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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


☑		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended January 30, 2010
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-33338

American Eagle Outfitters, Inc.

(Exact name of registrant as specified in its charter)


Delaware		No. 13-2721761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
77 Hot Metal Street, Pittsburgh, PA (Address of principal executive offices)		15203-2329 (Zip Code)

Registrant's telephone number, including area code:

(412) 432-3300

Securities registered pursuant to Section 12(b) of the Act:


Common Shares, $0.01 par value		New York Stock Exchange
(Title of class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☑ NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act. YES o NO ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files), and (2) has been subject to the filing requirements for the past 90 days. YES ☑ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☑	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO ☑

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of August 1, 2009 was $2,583,043,775.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 209,044,166 Common Shares were outstanding at March 19, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Part III - Proxy Statement for 2010 Annual Meeting of Stockholders, in part, as indicated.

AMERICAN EAGLE OUTFITTERS, INC.

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			Page
			Number

PART I
	Item 1.	Business		2
	Item 1A.	Risk Factors		9
	Item 1B.	Unresolved Staff Comments		12
	Item 2.	Properties		13
	Item 3.	Legal Proceedings		13
	Item 4.	Reserved		13

PART II
	Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
	Item 6.	Selected Consolidated Financial Data		17
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		33
	Item 8.	Financial Statements and Supplementary Data		34
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		70
	Item 9A.	Controls and Procedures		70
	Item 9B.	Other Information		72

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		72
	Item 11.	Executive Compensation		72
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		72
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		72
	Item 14.	Principal Accounting Fees and Services		72

PART IV
	Item 15.	Exhibits, Financial Statement Schedules		72
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I


ITEM 1.	*BUSINESS.*

General

As used in this report, all references to "we," "our," and the "Company" refer to American Eagle Outfitters, Inc. ("AEO, Inc.") and its wholly-owned subsidiaries. "American Eagle Outfitters," "American Eagle," "AE," and the "AE Brand" refer to our U.S. and Canadian American Eagle Outfitters stores. "AEO Direct" refers to our e-commerce operations, ae.com, aerie.com, martinandosa.com and 77kids.com. "NLS" refers to National Logistics Services which we operated in Canada prior to its disposition during the 53 week period ended February 3, 2007.

Our financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, "Fiscal 2010" refers to the 52 week period ending January 29, 2011. "Fiscal 2009", "Fiscal 2008" and "Fiscal 2007" refer to the 52 week periods ended January 30, 2010, January 31, 2009 and February 2, 2008, respectively. "Fiscal 2006" refers to the 53 week period ended February 3, 2007. "Fiscal 2005" refers to the 52 week period ended January 28, 2006.

American Eagle Outfitters, Inc., a Delaware corporation, operates under the American Eagle ® ("AE ® "), aerie ® by American Eagle ® , 77kids ® by american eagle ® and MARTIN+OSA ® ("M+O") brands.

Founded in 1977, American Eagle Outfitters ® is a leading apparel and accessories retailer that operates more than 1,000 retail stores in the U.S. and Canada, and online at ae.com ® . Through its family of brands, AEO, Inc. offers high quality, on-trend clothing, accessories and personal care products at affordable prices. Our online business, AEO Direct, ships to 75 countries worldwide.

American Eagle Outfitters ® boasts a passionate and loyal customer base ranging from college students to Hollywood celebrities. The Company focuses on delivering the right product at the right price, combined with a philosophy of operational excellence and discipline across the organization.

As of January 30, 2010, we operated 938 American Eagle Outfitters stores in the United States and Canada, 137 aerie stand-alone stores and 28 MARTIN+OSA stores.

Subsequent to Fiscal 2009, on March 5, 2010, the Board of Directors (the "Board") of the Company approved management's recommendation to proceed with the closure of M+O. The decision to take this action resulted from an extensive evaluation of M+O and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. As a result of this decision, the Company plans to close all 28 stores and cease all online and corporate operations for M+O in Fiscal 2010. Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of M+O.

Growth Strategy

Our primary growth strategies are focused on the following key areas of opportunity:

AE Brand

The American Eagle Outfitters ® brand targets 15- to 25-year old girls and guys, achieving the perfect combination of American prep and current fashion. Denim is the cornerstone of the American Eagle ® product assortment, which is completed by other key categories including sweaters, graphic t-shirts, fleece, outerwear and accessories. The American Eagle ® attitude is honest, real, individual and fun. American Eagle ® is priced to be worn by everyone, everyday, delivering value through quality and style.

Gaining market share in key categories, such as graphic tees and fleece is a primary focus within the AE brand. In addition, we will build upon our number one position in denim. Delivering value, variety and versatility to our customers remains a top priority. While AE has always been a value brand, we will continue to underscore a value message with customers. We will offer value at all levels of the assortment, punctuated with compelling, pre-planned promotions that are profitable to the business. We are reducing production lead-times, which enables us to

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react more quickly and profit from emerging trends. Finally, we continue to innovate our store experience to be more impactful from front to back.

aerie by American Eagle

In the fall of 2006, the Company launched aerie ® by American Eagle ("aerie"), a collection of Dormwear ® , intimates and personal care products for the 15- to 25-year-old AE ® girl. What started as a sub-brand quickly became a standalone concept in its own right. The collection is available in 137 standalone aerie stores throughout the United States and Canada, online at www.aerie.com, and at select American Eagle ® stores. aerie ® features a complete fitness line called aerie f.i.t. tm , as well as a personal care collection that includes fragrance, body care and cosmetics to complement the aerie lifestyle. Designed to be sexy, comfortable and cozy, aerie ® offers AE ® customers a new way to express their personal style everyday.

77kids by american eagle

Introduced in October of 2008 as an online-only brand, 77kids by american eagle ® ("77kids") offers on-trend, high-quality clothing and accessories for kids ages two to 10. We plan to open five 77kids ® brick-and-mortar stores in Fiscal 2010. The brand draws from the strong heritage of American Eagle Outfitters ® , with a point-of-view that's thoughtful, playful and real. Like American Eagle ® clothing, 77kids focuses on great fit, value and style. All 77kids ® clothing is backed by the brand's 77wash tm and 77soft tm guarantees to maintain size, shape and quality and to be extremely soft and comfortable through dozens of washes.

AEO Direct

We sell merchandise via our e-commerce operations, ae.com, aerie.com, 77kids.com and martinandosa.com, which are extensions of the lifestyle that we convey in our stores. We currently ship to 75 countries. In addition to purchasing items online, customers can experience AEO Direct in-store through Store-to-Door. Store-to-Door enables store associates to sell any item available online to an in-store customer in a single transaction, without placing a phone call. Customers are taking advantage of Store-to-Door by purchasing extended sizes that are not available in-store, as well as finding a certain size or color that happens to be out-of-stock at the time of their visit. The ordered items are shipped to the customer's home free of charge. We accept PayPal as a means of payment from our ae.com, aerie.com and 77kids.com customers. We are continuing to focus on the growth of AEO Direct through various initiatives, including improved site efficiency and faster check-out, expansion of sizes and styles, and targeted marketing strategies.

Information concerning our segments and certain geographic information is contained in Note 2 of the Consolidated Financial Statements included in this Form 10-K and is incorporated herein by reference.

Real Estate

During Fiscal 2009 and continuing into Fiscal 2010, we are taking a more cautious stance on real estate growth in light of a slow-down in the economy. However, we remain focused on several well-defined strategies that we have in place to grow our business and strengthen our financial performance.

We are continuing the expansion of our brands throughout the United States. At the end of Fiscal 2009, we operated in all 50 states, Puerto Rico and Canada. During Fiscal 2009, we opened 29 new stores, consisting of eight U.S. AE stores and 21 aerie stores, including two Canadian aerie stores. These store openings, offset by 24 store closings, increased our total store base to 1,103 stores.

Additionally, our gross square footage increased by approximately 1% during Fiscal 2009, with approximately 58% attributable to the incremental square footage from 22 AE U.S. and Canadian store remodels and the remaining 42% attributable to new store openings.

In Fiscal 2010, we plan to open 14 AE and 20 aerie stores and remodel approximately 20 existing AE stores. We plan to close all 28 M+O stores and 15 to 25 AE stores. We also plan to open five 77kids stores with an average size of 5,000 gross square feet. Our consolidated square footage growth is expected to be relatively flat compared to Fiscal

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2009. We believe that there are attractive retail locations where we can continue to open American Eagle stores and our other brands in enclosed regional malls, urban areas and lifestyle centers.

The tables below show certain information relating to our historical store growth in the U.S. and Canada:


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	2009			2008			2007			2006			2005

Consolidated stores at beginning of period		1,098			987			911			869			846
Consolidated stores opened during the period		29			122			80			50			36
Consolidated stores closed during the period		(24	)		(11	)		(4	)		(8	)		(13	)

Total consolidated stores at end of period		1,103			1,098			987			911			869


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	2009			2008			2007			2006			2005

AE Brand stores at beginning of period		954			929			903			869			846
AE Brand stores opened during the period		8			35			30			42			36
AE Brand stores closed during the period		(24	)		(10	)		(4	)		(8	)		(13	)

Total AE Brand stores at end of period		938			954			929			903			869


	Fiscal		Fiscal		Fiscal		Fiscal		Fiscal
	2009		2008		2007		2006		2005

aerie stores at beginning of period		116		39		3		-		-
aerie stores opened during the period		21		77		36		3		-
aerie stores closed during the period		-		-		-		-		-

Total aerie stores at end of period		137		116		39		3		-


	Fiscal		Fiscal			Fiscal		Fiscal		Fiscal
	2009		2008			2007		2006		2005

M+O stores at beginning of period		28		19			5		-		-
M+O stores opened during the period		-		10			14		5		-
M+O stores closed during the period		-		(1	)		-		-		-

Total M+O stores at end of period		28		28			19		5		-

Remodeling of our AE stores into our current store format is important to enhance our customer's shopping experience. In order to maintain a balanced presentation and to accommodate additional product categories, we selectively enlarge our stores during the remodeling process to an average 7,000 gross square feet, either within their existing location or by upgrading the store location within the mall. We believe the larger format can better accommodate our expansion of merchandise categories. We select stores for expansion or relocation based on market demographics and store volume forecasts.

