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Fewer discounts boost American Eagle, Aeropostale holiday-quarter sales

Shoppers leave the American Eagle Outfitters store in Broomfield, Colorado August 20, 2014. REUTERS/Rick Wilking

By Sruthi Ramakrishnan

(Reuters) - U.S. teen apparel retailers American Eagle Outfitters Inc (AEO.N) and Aeropostale Inc (ARO.N) said business in the holiday shopping quarter was better than they had expected as margins improved due to fewer discounts.

Makers of teen apparel, one of the weakest retail sections, were expected to have a tough holiday season as shoppers cut spending on discretionary items and paid fewer visits to malls.

So, most apparel makers cut inventories to avoid discounting heavily during the last few weeks of the holiday period when promotions and offers peak as retailers scramble to get rid of unsold stock.

Teen apparel retailers, scarred by bloated inventories in the 2013 holiday period due to a severe winter, spent less on inventory this time around and chose, instead, to invest in their online business.

This strategy combined with a revival in consumer sentiment also helped apparel retailer Gap Inc (GPS.N) report a 3 percent rise in same-store sales in the holiday season.

Gap said December comparable sales rose 1 percent, higher than the 0.4 percent rise estimated by research firm Consensus Metrix, helped by the Old Navy brand.

American Eagle raised its fourth-quarter profit forecast and Aeropostale said it expected a smaller loss for the same period.

"We think consumers are healing as evidenced by better sales and we expect inventories to be clean following a strong Holiday," Jefferies analysts wrote in a note.

While promotional intensity in apparel category continues to persist, strong inventory control is helping retailers preserve their gross margin, Cowen and Co analyst Oliver Chen told Reuters.

The fall in Aeropostale's same-store sales slowed to 9 percent in the nine weeks ended Jan. 3 from 15 percent a year earlier, while the drop in American Eagle's comparable sales slowed to 2 percent from 7 percent.

Aeropostale's shares rose as much as 26.5 percent in morning trading on the New York Stock Exchange. American Eagle's shares, however, fell as much as 5.2 percent.

Analysts said it was premature to say whether American Eagle's recent uptick in sales and profit trends would continue.

"We believe it is too soon to declare victory and we lack visibility that these positive trends will continue," Stifel Nicolaus & Co analyst Richard Jaffe wrote in a note.

(Addition reporting by Shailaja Sharma in Bengaluru, Editing by Ted Kerr, Kirti Pandey and Savio D'Souza)