AEO - GE Credit Card Deal Extended - Analyst Blog

Leading apparel and accessories retailer, American Eagle Outfitters Inc. AEO extended its deal with GE Capital Retail Bank, the retail financing wing of General Electric Company's GE GE Capital division, to finance its credit card program in the long term. Per the deal, GE Capital Retail Bank will provide private label credit cards to American Eagle customers for the next 7 years.

The company's private label credit cards program, which originated in 1996, extends to shoppers who will purchase either online, through a mobile app or in-store at any of its 856 American Eagle Outfitter and 115 Aerie outlets across the U.S.

The American Eagle Outfitters and Aerie credit cards provide ease of shopping to customers while adding value, enabling cardholders to avail 15% discount on new accounts, $10 Extra Savings coupons and access to four exclusive cardholder events every year. Customers can apply for these credit cards both in-store and through their mobile devices as well as manage their accounts from their mobile phones using the American Eagle Outfitters mobile app.

GE Capital's retail financing division offers consumer financing and industry expertise to many primary retailers and numerous small- and mid-size businesses and healthcare practices in the U.S.  The division also assists retailers and business houses regarding online program management tools; loyalty solutions; and research and insight into consumer buying trends and the purchase journey.

Though the deal extension with GE Capital Retail Bank seems to be a positive, markets did not acknowledge the company's move and the shares of this Zacks Rank #4 (Sell) company continued its downward trend hitting a 52 week low of $11.60 on Apr 7, 2014, before closing at $11.68. The closing price on the day marked a 7.89% downside from the previous day's trade and a 20.7% decline year-to-date.

Further, the shares of this Pittsburgh, PA-based company have lost 17.8% since the announcement of the dismal earnings results on Mar 11, 2014. American Eagle reported disappointing fourth quarter and fiscal 2013 results, wherein its top and bottom lines declined from the prior-year numbers. Results were impacted by lower sales and weak merchandise margins, partially offset by effective cost management. Battered by the dismal results and harsh winter weather, the company came up with a bleak outlook for the first quarter of fiscal 2014.

In a similar move earlier this month, Dillard's Inc. DDS and Wells Fargo & Company WFC formed a pact, wherein the latter has agreed to back the former's credit card program. Per the deal, Wells Fargo will sponsor, issue and service Dillard's branded private label and co-brand credit cards as well as manage the company's cardholder loyalty program.

Spanning a 10-year period, the program is expected to boost Dillard's earnings in the future with initial earnings, excluding startup costs, from the program coming at similar levels as its previous credit card program. The program under the new agreement is expected to commence from the fourth quarter of fiscal 2014 after the expiry of the company's ongoing program deal.