During Fiscal 2009, we remodeled 22 AE U.S. and Canadian stores. Of the 22 remodeled stores, 10 stores were remodeled and expanded within their existing locations, nine stores were relocated to a larger space within the mall and three stores were remodeled within their existing locations. Additionally, three stores were refurbished as discussed below.

We maintain a cost effective store refurbishment program targeted towards our lower volume stores, typically located in smaller markets. Stores selected as part of this program maintain their current location and size but are updated to include certain aspects of our current store format, including paint and certain new fixtures.

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Consolidated Store Locations

Our stores average approximately 5,800 gross square feet and approximately 4,700 on a selling square foot basis. As of January 30, 2010, we operated 1,103 stores in the United States and Canada under the American Eagle Outfitters, aerie and MARTIN+OSA brands as shown below:

United States, including the Commonwealth of Puerto Rico - 1,015 stores


Alabama	18	Indiana	22	Nebraska	8	Rhode Island	4
Alaska	5	Iowa	13	Nevada	6	South Carolina	16
Arizona	16	Kansas	10	New Hampshire	8	South Dakota	3
Arkansas	9	Kentucky	13	New Jersey	28	Tennessee	24
California	89	Louisiana	14	New Mexico	3	Texas	72
Colorado	14	Maine	4	New York	62	Utah	12
Connecticut	18	Maryland	21	North Carolina	31	Vermont	3
Delaware	5	Massachusetts	33	North Dakota	4	Virginia	29
Florida	50	Michigan	35	Ohio	40	Washington	20
Georgia	34	Minnesota	22	Oklahoma	12	West Virginia	9
Hawaii	4	Mississippi	8	Oregon	11	Wisconsin	18
Idaho	4	Missouri	19	Pennsylvania	66	Wyoming	2
Illinois	37	Montana	2	Puerto Rico	5

Canada - 88 stores


Alberta	11	New Brunswick	4	Ontario	44
British Columbia	12	Newfoundland	2	Quebec	9
Manitoba	2	Nova Scotia	2	Saskatchewan	2

Purchasing

We purchase merchandise from suppliers who either manufacture their own merchandise, supply merchandise manufactured by others or both. During Fiscal 2009, we purchased a majority of our merchandise from non-North American suppliers.

All of our merchandise suppliers receive a vendor compliance manual that describes our quality standards and shipping instructions. We maintain a quality control department at our distribution centers to inspect incoming merchandise shipments for uniformity of sizes and colors and for overall quality of manufacturing. Periodic inspections are also made by our employees and agents at manufacturing facilities to identify quality problems prior to shipment of merchandise.

Corporate Responsibility

The Company is firmly committed to the principle that the people who make our clothes should be treated with dignity and respect. We seek to work with apparel suppliers throughout the world who share our commitment to providing safe and healthy workplaces. At a minimum, we require our suppliers to maintain a workplace environment that complies with local legal requirements and meets universally-accepted human rights standards.

Our Vendor Code of Conduct (the "Code"), which is based on universally-accepted human rights principles, sets forth our expectations for suppliers. The Code must be posted in every factory that manufactures our clothes in the local language of the workers. All suppliers must agree to abide by the terms of our Code before we will place production with them.

We maintain an extensive factory inspection program to monitor compliance with our Code. New garment factories must pass an initial inspection in order to do business with us. Once new factories are approved, we then strive to re-inspect them at least once a year. We review the outcome of these inspections with factory management

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with the goal of helping them to continuously improve their performance. In cases where a factory is unable or unwilling to meet our standards, we will take steps up to and including the severance of our business relationship.

In Fiscal 2007, we opened a compliance office in Hong Kong. Today, the Hong Kong-based team validates the inspection reporting of our third-party vendor compliance auditors and works with new and existing factories on remediation of issues. Also in Fiscal 2007, we instituted a process of pre-inspection for facilities being considered for AE production and expanded our annual re-audit program to strive to include all primary existing facilities.

Security Compliance

During recent years, there has been an increasing focus within the international trade community on concerns related to global terrorist activity. Various security issues and other terrorist threats have brought increased demands from the Bureau of Customs and Border Protection ("CBP") and other agencies within the Department of Homeland Security that importers take responsible action to secure their supply chains. In response, we became a certified member of the Customs - Trade Partnership Against Terrorism program ("C-TPAT") during 2004. C-TPAT is a voluntary program offered by CBP in which an importer agrees to work with CBP to strengthen overall supply chain security. Our internal security procedures were reviewed by CBP during February 2005 and a validation of processes with respect to our external partners was completed in June 2005 and then re-evaluated in June 2008. We received formal written validations of our security procedures from CBP during the first quarter of Fiscal 2006 and the second quarter of Fiscal 2008, each indicating the highest level of benefits afforded to C-TPAT members.

Historically, we took significant steps to expand the scope of our security procedures, including, but not limited to: a significant increase in the number of factory audits performed; a revision of the factory audit format to include a review of all critical security issues as defined by CBP; a review of security procedures of our other international trading partners, including forwarders, consolidators, shippers and brokers; and a requirement that all of our international trading partners be members of C-TPAT. In Fiscal 2007, we further increased the scope of our inspection program to strive to include pre-inspections of all potential production facilities. In Fiscal 2009, we again expanded the program to require all suppliers that have passed pre-inspections and reached a satisfactory level of security compliance through annual factory re-audits to provide us with security self-assessments on at least an annual basis. Additionally, in Fiscal 2009, we began evaluating additional oversight options for high-risk security countries.

Trade Compliance

We act as the importer of record for substantially all of the merchandise we purchase overseas from foreign suppliers. Accordingly, we have an affirmative obligation to comply with the rules and regulations established for importers by the CBP regarding issues such as merchandise classification, valuation and country of origin. We have developed and implemented a comprehensive series of trade compliance procedures to assure that we adhere to all CBP requirements. In its most recent review and audit of our import operations and procedures, CBP found no unacceptable risks of non-compliance.

Merchandise Inventory, Replenishment and Distribution

Merchandise is normally shipped directly from our vendors and routed to our two U.S. distribution centers, one in Warrendale, Pennsylvania and the other in Ottawa, Kansas, or to our Canadian distribution center in Mississauga, Ontario.

Upon receipt, merchandise is processed and prepared for shipment to the stores or forwarded to a warehouse holding area to be used as store replenishment goods. The allocation of merchandise among stores varies based upon a number of factors, including geographic location, customer demographics and store size. Merchandise is shipped to our stores two to five times per week depending upon the season and store requirements.

The expansion of our Kansas distribution center in Fiscal 2007 enabled us to bring fulfillment services for AEO Direct in-house. The second phase of this expansion was completed in Fiscal 2008 to enhance operating efficiency and support our future growth.

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Customer Credit and Returns

We offer a co-branded credit card (the "AE Visa Card") and a private label credit card (the "AE Credit Card") under both the American Eagle and aerie brands. Both of these credit cards are issued by a third-party bank (the "Bank"), and we have no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank's procedures. Once a customer is approved to receive the AE Visa Card and the card is activated, the customer is eligible to participate in our credit card rewards program. Under the rewards program that expired on December 31, 2009, points are earned on purchases made with the AE Visa Card at AE and aerie, and at other retailers where the card is accepted. Points earned under the credit cards reward program resulted in the issuance of an AE gift card when a certain point threshold was reached. The AE gift card does not expire, however points earned that have not been used towards the issuance of an AE gift card expire after 36 months of no purchase activity. On January 1, 2010, we modified the benefits on the AE Visa and AE Credit Card programs to make both credit cards a part of the rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also AE Visa Card customers, who make purchases at other retailers where the card is accepted, earn additional discounts. Savings certificates are valid for 90 days from issuance. AE Credit Card holders will still receive special promotional offers and advance notice of all American Eagle in-store sales events. The AE Visa Card is accepted in all of our stores and AEO Direct sites, while the AE Credit Card is accepted at American Eagle, aerie, ae.com, aerie.com and 77kids.com, only.

Our customers in the U.S. and Canada stores may also pay for their purchases with American Express ® , Discover ® , MasterCard ® , Visa ® , bank debit cards, cash or check. Our AEO Direct customers may pay for their purchases using American Express ® , Discover ® , MasterCard ® and Visa ® . In addition, our ae.com, aerie.com, and 77kids.com customers may pay for their purchases using PayPal ® and Bill Me Later ® .

Customers may also use gift cards to pay for their purchases. AE and aerie gift cards can be purchased in our American Eagle and aerie stores, respectively, and can be used both in-store and online. In addition, AE, aerie and 77kids gift cards are available through ae.com, aerie.com or 77kids.com. MARTIN+OSA gift cards can be used both in-store and online. When the recipient uses the gift card, the value of the purchase is electronically deducted from the card and any remaining value can be used for future purchases. Our gift cards do not expire and we do not charge a service fee on inactive gift cards.

We offer our retail customers a hassle-free return policy. We believe that certain of our competitors offer similar credit card and customer service policies.

Competition

The retail apparel industry, including retail stores and e-commerce, is highly competitive. We compete with various individual and chain specialty stores, as well as the casual apparel and footwear departments of department stores and discount retailers, primarily on the basis of quality, fashion, service, selection and price.

Trademarks and Service Marks

We have registered AMERICAN EAGLE OUTFITTERS ® , AMERICAN EAGLE ® , AE ® and AEO ® with the United States Patent and Trademark Office. We have also registered or have applied to register these trademarks with the registries of many of the foreign countries in which our manufacturers are located and/or where our product is shipped.

