Tepid Guidance Drives American Eagle Selloff

American Eagle Outfitters (NYSE:AEO) posted soaring second-quarter profits, but lowered its full-year guidance, sparking a 6% slide in the apparel makers stock.

Pittsburgh-based American Eagle said it earned $19.7 million, or 10 cents a share, compared with a profit of $9.66 million, or 5 cents a share, a year earlier. Analysts had been calling for EPS of 11 cents.

Revenue increased 3.7% to $675.7 million, exceeding the Streets view of $649 million. Gross margins shrank to 34.3% from 36.8% amid higher cotton costs.

We managed our business prudently and made significant strides on our longer-term initiatives which are laying the foundation for future growth, CEO Jim ODonnell said in a statement. A renewed focus on our key item businesses and improved merchandising are delivering positive results, with the back-to-school season off to an encouraging start.

Looking ahead, American Eagle now sees 2011 EPS of 85 cents to 95 cents. The mid-point of that range, 90 cents, would miss analyst expectations for 93 cents. The company also said it sees third-quarter EPS of 22 cents to 27 cents, compared with the Streets view of 26 cents.

Shares of American Eagle retreated ahead of Wednesdays open, dropping 6.63% to $10.85. That slide threatens to pile onto the stocks 20% dive so far in 2011.