Presented by Robert Eberhard, Rob Jannusch and Jeffrey Li

March 13, 2014

Agenda• Company Overview

• Investment History

• Recent Events/Earnings Analysis

• Macroeconomic Analysis & Industry

Stratification

• Industry Analysis & Comparables

• Valuation Metrics

• Recommendation

2

Company OverviewFounded in 1977, American Eagle is a retailer that

designs, markets and sells apparel to its target audience of 15-25 year-old males and females primarily via its

retail stores in the United States and Canada and online via ae.com. As of February 1, 2014, the Company

operated 1,066 stores in the United States, Canada and Puerto Rico under the American Eagle Outfitters and aerie brands as well as 66 international stores. AEO Direct, its e-commerce operation subsidiary, ships to

more than 80 countries worldwide.

3

Key Facts• Founded in 1977 by brothers, Mark and Jerry

Silverman

• Currently headquartered in Pittsburgh,

Pennsylvania

• Publicly traded since 1994 (NASDAQ: AEOS)

• Listed on NYSE as of March 8, 2007 (AEO)

• Approximately 44,000 employees as of February

2, 2013

• Operates 3 main divisions:

4

Investment History

TRANSACTION HISTORY Dec 1999 – Buy 200 @ $44Jan 2000 – Buy 200@ $27Mar 2000 – Buy 600 @ $15.63Feb 2001 – 3:2 SplitMar 2005– 2:1 SplitApr 2005 – Sell 600 @ $26.284Nov 2005 – Sell 700@ $23.33Nov 2006 – Sell 400 @ $47.15Dec 2006 – 3:2 SplitNov 2007 – Sell 450 @ $22Dec 2008 – Buy 1000 @ $9.07Nov 2010 – Sell 500 @ $17.00Apr 2011 – Sell 500 @ $16.04

CURRENT PRICE: $13.10 (AS OF MARKET CLOSE 3/11/14)

CURRENT POSITION: LONG 1500 SHARES OF AEO WITH A WEIGHTED AVERAGE PRICE OF $5.2252

5Source: Yahoo! Finance and RCMP portfolio history

Recent Setbacks• March 2010: Closed all 28 Martin + Osa

stores for a loss of $44 million

• August 2012: Shuttered all its 77Kids stores at a cost of $24 million and sold off to Ezrani Corp.

• January 22, 2014: CEO Robert Hanson unexpectedly steps down; Jay Schottenstein named interim CEO

• March 11, 2014: Earnings disappoint; stock drops 9.64%

6

Earnings Report Analysis• Company acknowledges that they failed to drive traffic to

their stores

• Markdowns and promotions affected both the top line

and margins

• Aerie brand delivering online and globally

• Expanding pilot program of “ship from store” by fall

• New distribution center opens this summer

• CapEx over FY2013 and FY2014 expected to be ~$508M

• Nearly 900 full and partial day weather-related store

closures in February

• CEO search continues, but focus remains “on doing what’s

right for the customer, what’s right for the company.”7

Source: Seeking Alpha transcript of earnings call

SWOT Analysis

8

Strengths Weaknesses

• No debt

• Increased global expansion in 2014

• Continued Factory Store expansion for “omni-channel capability”

• “We have got great pants”

• “Inconsistent merchandise assortments” from earnings report means poor speed-to-market

• Weak competitive position as # of value retailers and premium luxury brands increases

• Cater to young, fickle customers in an industry with multiple competitors/price points

Opportunities Threats

• Continued growth in AEO Direct and “ship from store” capabilities

• Can use financial leverage to expand their business internationally if they choose

• Slower increases in discretionary spending income among core customer demographics

• Highly competitive retail segment vying for middle-class discretionary income

• Competitors like A&F, Urban Outfitters show sales growth without blaming weather