We have registered AMERICAN EAGLE OUTFITTERS ® and have applied to register AMERICAN EAGLE tm with the Canadian Intellectual Property Office. In addition, we are exclusively licensed in Canada to use AE tm and AEO ® in connection with the sale of a wide range of clothing products.

In the United States and around the world, we have also registered, or have applied to register, a number of other marks used in our business, including aerie ® , MARTIN+OSA ® and 77kids by american eagle ® .

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These trademarks are renewable indefinitely, as long as they are still in use and their registrations are properly maintained. We believe that the recognition associated with these trademarks makes them extremely valuable and, therefore, we intend to use and renew our trademarks in accordance with our business plans.

Employees

As of January 30, 2010, we had approximately 39,400 employees in the United States and Canada, of whom approximately 33,000 were part-time and seasonal hourly employees. We consider our relationship with our employees to be good.

Seasonality

Historically, our operations have been seasonal, with a large portion of net sales and operating income occurring in the third and fourth fiscal quarter, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. As a result of this seasonality, any factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic conditions.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available, free of charge, under the "About AEO, Inc." section of our website at www.ae.com. These reports are available as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the "SEC").

Our corporate governance materials, including our corporate governance guidelines, the charters of our audit, compensation, and nominating and corporate governance committees, and our code of ethics may also be found under the "About AEO, Inc." section of our website at www.ae.com. Any amendments or waivers to our code of ethics will also be available on our website. A copy of the corporate governance materials is also available upon written request.

Additionally, our investor presentations are available under the "About AEO, Inc." section of our website at www.ae.com. These presentations are available as soon as reasonably practicable after they are presented at investor conferences.

Certifications

As required by the New York Stock Exchange ("NYSE") Corporate Governance Standards Section 303A.12(a), on July 1, 2009 our Chief Executive Officer submitted to the NYSE a certification that he was not aware of any violation by the Company of NYSE corporate governance listing standards. Additionally, we filed with this Form 10-K, the Principal Executive Officer and Principal Financial Officer certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

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ITEM 1A.	*RISK FACTORS*

Our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner

Our future success depends, in part, upon our ability to identify and respond to fashion trends in a timely manner. The specialty retail apparel business fluctuates according to changes in the economy and customer preferences, dictated by fashion and season. These fluctuations especially affect the inventory owned by apparel retailers because merchandise typically must be ordered well in advance of the selling season. While we endeavor to test many merchandise items before ordering large quantities, we are still susceptible to changing fashion trends and fluctuations in customer demands.

In addition, the cyclical nature of the retail business requires that we carry a significant amount of inventory, especially during our peak selling seasons. We enter into agreements for the manufacture and purchase of our private label apparel well in advance of the applicable selling season. As a result, we are vulnerable to changes in consumer demand, pricing shifts and the timing and selection of merchandise purchases. The failure to enter into agreements for the manufacture and purchase of merchandise in a timely manner could, among other things, lead to a shortage of inventory and lower sales. Changes in fashion trends, if unsuccessfully identified, forecasted or responded to by us, could, among other things, lead to lower sales, excess inventories and higher markdowns, which in turn could have a material adverse effect on our results of operations and financial condition.

The effect of economic pressures and other business factors

The global recession that began during the second half of 2008 continues to cause uncertainty and a wide-ranging lack of liquidity in the credit markets. This market uncertainty continues to result in a lack of consumer confidence and widespread reduction of business activity.

The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, consumer debt, interest rates, increases in energy costs and consumer confidence. There can be no assurance that consumer spending will not be further negatively affected by general or local economic conditions, thereby adversely impacting our continued growth and results of operations.

Our ability to grow through new store openings and existing store remodels and expansions

Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. During Fiscal 2010, we plan to open 14 new American Eagle stores in the U.S. and Canada, 20 aerie stand-alone stores and five 77kids stores. Additionally, we plan to remodel or expand 20 existing American Eagle stores during Fiscal 2010. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, the integration of new stores into existing operations and the expansion of our buying and inventory capabilities. There can be no assurance that we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new and remodeled stores profitably.

Our ability to achieve planned store financial performance

The results achieved by our stores may not be indicative of long-term performance or the potential performance of stores in other locations. The failure of stores to achieve acceptable results could result in store asset impairment charges, which could adversely affect our continued growth and results of operations.

Our ability to grow through the internal development of new brands

We launched our new brand concepts, aerie and 77kids, during Fiscal 2006 and Fiscal 2008, respectively. Our ability to succeed in these new brands requires significant expenditures and management attention. Additionally, any new brand is subject to certain risks including customer acceptance, competition, product differentiation, the

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ability to attract and retain qualified personnel, including management and designers, and the ability to obtain suitable sites for new stores at acceptable costs. There can be no assurance that these new brands will grow or become profitable. If we are unable to succeed in developing profitable new brands, this could adversely impact our continued growth and results of operations.

Our planned closure of MARTIN+OSA

On March 5, 2010, our Board approved management's recommendation to proceed with the closure of MARTIN+OSA. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. As a result of this decision, we plan to close all 28 stores and cease all online and corporate operations for the brand in Fiscal 2010. The timing of the store closures is dependent on a number of factors including negotiating third-party agreements, adherence to notification requirements and local laws.

Store closures are expected to be substantially complete by the end of the second quarter of Fiscal 2010. To the extent not previously recognized, the charges associated with the decision are expected to be recognized primarily over the first and second quarters of Fiscal 2010. Our current estimates of the charges are preliminary and are based on a number of significant assumptions that could change materially. Any change in estimates of the charges could adversely impact our consolidated results of operations.

Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.

Our international merchandise sourcing strategy

Substantially all of our merchandise is purchased from foreign suppliers. Although we purchase a significant portion of our merchandise through a single foreign buying agent, we do not maintain any exclusive commitments to purchase from any vendor. Since we rely on a small number of foreign sources for a significant portion of our purchases, any event causing the disruption of imports, including the insolvency of a significant supplier or a significant labor dispute, could have an adverse effect on our operations. Other events that could also cause a disruption of imports include the imposition of additional trade law provisions or import restrictions, such as increased duties, tariffs, anti-dumping provisions, increased CBP enforcement actions, or political or economic disruptions.

We have a Vendor Code of Conduct (the "Code") that provides guidelines for all of our vendors regarding working conditions, employment practices and compliance with local laws. A copy of the Code is posted on our website, www.ae.com, and is also included in our vendor manual in English and multiple other languages. We have a factory compliance program to audit for compliance with the Code. However, there can be no assurance that our factory compliance program will be fully effective in discovering all violations. Publicity regarding violation of our Code or other social responsibility standards by any of our vendor factories could adversely affect our sales and financial performance.

We believe that there is a risk of terrorist activity on a global basis, and such activity might take the form of a physical act that impedes the flow of imported goods or the insertion of a harmful or injurious agent to an imported shipment. We have instituted policies and procedures designed to reduce the chance or impact of such actions including, but not limited to, factory audits and factory self-assessments on security measures; a factory audit protocol and factory self-assessment protocol that includes all critical security issues; the review of security procedures of our other international trading partners, including forwarders, consolidators, shippers and brokers; and the cancellation of agreements with entities who fail to meet our security requirements. In addition, the United States CBP has recognized us as a validated, tier three member of the Customs - Trade Partnership Against Terrorism program, a voluntary program in which an importer agrees to work with US Customs to strengthen overall supply chain security. However, there can be no assurance that terrorist activity can be prevented entirely and we cannot predict the likelihood of any such activities or the extent of their adverse impact on our operations.

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Our reliance on external vendors

Given the volatility and risk in the current markets, our reliance on external vendors leaves us subject to certain risks should one or more of these external vendors become insolvent. Although we monitor the financial stability of our key vendors and plan for contingencies, the financial failure of a key vendor could disrupt our operations and have an adverse effect on our cash flows, results of operations and financial condition.

Seasonality

Our reliance on our ability to implement and sustain information technology systems

We regularly evaluate our information technology systems and are currently implementing modifications and/or upgrades to the information technology systems that support our business. Modifications include replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. We are aware of inherent risks associated with replacing and modifying these systems, including inaccurate system information and system disruptions. We believe we are taking appropriate action to mitigate the risks through testing, training and staging implementation, as well as securing appropriate commercial contracts with third-party vendors supplying such technologies. Information technology system disruptions and inaccurate system information, if not anticipated and appropriately mitigated, could have a material adverse effect on our results of operations.

Our reliance on key personnel

Our success depends to a significant extent upon the continued services of our key personnel, including senior management, as well as our ability to attract and retain qualified key personnel and skilled employees in the future. Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in our management.

Failure to comply with regulatory requirements

As a public company, we are subject to numerous regulatory requirements. Our policies, procedures and internal controls are designed to comply with all applicable laws and regulations, including those imposed by the Sarbanes-Oxley Act of 2002, the SEC and the NYSE. Failure to comply with such laws and regulations could have a material adverse effect on our reputation, financial condition and on the market price of our common stock.

Negative conditions in global credit markets may further impair our investment securities portfolio

Auction rate securities ("ARS") are long-term debt instruments with interest rates reset through periodic short-term auctions. Holders of ARS can either sell into the auctions; bid based on a desired interest rate or hold and accept the reset rate. If there are insufficient buyers, then the auction fails and holders are unable to liquidate their investment through the auction. A failed auction is not a default of the debt instrument, but does set a new interest rate in accordance with the original terms of the debt instrument. The result of a failed auction is that the ARS continues to pay interest in accordance with its terms; however, liquidity for holders is limited until there is a successful auction or until such time as another market for ARS develops. ARS are generally callable at any time by the issuer. Auctions continue to be held as scheduled until the ARS matures or until it is called.

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As a result of the global recession, we have been unable to liquidate our holdings of certain ARS because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities and the auctions failed. For failed auctions, we continue to earn interest on these investments at the contractual rate. In the event we need to access these funds, we will not be able to do so until a future auction is successful, the issuer redeems the securities, a buyer is found outside of the auction process or the securities mature.

