This morning’s announcement from American Eagle Outfitters (NYSE:AEO) reminded us that earnings season isn’t quite over. On an otherwise down day, shares of this trendy clothing retailer opened up on strong operating results for the first quarter. Let’s dig into the details and determine whether we want to fly with this stock.

Company Overview

American Eagle Outfitters Inc.’s roots stretch back to 1977 when brothers Jerry and Mark Silverman launched the chain as a way to diversify their Pittsburgh-based menswear business. Thirty five years later, the company now has several stand-alone brands, including aerie, which targets a younger female demographic, and 77kids, a clothing line aimed at newborns and toddlers.

The company has also expanded its global reach and has locations across North America, Europe, Africa, the Middle East and Asia. The company currently employs 6,500 across over 900 retail locations and brought in $3.16 billion in sales for Fiscal Year 2012.

Earnings Buzz

Despite higher cotton costs, American Eagle posted strong earnings growth for the first quarter. Compared with the same quarter last year, net profit jumped 40% to $39.7 million. Adjusted earnings weighed in at 22 cents per share, which topped the 20 cents per share consensus estimate by 10%.

Over the same period, net sales climbed 18% to $719.1 million; this also topped analyst estimates of $718.9 million. In particular, the company posted a 22% jump in online sales. Looking ahead to the second quarter, management remains bullish; American Eagle expects adjusted earnings in the range of 13 cents to 15 cents per share, while analysts forecast earnings of 12 cents per share.

Industry Breakdown

There are currently 68 companies in the Apparel Stores industry. Of those, American Eagle  is 18th largest in terms of market capitalization. The company stands out in terms of its 2.2% dividend yield, which is fifth highest in the industry, as well as earnings growth, which is eighth highest. American Eagle Outfitters’ Price/Earnings to Growth ratio and sales growth both fall in the top third, while the company’s long-term growth rate and return on equity weighs in right at the industry average.

This company’s main competitors are Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS) and Pacific Sunwear of California (NASDAQ:PSUN). Of these four companies, American Eagle has the highest sales growth, the second highest operating margin growth and the third highest gross margin.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock has improved considerably in the past 12 months. Just last May, AEO was a D-rated sell. The biggest change was made in terms of buying pressure; the stock receives an A for its Quantitative Grade.

The company also has some good things going for it on the fundamental side, receiving a B for sales growth and an A for its track record of analyst earnings revisions.

American Eagle currently has C-rated earnings momentum, cash flow and return on equity, and D-rated earnings growth and operating margin growth, but these ratings should improve once the latest earnings data are added to my Portfolio Grader system.

Bottom Line

Especially considering the company’s strong first-quarter earnings report, I consider AEO an A-rated buy.

Recommendation: A-rated Buy

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