Macroeconomic Analysis

9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

U.S. Disposable Personal Income vs. Retail Sales

Disposable Income Retail SalesSource: FRED – St. Louis Federal Reserve Bank

Industry Stratification

Low $ Medium $

High $

Comparables Performance

11Source: Yahoo! Finance

Revenue Projections

12

Revenue Forecasting2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total Revenue 2,945.29 3,120.07 3,475.80 3,305.80 2,935.28 3,028.08 3,124.75 3,224.51 3,321.97 3,422.38 COGS 1,763.14 1,975.47 2,085.48 2,191.80 1,614.41 1,665.45 1,718.61 1,773.48 1,827.08 1,882.31 Gross Profit 1,182.15 1,144.60 1,390.32 1,114.00 1,320.88 1,362.64 1,406.14 1,451.03 1,494.89 1,540.07

Sales / Square Foot 526.00 547.00 602.00 547.00 555.50 564.59 574.01 583.58 592.33 601.22 Total Selling Square Feet 5.03 5.03 4.96 5.21 5.28 5.36 5.44 5.53 5.61 5.69 Retail Sales Growth rate 5.93% 11.40% -4.89% -11.21% 3.16% 3.19% 3.19% 3.02% 3.02%

growth rate for sales/square foot 3.99% 10.05% -9.14% 1.64% 1.64% 1.67% 1.67% 1.50% 1.50%growth rate for total selling square feet 0.05% -1.32% 4.67% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%Gross Margin 40.14% 36.68% 40.00% 33.70% 45.00% 45.00% 45.00% 45.00% 45.00% 45.00%

Total stores 1077 1069 1044 1066 1076 1086 1096 1106 1116 1126Sales per store (million) 2.73 2.92 3.33 3.10 2.73 2.79 2.85 2.92 2.98 3.04gross square foot (millions) 6.29 6.29 6.02 6.50 6.58 6.67 6.75 6.84 6.92 7.01Net sales per average gross foot 422.00 438.00 489.00 444.00

Valuation - WACC

13

Source: Yahoo! Finance

Component Weight Explanation

Realized return 6.19% 0.35 5-year realized return

CAPM 10.04% 0.65 Formula

Company Beta 1.04 5-year regression

Risk free Rate 2.77% 10-year U.S. Treasury

Market Risk Premium 7% Assumption

Cost of Equity 8.69% Formula

Cost of Debt N/A No debt

WACC 8.69%

Discount Rate 10.69% 2% Premium

WACC Calculation

Valuation - DCF

14

Cumulative Present Value of FCF $936.93 Implied Equity Value $3,005.08

Terminal Value Number of Shares Outstanding (milllions) 192.7902019 FCF 284.13 Growth Rate 3.00% Implied Share Price $15.59 Terminal Value 3,804.41 Discount Factor 10.69% Present Value of Terminal Value $2,068.15

Enterprise Value $3,005.08

$0.00 8.69% 9.69% 10.69% 11.69% 12.69%2.00% 18.83$ 16.25$ 14.26$ 12.69$ 11.41$ 2.50% 20.00$ 17.08$ 14.88$ 13.16$ 11.78$ 3.00% 21.38$ 18.05$ 15.59$ 13.69$ 12.19$ 3.50% 23.02$ 19.17$ 16.39$ 14.29$ 12.65$ 4.00% 25.01$ 20.48$ 17.31$ 14.96$ 13.16$

Grow

th ra

te

Discount RateDiscounted Cash Flow Sensitivity Analysis

Valuation - Comparables

15Source: Yahoo! Finance

Recent Stock Performance

16Source: Yahoo! Finance

Recommendation

• Based on our weighted valuation, we feel the stock is worth $15.34 a share. It is currently trading at $12.75, so we have room to hold onto our shares.

• The company is competing well with its main competitors, has no debt, and is investing for the future by expending capital over the next two years. 17

Weight Stock PriceDCF 40% $15.59Comparables Analysis 60% $15.18

Weighted Value $15.34

Valuation Summary

Recommendation

HOLD18