If our ARS holdings continue to be unable to clear successfully at future auctions or if issuers do not redeem the securities, we may be required to adjust the carrying value of the securities and record additional impairment charges. If we determine that the fair value of these ARS is temporarily impaired, we would record a temporary impairment within other comprehensive income, a component of stockholders' equity. If it is determined that the fair value of our ARS is other-than-temporarily impaired, we would record a loss in our Consolidated Statements of Operations, which could materially adversely impact our results of operations and financial condition.

Our ability to obtain and/or maintain our credit facilities due to the ramifications of the global credit crisis and corresponding financial institution failures

We believe that we have sufficient cash flows from operating activities to meet our operating requirements. In addition, the banks participating in our various credit facilities are currently rated as investment grade, and substantially all of the amounts under the credit facilities are currently available to us. We draw on our credit facilities to increase our cash position to add financial flexibility. Although we expect to continue to generate positive cash flow despite the current economy, there can be no assurance that we will be able to successfully generate positive cash flow in the future. Continued negative trends in the credit markets and/or continued financial institution failures could lead to lowered credit availability as well as difficulty in obtaining financing. In the event of limitations on our access to credit facilities, our liquidity, continued growth and results of operations could be adversely affected.

Our efforts to expand internationally through franchising

We have entered into a franchise agreement with a franchisee to open and operate a series of stores throughout the Middle East over the next several years. While the franchise arrangement does not involve a capital investment from us and requires minimal operational involvement, the effect of this arrangement on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally. Furthermore, although we provide store operation training, literature and support, to the extent that the franchisee does not operate its stores in a manner consistent with our requirements regarding our brand and customer experience standards, the value of our brand could be negatively impacted. A failure to protect the value of our brand or any other adverse actions by a franchisee could have an adverse effect on our results of operations and our reputation.

Other risk factors

Additionally, other factors could adversely affect our financial performance, including factors such as: our ability to successfully acquire and integrate other businesses; any interruption of our key infrastructure systems; any disaster or casualty resulting in the interruption of service from our distribution centers or in a large number of our stores; any interruption of our business related to an outbreak of a pandemic disease in a country where we source or market our merchandise; changes in weather patterns; the effects of changes in current exchange rates and interest rates; and international and domestic acts of terror.

The impact of any of the previously discussed factors, some of which are beyond our control, may cause our actual results to differ materially from expected results in these statements and other forward-looking statements we may make from time-to-time.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS.*

Not applicable.

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ITEM 2.	*PROPERTIES.*

We own a 186,000 square foot building in an urban Pittsburgh, Pennsylvania location which houses our corporate headquarters. Additionally, during Fiscal 2009, we completed construction of a 152,000 square foot building on adjacent land, which is used for the expansion of our corporate headquarters. We lease three locations near our headquarters, which are used primarily for store and corporate support services, totaling approximately 68,000 square feet. These leases expire with various terms through 2022.

We own a 490,000 square foot building located in a suburban area near Pittsburgh, Pennsylvania, which houses our distribution center and contains approximately 120,000 square feet of office space. We also own a 45,000 square foot building, which houses our data center and additional office space. We lease an additional location of approximately 18,000 square feet, which is used for storage space. This lease expires in 2015.

We rent approximately 131,000 square feet of office space in New York, New York for our designers and sourcing and production teams. The lease for this space expires in May 2016. We also lease an additional 60,000 square feet of office space in New York, New York, with various terms expiring through 2018.

We own a distribution facility in Ottawa, Kansas consisting of approximately 1,220,000 total square feet, including a 544,000 square foot expansion which was completed during Fiscal 2007 and a 280,000 square foot expansion which was completed during Fiscal 2008. This expanded facility is used to support new and existing growth initiatives, including AEO Direct, aerie and 77kids.

We lease a building in Mississauga, Ontario with approximately 294,000 square feet, which houses our Canadian distribution center. The lease expires in 2017.

We also entered into a lease in Fiscal 2007 for a new flagship store in the Times Square area of New York, New York. The 25,000 square foot location has an initial term of 15 years with three options to renew for five years each. This flagship store opened in November 2009.

All of our stores in the United States and Canada are leased. The store leases generally have initial terms of 10 years. Certain leases also include early termination options, which can be exercised under specific conditions. Most of these leases provide for base rent and require the payment of a percentage of sales as additional contingent rent when sales reach specified levels. Under our store leases, we are typically responsible for tenant occupancy costs, including maintenance and common area charges, real estate taxes and certain other expenses. We have generally been successful in negotiating renewals as leases near expiration.


ITEM 3.	*LEGAL PROCEEDINGS.*

We are a party to various legal actions incidental to our business, including certain actions in which we are the plaintiff. At this time, our management does not expect the results of any of the legal actions to be material to our financial position or results of operations.


ITEM 4.	*RESERVED.*

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PART II


ITEM 5.	*MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.*

Our common stock is traded on the NYSE under the symbol "AEO". The following table sets forth the range of high and low closing prices of the common stock as reported on the NYSE during the periods indicated. As of March 19, 2010, there were 668 stockholders of record. However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 55,000.


	Market Price				Cash Dividends per
For the Quarters Ended	High		Low		Common Share

January 30, 2010	$	18.06	$	14.54	$	0.10
October 31, 2009	$	19.62	$	13.37	$	0.10
August 1, 2009	$	15.53	$	12.80	$	0.10
May 2, 2009	$	15.60	$	8.44	$	0.10
January 31, 2009	$	10.91	$	7.11	$	0.10
November 1, 2008	$	16.69	$	9.40	$	0.10
August 2, 2008	$	19.05	$	12.13	$	0.10
May 3, 2008	$	23.45	$	15.79	$	0.10

During Fiscal 2009 and Fiscal 2008, we paid quarterly dividends as shown in the table above. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis.

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Performance Graph

The following Performance Graph and related information shall not be deemed "soliciting material" or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following graph compares the changes in the cumulative total return to holders of our common stock with that of the S&P Midcap 400 and the Dynamic Retail Intellidex. The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on January 29, 2005 and includes reinvestment of all dividends. The plotted points are based on the closing price on the last trading day of the fiscal year indicated.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among American Eagle Outfitters, Inc., The S&P Midcap 400 Index
And A Peer Group

1/29/05

1/28/06

2/3/07

2/2/08

1/31/09

1/30/10

American Eagle Outfitters, Inc.

100.00

106.42

200.06

147.96

58.40

105.80

S&P Midcap 400

100.00

122.31

132.05

129.11

81.37

116.66

Dynamic Retail Intellidex

100.00

102.28

104.44

87.58

55.20

87.91

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Issuer Purchases of Equity Securities

The following table provides information regarding our repurchases of our common stock during the three months ended January 30, 2010.


					Total Number of		Maximum Number of
	Total		Average		Shares Purchased as		Shares that May
	Number of		Price Paid		Part of Publicly		Yet be Purchased
	Shares Purchased		per Share		Announced Programs		Under the Program
Period	(1)		(2)		(1)(3)		(3)

Month #1 (November 1, 2009 through November 28, 2009)		-		-		-		41,250,000
Month #2 (November 29, 2009 through January 2, 2010)		1,031	$	16.98		-		41,250,000
Month #3 (January 3, 2010 through January 30, 2010)		-		-		-		41,250,000

Total		1,031	$	16.98		-		41,250,000


(1)		Shares purchased during Month #2 were all repurchased from employees for the payment of taxes in connection with the vesting of share-based payments.

(2)		Average price paid per share excludes any broker commissions paid.

(3)		Of the 41.3 million shares that may yet be purchased under the program, the authorization relating to 11.3 million shares expired at the end of Fiscal 2009 and the authorization relating to 30.0 million shares expires at the end of Fiscal 2010.

Equity Compensation Plan Table

The following table sets forth additional information as of the end of Fiscal 2009, about shares of our common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements not submitted to the Company's stockholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options and other rights and the number of shares remaining available for future grants excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.

Column (a)

Column (b)

Column (c)

Number of Securities

Remaining Available

Number of Securities

Weighted-Average

for Issuance Under

to be Issued Upon

Exercise Price of

Equity Compensation

Exercise of Outstanding

Outstanding Options,

Plans (Excluding

Options,

Warrants and

Securities Reflected

Warrants and Rights(1)

Rights(1)

in Column (a))(1)

Equity compensation plans approved by stockholders

14,904,942

15.01

28,395,557

Equity compensation plans not approved by stockholders

Total

14,904,942

15.01

28,395,557


(1)		Equity compensation plans approved by stockholders include the 1994 Stock Option Plan, the 1999 Stock Incentive Plan and the 2005 Stock Award and Incentive Plan.

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ITEM 6.	*SELECTED CONSOLIDATED FINANCIAL DATA.*

The following Selected Consolidated Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included under Item 7 below and the Consolidated Financial Statements and Notes thereto, included in Item 8 below. Most of the selected data presented below is derived from our Consolidated Financial Statements, which are filed in response to Item 8 below. The selected Consolidated Statement of Operations data for the years ended February 3, 2007 and January 28, 2006 and the selected Consolidated Balance Sheet data as of February 2, 2008, February 3, 2007 and January 28, 2006 are derived from audited Consolidated Financial Statements not included herein.


