as holiday shopping in the US rose the most in six years. In the three months ended Jan. 29, sales dropped 4.2 percent to $916.1 million.
On the positive side, American Eagle has no debt and ended the fourth quarter with $734.7 million in cash — about 24 percent of its $3.1 billion market value, the highest among US retailers.
“It’s natural for a company that generates so much cash flow to have speculation around it,” said Ashley Abney of River Road Asset Management, which owned about 930,000 shares as of Dec. 31.
Meanwhile, rivals including Abercrombie and Aeropostale are also possible buyout targets, insiders say.