	For the Years Ended(1)
	January 30,			January 31,			February 2,			February 3,			January 28,
	2010			2009			2008			2007			2006
	(In thousands, except per share amounts, ratios and other financial information)

*Summary of Operations*
Net sales(2)	$	2,990,520		$	2,988,866		$	3,055,419		$	2,794,409		$	2,321,962
Comparable store sales (decrease) increase(3)		(4	)%		(10	)%		1	%		12	%		16	%
Gross profit	$	1,158,049		$	1,174,101		$	1,423,138		$	1,340,429		$	1,077,749
Gross profit as a percentage of net sales		38.7	%		39.3	%		46.6	%		48.0	%		46.4	%
Operating income(4)	$	238,393		$	302,140		$	598,755		$	586,790		$	458,689
Operating income as a percentage of net sales		8.0	%		10.1	%		19.6	%		21.0	%		19.8	%
Income from continuing operations	$	169,022		$	179,061		$	400,019		$	387,359		$	293,711
Income from continuing operations as a percentage of net sales		5.7	%		6.0	%		13.1	%		13.9	%		12.7	%
*Per Share Results* (5)
Income from continuing operations per common share-basic	$	0.82		$	0.87		$	1.85		$	1.74		$	1.29
Income from continuing operations per common share-diluted	$	0.81		$	0.86		$	1.82		$	1.70		$	1.26
Weighted average common shares outstanding - basic		206,171			205,169			216,119			222,662			227,406
Weighted average common shares outstanding - diluted		209,512			207,582			220,280			228,384			233,031
Cash dividends per common share	$	0.40		$	0.40		$	0.38		$	0.28		$	0.18
*Balance Sheet Information*
Total cash and short-term investments	$	698,635		$	483,853		$	619,939		$	813,813		$	751,518
Long-term investments	$	197,773		$	251,007		$	165,810		$	264,944		$	145,744
Total assets(6)	$	2,138,148		$	1,963,676		$	1,867,680		$	1,979,558		$	1,605,649
Short-term debt	$	30,000		$	75,000		$	-		$	-		$	-
Long-term debt	$	-		$	-		$	-		$	-		$	-
Stockholders' equity	$	1,578,517		$	1,409,031		$	1,340,464		$	1,417,312		$	1,155,552
Working capital(6)	$	758,075		$	523,596		$	644,656		$	724,490		$	725,294
Current ratio(6)		2.85			2.30			2.71			2.56			3.06
Average return on stockholders' equity		11.3	%		13.0	%		29.0	%		30.1	%		27.8	%

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	For the Years Ended(1)
	January 30,		January 31,		February 2,		February 3,		January 28,
	2010		2009		2008		2007		2006
	(In thousands, except per share amounts, ratios and other financial information)

*Other Financial Information*
Total stores at year-end		1,103		1,098		987		911		869
Capital expenditures	$	127,419	$	265,335	$	250,407	$	225,939	$	81,545
Net sales per average selling square foot(7)	$	519	$	521	$	638	$	642	$	577
Total selling square feet at end of period		5,133,923		5,072,612		4,595,649		4,220,929		3,896,441
Net sales per average gross square foot(7)	$	416	$	446	$	517	$	524	$	471
Total gross square feet at end of period		6,403,859		6,328,167		5,709,932		5,173,065		4,772,487
Number of employees at end of period		39,400		37,500		38,700		27,600		23,000


(1)		Except for the fiscal year ended February 3, 2007, which includes 53 weeks, all fiscal years presented include 52 weeks.

(2)		Amount for the fiscal years ended January 30, 2010, January 31, 2009, February 2, 2008 and February 3, 2007 include proceeds from merchandise sell-offs. Refer to Note 2 to the accompanying Consolidated Financial Statements for additional information regarding the components of net sales.

(3)		The comparable store sales increase for the period ended February 2, 2008 is compared to the corresponding 52 week period in Fiscal 2006. The comparable store sales increase for the period ended February 3, 2007 is compared to the corresponding 53 week period in Fiscal 2005.

(4)		All amounts presented exclude gift card service fee income, which was reclassified to other income, net during Fiscal 2006. Refer to Note 2 to the accompanying Consolidated Financial Statements for additional information regarding gift cards.

(5)		Per share results for all periods presented reflect the three-for-two stock split distributed on December 18, 2006.

(6)		Amounts for the year ended January 28, 2006 reflect certain assets of NLS as held-for-sale.

(7)		Net sales per average square foot is calculated using retail store sales for the year divided by the straight average of the beginning and ending square footage for the year.

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ITEM 7.	*MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.*

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with those statements and notes thereto.

This report contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events, including the following:


	•	the planned opening of 14 new American Eagle stores, 20 new aerie stores, and five new 77kids stores in the United States and Canada during Fiscal 2010;

	•	the selection of approximately 20 American Eagle stores in the United States and Canada for remodeling during Fiscal 2010;

	•	the planned closure of 15 to 25 American Eagle stores in the United States and Canada during Fiscal 2010;

	•	the planned opening of two new franchised American Eagle stores in the Middle East during Fiscal 2010;

	•	the planned closure of all 28 MARTIN+OSA stores and cessation of all online and corporate operations for the brand in Fiscal 2010;

	•	the success of aerie by American Eagle and aerie.com;

	•	the success of 77kids by american eagle and 77kids.com;

	•	the expected payment of a dividend in future periods;

	•	the possibility of growth through acquisitions, internally developing additional new brands, and/or engaging in future franchise agreements;

	•	the possibility that we may be required to take additional temporary impairment charges or net impairment losses recognized in earnings relating to our investment securities;

	•	the possibility that the amounts drawn on our demand borrowing agreements will be called for repayment and that the facilities may not be available for future borrowings; and

	•	the possibility that we may be required to take additional store impairment charges related to underperforming stores.

We caution that these forward-looking statements, and those described elsewhere in this report, involve material risks and uncertainties and are subject to change based on factors beyond our control, as discussed within Part I, Item 1A of this Form 10-K. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement.

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates. We base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances. We believe that of our significant accounting policies, the following involve a higher degree of judgment and complexity. Refer to Note 2 to the Consolidated Financial Statements for a complete discussion of our significant accounting policies. Management has reviewed these critical accounting policies and estimates with the Audit Committee of our Board.

Revenue Recognition. We record revenue for store sales upon the purchase of merchandise by customers. Our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise.

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Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve. However, if the actual rate of sales returns increases significantly, our operating results could be adversely affected.

During Fiscal 2007, we discontinued assessing a service fee on inactive gift cards. As a result, we estimate gift card breakage and recognize revenue in proportion to actual gift card redemptions as a component of net sales. We determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed.

Merchandise Inventory. Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

We review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise. Additionally, we estimate a markdown reserve for future planned markdowns related to current inventory. If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary. These markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

We estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve. However, if actual physical inventory losses differ significantly from our estimate, our operating results could be adversely affected.

Asset Impairment. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 360, Property, Plant, and Equipment , we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable. Assets are evaluated for impairment by comparing the projected undiscounted future cash flows of the asset, over its remaining useful life, to the carrying value. If the future undiscounted cash flows are projected to be less than the carrying value of the asset, we adjust the asset value to its estimated fair value and an impairment loss is recorded as a component of operating income under loss on impairment of assets.

Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our operating results could be adversely affected.

Investment Securities. In accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), we measure our investment securities using Level 1, Level 2 and Level 3 inputs. Level 1 and Level 2 inputs are valued using quoted market prices while we use a discounted cash flow ("DCF") model to determine the fair value of our Level 3 investments. The assumptions in our DCF model include different recovery periods depending on the type of security and varying discount factors for yield and illiquidity. These assumptions are subjective and they are based on our current judgment and our view of current market conditions. The use of different assumptions would result in a different valuation and related charge. Future adverse changes in market conditions, continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment's current carrying value, possibly requiring an additional net impairment loss recognized in earnings in the future. Any such charge could materially affect our results of operations.

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We evaluate our investments for impairment in accordance with ASC 320, Investments - Debt and Equity Securities ("ASC 320"). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment's cost and its fair value. As of May 3, 2009, we adopted ASC 320-10-65, Transition Related to FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary-Impairments ("ASC 320-10-65"), which modifies the requirements for recognizing other-than-temporary impairment ("OTTI") and changes the impairment model for debt securities. In addition, ASC 320-10-65 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires us to present total OTTI in the Consolidated Statements of Operations, with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income ("OCI").

Share-Based Payments. We account for share-based payments in accordance with the provisions of ASC 718, Compensation - Stock Compensation ("ASC 718"). To determine the fair value of our stock option awards, we use the Black-Scholes option pricing model, which requires management to apply judgment and make assumptions to determine the fair value of our awards. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the "expected term") and the estimated volatility of the price of our common stock over the expected term.

We calculate a weighted-average expected term based on historical experience. Expected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility. We chose to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone. Changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our Consolidated Financial Statements.

Income Taxes. We calculate income taxes in accordance with ASC 740, Income Taxes ("ASC 740"), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in our level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the effective tax rate.

Effective February 4, 2007, we adopted the accounting pronouncement now codified in ASC 740 regarding accounting for unrecognized tax benefits. This pronouncement prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

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Key Performance Indicators

Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:

Comparable store sales - Comparable store sales provide a measure of sales growth for stores open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, including Fiscal 2007, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable store sales in the thirteenth month of operation. However, stores that have a gross square footage increase of 25% or greater due to a remodel are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the remodel. Sales from American Eagle, aerie and MARTIN+OSA stores are included in comparable store sales. Sales from AEO Direct are not included in comparable store sales.

Our management considers comparable store sales to be an important indicator of our current performance. Comparable store sales results are important to achieve leveraging of our costs, including store payroll, store supplies, rent, etc. Comparable store sales also have a direct impact on our total net sales, cash and working capital.

Gross profit - Gross profit measures whether we are optimizing the price and inventory levels of our merchandise and achieving an optimal level of sales. Gross profit is the difference between net sales and cost of sales. Cost of sales consists of: merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage, certain promotional costs and buying, occupancy and warehousing costs. Buying, occupancy and warehousing costs consist of: compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.

Operating income - Our management views operating income as a key indicator of our success. The key drivers of operating income are comparable store sales, gross profit, our ability to control selling, general and administrative expenses and our level of capital expenditures.

Store productivity - Store productivity, including net sales per average square foot, sales per productive hour, average unit retail price, conversion rate, the number of transactions per store, the number of units sold per store and the number of units per transaction, is evaluated by our management in assessing our operational performance.

Inventory turnover - Our management evaluates inventory turnover as a measure of how productively inventory is bought and sold. Inventory turnover is important as it can signal slow moving inventory. This can be critical in determining the need to take markdowns on merchandise.

Cash flow and liquidity - Our management evaluates cash flow from operations, investing and financing in determining the sufficiency of our cash position. Cash flow from operations has historically been sufficient to cover our uses of cash. Our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements.

Results of Operations

Overview

Fiscal 2009 started with numerous challenges, including a difficult consumer environment, which impacted store traffic and transaction volume. This, combined with weak demand for AE merchandise, resulted in a sales and earnings decline during the first two quarters of Fiscal 2009 compared to Fiscal 2008. We made improvements to our product assortments and business stabilized, particularly during the second half of the year. Although third quarter operating results declined compared to 2008, we began to see an improved customer response to certain core

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categories such as AE jeans and graphic t-shirts. The business continued to strengthen with the holiday merchandise assortment, driving fourth quarter sales and earnings increases compared to 2008.

Fiscal 2009 net sales of approximately $3.0 billion increased slightly compared to Fiscal 2008. Annual comparable store sales decreased 4%. A higher merchandise margin reflected lower markdowns, due to the improvement during the fall and holiday seasons. Buying, occupancy and warehousing expenses increased as a result of rent related to new store growth. Total selling, general and administrative expenses increased 2%. Expense reductions in advertising and travel were offset by the accrual of incentive costs, which were not earned in Fiscal 2008.

Operating income as a percent to net sales was 8.0% for Fiscal 2009 compared to 10.1% for Fiscal 2008.

For Fiscal 2009, net income decreased to $169.0 million. As a percent to net sales, net income was 5.7% during Fiscal 2009 and 6.0% during Fiscal 2008. Net income per diluted share was $0.81 and $0.86 during Fiscal 2009 and Fiscal 2008, respectively.

We ended Fiscal 2009 with $896.4 million in cash, short-term and long-term investments, an increase of $161.5 million from last year. During the year, we continued to make investments in our business, including $127.4 million in capital expenditures. These expenditures related primarily to our new and remodeled stores in the U.S. and Canada, as well as headquarters, distribution center and information technology projects.

The following table shows, for the periods indicated, the percentage relationship to net sales of the listed items included in our Consolidated Statements of Operations.


	For the Fiscal Years Ended
	January 30,			January 31,			February 2,
	2010			2009			2008

Net sales		100.0	%		100.0	%		100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		61.3			60.7			53.4

Gross profit		38.7			39.3			46.6
Selling, general and administrative expenses		25.2			24.6			23.4
Loss on impairment of assets		0.6			0.2			-
Depreciation and amortization expense		4.9			4.4			3.6

Operating income		8.0			10.1			19.6
Other (expense) income, net		(0.2	)		0.6			1.2
Net impairment loss recognized in earnings		-			(0.8	)		-

Income before income taxes		7.8			9.9			20.8
Provision for income taxes		2.1			3.9			7.7

Net income		5.7	%		6.0	%		13.1	%

Our operations are conducted in one reportable segment, which includes our 938 U.S. and Canadian AE retail stores, 137 aerie by American Eagle retail stores, 28 MARTIN+OSA retail stores and AEO Direct, as of January 30, 2010.

Comparison of Fiscal 2009 to Fiscal 2008

Net Sales

Net sales increased slightly to $2.991 billion from $2.989 billion. The increase resulted primarily from an increase in our conversion rate driven primarily by strong holiday sales. For Fiscal 2009, comparable store sales declined in the mid-single digits for both the AE Brand women's and men's business compared to Fiscal 2008.

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Gross Profit

Gross profit decreased 1% to $1.158 billion from $1.174 billion in Fiscal 2008. Gross profit as a percent to net sales decreased by 60 basis points to 38.7% from 39.3% last year. The percentage decrease was attributed to a 140 basis point increase in buying, occupancy and warehousing costs as a percent to net sales, partially offset by an 80 basis point increase in the merchandise margin rate as a percent to net sales. Merchandise margin increased for the period due primarily to decreased markdowns.

Buying, occupancy and warehousing expenses increased 140 basis points as a percent to net sales. This was primarily due to a 120 basis point increase in rent as a percent to net sales, driven by new store openings. Share-based payment expense included in gross profit increased to approximately $12.9 million compared to $5.7 million last year.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales. Other retailers may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 3% to $756.3 million from $734.0 million. As a percent to net sales, selling, general and administrative expenses increased by 60 basis points to 25.2% from 24.6% last year.

The higher rate this year is primarily due to incentive compensation of 90 basis points partially offset by improvement in advertising and travel expenses. Share-based payment expense included in selling, general and administrative expenses increased to approximately $24.0 million compared to $14.6 million last year.

Loss on Impairment of Assets

Loss on impairment of assets in Fiscal 2009 was $18.0 million, or 0.6% as a rate to net sales, compared to $6.7 million, or 0.2% as a rate to net sales in Fiscal 2008. This impairment relates primarily to underperforming M+O stores.

Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.

Depreciation and Amortization Expense

Depreciation and amortization expense increased 11% to $145.4 million from $131.2 million last year. This increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a percent to net sales, depreciation and amortization expense increased to 4.9% from 4.4% due to the increased expense as well as the impact of the comparable store sales decline.

Other (Expense) Income, Net

Other (expense) income, net decreased to $(5.1) million from $17.8 million, due primarily to lower interest income and a realized loss on the sale of preferred securities in Fiscal 2009 as well as a non-cash, non-operating foreign currency loss related to holding U.S. dollars in our Canadian subsidiary in anticipation of repatriation recorded this year.

Net Impairment Loss Recognized in Earnings

Net impairment loss recognized in earnings relating to our investment securities was $0.9 million compared to $22.9 million for Fiscal 2008.

Refer to the Fair Value Measurements caption below for additional information.

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Provision for Income Taxes

The effective income tax rate decreased to approximately 27% in Fiscal 2009 from 40% in Fiscal 2008. The decrease in the effective income tax rate was primarily the result of the tax benefit associated with the repatriation of foreign earnings from Canada as well as federal and state income tax settlements and other changes in income tax reserves. Additionally, the effective income tax rate was higher in Fiscal 2008 primarily as a result of the impairment charge recorded in connection with the valuation of certain ARS and auction rate preferred securities ("ARPS") in which no income tax benefit was recognized. The repatriation of foreign earnings from Canada in Fiscal 2009 was a discrete event and has not changed the Company's intention to indefinitely reinvest the earnings of our Canadian subsidiaries to the extent not repatriated.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.

Net Income

Net income decreased to $169.0 million in Fiscal 2009 from $179.1 million in Fiscal 2008. As a percent to net sales, net income was 5.7% and 6.0% for Fiscal 2009 and Fiscal 2008. Net income per diluted share was $0.81 compared to $0.86 last year. The decrease in net income was attributable to the factors noted above.

Comparison of Fiscal 2008 to Fiscal 2007

Net Sales

Net sales decreased 2% to $2.989 billion from $3.055 billion. The decrease resulted primarily from a 10% decrease in comparable store sales despite an increase in sales from our e-commerce operation and an increase in gross square feet due to new and remodeled stores.

During Fiscal 2008, our AE Brand average transaction value was flat compared to Fiscal 2007. This was driven by a mid-single digit increase in units per transaction offset by a mid-single digit decline in average unit retail price. Comparable store sales were essentially flat in the AE Brand men's business and declined in the high teens in the AE Brand women's business compared to Fiscal 2007.

Gross Profit

Gross profit decreased 17% to $1.174 billion from $1.423 billion in Fiscal 2007. Gross margin as a percent to net sales decreased by 730 basis points to 39.3% from 46.6% last year. The percentage decrease was attributed to a 560 basis point decrease in the merchandise margin rate and a 170 basis point increase in buying, occupancy and warehousing costs as a percent to net sales. Merchandise margin decreased for the period due primarily to increased markdowns as well as an increase in merchandise costs.

Buying, occupancy and warehousing expenses increased 170 basis points as a percent to net sales. This was primarily due to a 160 basis point increase in rent as a percent to net sales, driven by new store openings and the negative comparable store sales, as well as higher utilities. These increases were partially offset by lower distribution and warehousing service costs due to bringing our AEO Direct fulfillment and Canadian distribution services in-house. Share-based payment expense included in gross profit decreased to approximately $5.7 million in Fiscal 2008 compared to $6.2 million in Fiscal 2007.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 3% to $734.0 million from $714.6 million. As a percent to net sales, selling, general and administrative expenses increased by 120 basis points to 24.6% in Fiscal 2008 from 23.4% in Fiscal 2007.

The higher rate in Fiscal 2008 is primarily due to the comparable store sales decline, partially offset by an improvement in incentive compensation of 100 basis points. Share-based payment expense included in selling, general and administrative expenses decreased to approximately $14.6 million in Fiscal 2008 compared to $27.5 million Fiscal 2007.

Loss on Impairment of Assets

Loss on impairment of assets in Fiscal 2008 was $6.7 million, or 0.2% as a rate to net sales, and relates primarily to underperforming M+O stores. This compares to $0.6 million in Fiscal 2007.

Depreciation and Amortization Expense

Depreciation and amortization expense increased 20% to $131.2 million in Fiscal 2008 from $109.2 million in Fiscal 2007. This increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a percent to net sales, depreciation and amortization expense increased to 4.4% from 3.6% due to the increased expense as well as the impact of the comparable store sales decline during Fiscal 2008.

Other Income, Net

Other income, net decreased to $17.8 million from $37.6 million, due primarily to interest income decreasing to $18.9 million from $39.3 million. This resulted from decreased interest rates and lower investment balances compared to Fiscal 2007. Additionally, interest expense relating to our borrowings increased. Partially offsetting this decrease was a net $1.1 million foreign currency transaction gain compared to a $1.2 million loss during Fiscal 2007. This was the result of a stronger U.S. dollar.

Net Impairment Loss Recognized in Earnings

Net impairment loss recognized in earnings relating to our investment securities was $22.9 million for Fiscal 2008. There was no net impairment loss recognized in earnings during Fiscal 2007.

Refer to the Fair Value Measurements caption below for additional information.

Provision for Income Taxes

The effective income tax rate increased to approximately 40% in Fiscal 2008 from 37% in Fiscal 2007. The increase in the effective income tax rate was primarily related to the impairment charges recorded in connection with the valuation of certain ARS and ARPS investments in which no income tax benefit was recognized.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.

Net Income

Net income in Fiscal 2008 decreased 55% to $179.1 million, or 6.0% as a percent to net sales, from $400.0 million, or 13.1% as a percent to net sales in Fiscal 2007. Net income per diluted share decreased to $0.86 in Fiscal 2008 from $1.82 in Fiscal 2007. The decrease in net income was attributable to the factors noted above. The decrease in net income per diluted share was attributable to the factors noted above partially offset by a lower weighted average share count in Fiscal 2008 compared to Fiscal 2007 as a result of share repurchases during Fiscal 2007, as well as a lower average price of our common stock during Fiscal 2008.

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MARTIN+OSA Fiscal 2009 Results of Operations

On March 5, 2010, our Board approved management's recommendation to proceed with the closure M+O. We notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment.

In Fiscal 2009, M+O recorded net sales from store and online operations of approximately $50 million and generated an after-tax loss of approximately $44 million, including a non-cash impairment charge of approximately $11 million, net of tax. The results of operations include store, online, corporate and other expenses directly attributable to M+O operations.

Fiscal 2010 Outlook

Looking ahead, we expect consumers to remain cautious and highly sensitive to pricing. However, our outlook for Fiscal 2010 is more favorable than for Fiscal 2009, based on improvements across merchandising and design. We believe that on-trend merchandise assortments, more frequent flow of new merchandise and strong value offerings should drive sales and earnings growth. We are continuing to control expenses and have planned capital spending below Fiscal 2009. We believe that our current cash holdings and cash generated from operations in Fiscal 2010 will be sufficient to fund anticipated capital expenditures and working capital requirements.

Fair Value Measurements

ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. We have adopted the provisions of ASC 820 as of February 3, 2008, for our items measured at fair value on a recurring basis, which include ARS. We have adopted the provisions of ASC 820-10-65 as of February 1, 2009 for items measured at fair value on a nonrecurring basis, including goodwill and property and equipment. Additionally, we adopted the provisions of ASC 320-10-65 as of May 3, 2009 for our financial instruments measured at fair value.

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes this three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:


	•	Level 1 - Quoted prices in active markets for identical assets or liabilities

	•	Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 - Unobservable inputs (i.e. projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of January 30, 2010, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and short and long-term investments, including ARS.

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In accordance with ASC 820, the following table represents the fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of January 30, 2010:


	Fair Value Measurements at January 30, 2010
				Quoted Market
				Prices in Active						Significant
	Carrying Amount			Markets for			Significant Other			Unobservable
	as of January 30,			Identical Assets			Observable Inputs			Inputs
	2010			(Level 1)			(Level 2)			(Level 3)
	(In thousands)

Cash and Cash Equivalents
Cash	$	144,391		$	144,391		$	-		$	-
Commercial paper		25,420			25,420			-			-
Treasury bills		119,988			119,988			-			-
Money-market		404,161			404,161			-			-

Total cash and cash equivalents	$	693,960		$	693,960		$	-		$	-
Short-term Investments
Student-loan backed ARS	$	400		$	-		$	-		$	400
State and local government ARS		4,275			-			-			4,275

Total Short-term Investments	$	4,675		$	-		$	-		$	4,675
Long-term Investments
Student-loan backed ARS	$	149,031		$	-		$	-		$	149,031
State and local government ARS		35,969			-			-			35,969
Auction rate preferred securities		12,773			-			-			12,773

Total Long-term Investments	$	197,773		$	-		$	-		$	197,773

Total	$	896,408		$	693,960		$	-		$	202,448

Percent to total		100.0	%		77.4	%		0.0	%		22.6	%

We used a discounted cash flow ("DCF") model to value our Level 3 investments. The assumptions in our model included different recovery periods, ranging from 0.5 year to 11 years, depending on the type of security and varying discount factors for yield, ranging from 0.3% to 6.6%, and illiquidity, ranging from 0.3% to 4.0%. These assumptions are subjective. They are based on our current judgment and our view of current market conditions. The use of different assumptions would result in a different valuation and related charge. For example, an increase in the recovery period by one year would reduce the fair value of our investment in ARS by approximately $1.4 million. An increase to the discount rate and illiquidity premium of 100 basis points would reduce the estimated fair value of our investment in auction rate securities by approximately $5.6 million.

As a result of the discounted cash flow analysis for Fiscal 2009, we recorded a net recovery of $25.0 million ($15.5 million, net of tax) which reduced the total cumulative impairment recognized in other comprehensive income ("OCI") as of January 30, 2010 to $10.3 million ($6.4 million, net of tax) from $35.3 million ($21.8 million, net of tax) at the end of Fiscal 2008. The reversal of temporary impairment was primarily driven by calls at par for the Company's private-insured student loan ARS. As a result of the settlements, the securities which were previously impaired were revalued at par. These amounts were recorded in OCI and resulted in an increase in the investments' estimated fair values. The net increase in fair value was partially offset by $0.9 million of net impairment loss recognized in earnings during Fiscal 2009 as a result of credit rating downgrades.

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The following table presents a rollforward of the amount of net impairment loss recognized in earnings related to credit losses:


	For the Year Ended
	January 30, 2010
	(In thousands)

Beginning balance of credit losses previously recognized in earnings	$	-
Year-to-date OTTI credit losses recognized in earnings		940

Ending balance of cumulative credit losses recognized in earnings	$	940

The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:


	Level 3 (Unobservable Inputs)
							Student
							Loan-
				Auction-			Backed
				Rate			Auction-			Auction-Rate
				Municipal			Rate			Preferred
	Total			Securities			Securities			Securities
	(In thousands)

Carrying value at January 31, 2009	$	251,007		$	69,970		$	169,254		$	11,783
Settlements		(72,600	)		(29,900	)		(42,700	)		-
Gains and (losses):
Reported in earnings		(940	)		-			-			(940	)
Reported in OCI		24,981			174			22,877			1,930

Balance at January 30, 2010	$	202,448		$	40,244		$	149,431		$	12,773

Refer to Notes 3 and 4 to the Consolidated Financial Statements for additional information on our investment securities, including a description of the securities and a discussion of the uncertainties relating to their liquidity.

Non-Financial Assets

Our non-financial assets, which include goodwill and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and we are required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. Resulting from our annual goodwill impairment test performed as of January 30, 2010, we concluded that our goodwill was not impaired.

Additionally, certain long-lived assets were measured at estimated fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. Based on our review of the operating performance and projections of underperforming stores, we determined that certain underperforming stores would not be able to generate sufficient cash flow over the life of the related leases to recover our initial investment in them. The estimated fair value of those stores was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. We estimate future cash flows based on our experience and knowledge of the market in which the store is located. During Fiscal 2009, certain long-lived assets with a carrying value of $18.0 million, primarily related to 10 M+O stores, were determined to be unable to recover their respective carrying values and, therefore, were written down to their estimated fair value, resulting in a loss on impairment of assets of $18.0 million.

Liquidity and Capital Resources

Our uses of cash are generally for working capital, the construction of new stores and remodeling of existing stores, information technology upgrades, distribution center improvements and expansion, the purchase of both short and long-term investments, the repurchase of common stock and the payment of dividends. Historically, these uses of cash have been funded with cash flow from operations and existing cash on hand. Additionally, our uses of cash include the completion of our new corporate headquarters, the development of aerie by American Eagle and

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the development of 77kids by american eagle. We expect to be able to fund our future cash requirements through current cash holdings as well as cash generated from operations. In the future, we expect that our uses of cash will also include further development of aerie by American Eagle and 77kids by american eagle.

Our growth strategy includes internally developing new brands and the possibility of further franchising arrangements or acquisitions. We periodically consider and evaluate these options to support future growth. In the event we do pursue such options, we could require additional equity or debt financing. There can be no assurance that we would be successful in closing any potential transaction, or that any endeavor we undertake would increase our profitability.

The following sets forth certain measures of our liquidity:


	January 30,		January 31,
	2010		2009

Working Capital (in 000's)	$	758,075	$	523,596
Current Ratio		2.85		2.30

The increase of our working capital and current ratio as of January 30, 2010 compared to January 31, 2009, is primarily related to an increase in cash and cash equivalents as a result of cash from operations as well as the liquidation of long-term investments.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $386.5 million during Fiscal 2009 compared to $303.3 million during Fiscal 2008 and $464.7 million during Fiscal 2007. Our major source of cash from operations was merchandise sales. Our primary outflows of cash from operations were for the purchase of inventory and operational costs.

The increase in net cash provided by operating activities of $83.2 million from the prior year was driven primarily by an increase in accrued compensation due to incentive compensation accruals during Fiscal 2009 as well as an increase in prepaid taxes due to the timing of payments.

Cash Flows from Investing Activities

Investing activities for Fiscal 2009 included $127.4 million for capital expenditures partially offset by $80.4 million from the sale of investments classified as available-for-sale. Investing activities for Fiscal 2008 included $344.9 million from the net sale of investments classified as available-for-sale, partially offset by $265.3 million for capital expenditures. Investing activities for Fiscal 2007 primarily included $354.2 million for the net sale of investments classified as available-for-sale as well as $250.4 million for capital expenditures.

We invest our cash primarily in liquid money market funds. We also have investments, made under our prior investment policy, in auction rate and auction rate preferred securities, with an original contractual maturity of up to 39 years and an expected rate of return of approximately a 0.8% taxable equivalent yield. All investments made under our new investment policy must have a highly liquid secondary market at the time of purchase and an effective maturity not exceeding two years.

Cash Flows from Financing Activities

During Fiscal 2009, cash used for financing activities resulted primarily from $83.0 million used for the payment of dividends and the partial repayment of $45.0 million in borrowings against our demand line of credit. During Fiscal 2008, cash used for financing activities resulted primarily from $82.4 million used for the payment of dividends partially offset by $75.0 million in borrowings against our demand line of credit. During Fiscal 2007, cash used for financing activities resulted primarily from $438.3 million used for the repurchase of our common stock as part of our publicly announced repurchase program and $80.8 million used for the payment of dividends.

ASC 718 requires that cash flows resulting from the benefits of tax deductions in excess of recognized compensation cost for share-based payments be classified as financing cash flows. Accordingly, for Fiscal 2009,

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2008 and 2007, the excess tax benefit from share-based payments of $2.8 million, $0.7 million and $6.2 million, respectively, are classified as financing cash flows.

Capital Expenditures

Fiscal 2009 capital expenditures were $127.4 million, which reflected a significant reduction compared to Fiscal 2008 capital expenditures of $265.3 million. Fiscal 2009 expenditures included $80.7 million related to investments in our AE stores, including 29 new AE and aerie stores in the United States and Canada, 22 remodeled stores in the United States and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in home office projects including the construction of our corporate headquarters in Pittsburgh, Pennsylvania ($23.5 million), the expansion and improvement of our distribution centers ($12.0 million) and information technology ($11.2 million).

For Fiscal 2010, we will continue with our reduced spending plan. We expect capital expenditures to be in the range of $100.0 million to $120.0 million with approximately half of the amount relating to store growth and renovation.

Credit Facilities

We have borrowing agreements with four separate financial institutions under which we may borrow an aggregate of $325.0 million United States dollars ("USD") and $25.0 million Canadian dollars ("CAD"). Of this amount, $200.0 million USD can be used for demand letter of credit facilities, $100.0 million USD and $25.0 million CAD can be used for demand line borrowings and the remaining $25.0 million USD can be used for either letters of credit or demand line borrowings at our discretion. The $100.0 million USD of demand line credit is comprised of two facilities each with $50.0 million USD of borrowing capacity. The expiration dates of the two demand line facilities are April 21, 2010 and May 22, 2010. The $25.0 million CAD of demand line credit was established during Fiscal 2009, and is provided at the discretion of the lender.

During Fiscal 2009, we reduced the amount of credit available that could be used for either letters of credit or as a demand line from $100.0 million USD to $25.0 million USD. This request was made by the lender due to our low utilization of this credit facility. The reduction was effective July 3, 2009 and had no material impact on our consolidated financial statements or on our ability to fund our operations. Additionally, during Fiscal 2009, we increased our borrowing capacity for demand letters of credit from $150.0 million USD to $200.0 million USD.

As of January 30, 2010 we had outstanding trade and standby letters of credit of $51.5 million USD and demand line borrowings of $30.0 million USD, which reflects a $45.0 million USD reduction in outstanding borrowings, as a result of a voluntary partial repayment made during Fiscal 2009. The outstanding amounts on the demand line borrowings can be called for repayment by the financial institutions at any time. Additionally, the availability of any remaining borrowings is subject to acceptance by the respective financial institutions. The average borrowing rate on the demand lines for Fiscal 2009 was 2.5% and we have incorporated the outstanding demand line borrowings into working capital.

Stock Repurchases

During Fiscal 2007, our Board authorized a total of 60.0 million shares of our common stock for repurchase under our share repurchase program with expiration dates extending into Fiscal 2010. During Fiscal 2007, we repurchased 18.7 million shares as part of our publicly announced repurchase program for approximately $438.3 million, at a weighted average price of $23.38 per share. We did not repurchase any common stock as part of our publicly announced repurchase program during Fiscal 2008 or Fiscal 2009. At January 30, 2010, the authorization to repurchase 11.3 million shares of our common stock under our share repurchase program expired. As of March 26, 2010, we had 30.0 million shares remaining authorized for repurchase. These shares will be repurchased at our discretion. The authorization relating to the remaining 30.0 million shares expires at the end of Fiscal 2010.

During Fiscal 2009 and Fiscal 2008, we repurchased approximately 18,000 and 0.2 million shares, respectively, from certain employees at market prices totaling $0.2 million and $3.4 million, respectively. These shares

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were repurchased for the payment of taxes in connection with the vesting of share-based payments, as permitted under the 2005 Stock Award and Incentive Plan.

The aforementioned share repurchases have been recorded as treasury stock.

Dividends

A $0.10 per share dividend was paid during each quarter of Fiscal 2009 and Fiscal 2008. Subsequent to the fourth quarter of Fiscal 2009, our Board declared a quarterly cash dividend of $0.10 per share, payable on April 9, 2010, to stockholders of record at the close of business on March 29, 2010. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis.

Obligations and Commitments

Disclosure about Contractual Obligations

The following table summarizes our significant contractual obligations as of January 30, 2010:


	Payments Due by Period
			Less than		1-3		3-5		More than
	Total		1 Year		Years		Years		5 Years
	(In thousands)

Operating leases(1)	$	1,744,507	$	242,859	$	437,375	$	371,225	$	693,048
Unrecognized tax benefits(2)		38,618		-		-		-		38,618
Purchase obligations(3)		376,900		369,527		3,078		3,514		781

Total contractual obligations	$	2,160,025	$	612,386	$	440,453	$	374,739	$	732,447


(1)		Operating lease obligations consist primarily of future minimum lease commitments related to store operating leases (Refer to Note 9 to the Consolidated Financial Statements). Operating lease obligations do not include common area maintenance, insurance or tax payments for which we are also obligated.

(2)		The amount of unrecognized tax benefits as of January 30, 2010 was $38.6 million, including approximately $7.0 million of accrued interest and penalties. Unrecognized tax benefits are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. The Company does not anticipate that any significant unrecognized tax benefits will be realized within one year. Accordingly, the balance of the unrecognized tax benefits are included in the "More than 5 Years" column as we are not able to reasonably estimate the timing of the potential future payments.

(3)		Purchase obligations primarily include binding commitments to purchase merchandise inventory as well as other legally binding commitments made in the normal course of business. Included in the above purchase obligations are inventory commitments guaranteed by outstanding letters of credit, as shown in the table below.

Disclosure about Commercial Commitments

The following table summarizes our significant commercial commitments as of January 30, 2010:


	Amount of Commitment Expiration per Period
	Total Amount		Less than		1-3		3-5		More than
	Committed		1 Year		Years		Years		5 Years
	(In thousands)

Letters of credit(1)	$	51,468	$	51,468		-		-		-

Total commercial commitments	$	51,468	$	51,468		-		-		-


(1)		Letters of credit represent commitments, guaranteed by a bank, to pay vendors for merchandise upon presentation of documents demonstrating that the merchandise has shipped.

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Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 2 of the Consolidated Financial Statements.

Certain Relationships and Related Party Transactions

Refer to Part III, Item 13 of this Form 10-K for information regarding related party transactions.

Impact of Inflation/Deflation

We do not believe that inflation has had a significant effect on our net sales or our profitability. Substantial increases in cost, however, could have a significant impact on our business and the industry in the future. Additionally, while deflation could positively impact our merchandise costs, it could have an adverse effect on our average unit retail price, resulting in lower sales and profitability.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

We have market risk exposure related to interest rates and foreign currency exchange rates. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year.

Interest Rate Risk

Our earnings are affected by changes in market interest rates as a result of our investments in money market funds and auction rate securities, which have long-term contractual maturities but feature variable interest rates that reset at short-term intervals. If our Fiscal 2009 average yield rate decreases by 10% in Fiscal 2010, our income before taxes will decrease by approximately $0.2 million. Comparatively, if our Fiscal 2008 portfolio average yield rate had decreased by 10% in Fiscal 2009, our income before taxes would have decreased by approximately $0.8 million. These amounts are determined by considering the impact of the hypothetical yield rates on our cash, short-term and long-term investment balances.

Additionally, borrowings under our demand lines, which expire on April 21, 2010 and May 22, 2010, bear interest at variable rates based on the prime rate or LIBOR. At January 30, 2010, the weighted average interest rate on our borrowings was 2.1%. Based upon a sensitivity analysis as of January 30, 2010, assuming average outstanding borrowing during Fiscal 2009 of $62.7 million, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $313,000.

These analyses do not consider the effects of the reduced level of overall investments that could happen in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our investments structure.

Foreign Exchange Rate Risk

We are exposed to the impact of foreign exchange rate risk primarily through our Canadian operations where the functional currency is the Canadian dollar. We do not utilize hedging instruments to mitigate foreign currency exchange risks. We believe our foreign currency translation risk is minimal as a hypothetical 10% change in the Canadian foreign exchange rate would not materially affect our results of operations or cash flows.

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ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.*

Index to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm			35
Consolidated Balance Sheets			36
Consolidated Statements of Operations			37
Consolidated Statements of Comprehensive Income			38
Consolidated Statements of Stockholders' Equity			39
Consolidated Statements of Cash Flows			40
Notes to Consolidated Financial Statements			41

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

American Eagle Outfitters, Inc.

We have audited the accompanying consolidated balance sheets of American Eagle Outfitters, Inc. (the Company) as of January 30, 2010 and January 31, 2009, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended January 30, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Eagle Outfitters, Inc. at January 30, 2010 and January 31, 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 30, 2010, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 13 to the consolidated financial statements, the Company changed its accounting for income tax uncertainties effective February 4, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), American Eagle Outfitters, Inc.'s internal control over financial reporting as of January 30, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, 2010 expressed an unqualified opinion.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

March 26, 2010

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AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS

American Eagle Outfitters Inc (AEO) SEC Annual Report (10-K) for 2010

Form 10-K

American Eagle Outfitters, Inc.