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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  YES [X] NO [   ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 73,385,355 Common Shares were outstanding at August 31, 2004. 

See Notes to Consolidated Financial Statements

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See Notes to Consolidated Financial Statements

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The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the "Company") at July 31, 2004 and August 2, 2003 and for the three and six month periods ended July 31, 2004 (the "current period") and August 2, 2003 (the "prior period") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company's Fiscal 2003 Annual Report.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The Consolidated Balance Sheet at January 31, 2004 was derived from the audited financial statements.

The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The Company's financial year is a 52/53 week year that ends on the Saturday nearest to January 31.  As used herein, "Fiscal 2004," and "Fiscal 2003" refer to the fifty-two week period ending January 29, 2005 and the fifty-two week period ended January 31, 2004, respectively.  

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

FIN No. 46, Consolidation of Variable Interest Entities

The FASB issued a final version of Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Instruments, in December 2003 ("FIN 46R").  FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties.  All provisions of FIN 46R were effective for the first reporting period ending after March 15, 2004.  The Company fully adopted the provisions of FIN 46R during the three months ended May 1, 2004, which did not have an impact on the Company's consolidated financial position, results of operations or liquidity because the Company has no interest in any variable interest entities. 

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FASB Exposure Draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95

On March 31, 2004, the FASB issued an exposure draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95.  The proposed change in accounting would replace existing requirements under SFAS 123, Accounting for Stock-Based Compensation, and APB Opinion No. 25, Accounting for Stock Issued to Employees.  The exposure draft covers a wide range of equity-based compensation arrangements.  Under the FASB's proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement.  The expense of the award would generally be measured at fair value at the grant date.  The comment period for the exposure draft ended on June 30, 2004 and final rules are expected to be issued in late 2004.  The standard would be applicable for fiscal years beginning after December 15, 2004.  The Company will evaluate the impact of any change in the accounting standards on the Company's financial position and results of operations when the final rules are issued.

The Canadian dollar is the functional currency for the Canadian businesses. In accordance with SFAS No. 52, Foreign Currency Translation, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income, net of income taxes, in accordance with SFAS No. 130, Reporting Comprehensive Income (see Note 7 of the Consolidated Financial Statements).

The Company records revenue for store sales upon the purchase of merchandise by customers. The Company's e-commerce and catalog business records revenue at the time the goods are shipped. 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. Revenue is recorded net of sales returns.

Revenue is not recorded on the sell-off of end-of-season, overstock and irregular merchandise to off-price retailers. These sell-offs are typically sold below cost and the proceeds are reflected in cost of sales. See Note 5 of the Consolidated Financial Statements for further discussion.

Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and promotional costs. Buying, occupancy and warehousing costs consists of compensation and travel for our buyers; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; and compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs.
 

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, other than for our design, sourcing and importing teams, our buyers and our distribution centers. Such compensation and employee benefit expenses include salaries, incentives and related benefits associated with our stores and corporate headquarters, except as previously noted. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, freight related to inter-store transfers, communication costs, travel and entertainment, leasing costs and services purchased.

Cash includes cash equivalents. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.  Cash in excess of operating requirements is invested in variable rate or auction rate fixed income notes or money market mutual funds. As of July 31, 2004, the Company's cash equivalents included investments with an average original maturity of approximately one month.

Short-term investments include investments with an original maturity of greater than three months, but not exceeding twelve months.  As of July 31, 2004, the Company's short-term investments consisted primarily of tax-exempt municipal bonds, taxable agency bonds and corporate notes classified as available-for-sale with an average original maturity of approximately six months.

Long-term investments include investments with an original maturity of greater than twelve months, but not exceeding twenty-four months.  As of July 31, 2004, the Company's long-term investments consisted primarily of agency bonds and debt securities issued by states and municipalities classified as available-for-sale with an average original maturity of approximately eighteen months.

The Company calculates income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, 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. Deferred tax assets and liabilities are measured using the tax rates 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.

The Company has 250 million common shares authorized at $.01 par value, 76 million issued and 73 million outstanding at July 31, 2004 and 74 million issued and 71 million outstanding at January 31, 2004 and August 2, 2003, respectively.  The Company has 5 million preferred shares authorized at $.01 par value, with none issued or outstanding at July 31, 2004, January 31, 2004 or August 2, 2003.   

On February 24, 2000, the Company's Board of Directors authorized the repurchase of up to 3,750,000 shares of its stock.  No repurchases were made during the six months ended July 31, 2004 as part of this stock repurchase program.  During the six months ended August 2, 2003, the company purchased 40,000 shares of common stock for approximately $0.5 million on the open market.  Additionally, during the six months ended August 2, 2003, the Company purchased 5,400 shares  from certain employees at market prices totaling $0.1 million for the payment of taxes in connection with the vesting of restricted stock as permitted under the 1999 Stock Incentive Plan. These repurchases have been recorded as treasury stock. 
 

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Earnings Per Share

The following table shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potential dilutive common stock (stock options and restricted stock).

Options to purchase 804,000 and 1,227,000 shares of common stock during the three and six months ended July 31, 2004, respectively, and 5,420,000 and 5,467,000 shares during the three and six months ended August 2, 2003, respectively, were outstanding, but were not included in the computation of net income per diluted share because the options' exercise prices were greater than the average market price of the underlying shares.

Stock Option Plan

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.  The pro forma information below is based on provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure ("SFAS No. 148"), issued in December 2002.  SFAS No. 148 requires that the pro forma information regarding net income and earnings per share be determined as if the Company had accounted for its employee stock options granted beginning in the fiscal year subsequent to December 31, 1994 under the fair value method of that Statement.  The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model.

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Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the July 31, 2004 presentation.

Accounts and note receivable is comprised of the following:

The fabric receivable represents amounts due from a third party vendor for fabric purchased by the Company and sold to the respective vendor.  Upon receipt of the finished goods from the vendor, the Company records the full cost of the merchandise in inventory, and reduces the amount of payment due to the third party by the respective fabric receivable.

4. Property and Equipment

Property and equipment consists of the following:

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5. Related Party Transactions

The Company and its wholly-owned subsidiaries have historically had various transactions with related parties.  During Fiscal 2004, as part of our strategic plan to eliminate the Company's related party transactions, we significantly reduced these arrangements as discussed below.  The Company believes that the terms of these transactions are as favorable to the Company as those that could have been obtained from unrelated third parties. The nature of the Company's relationship with the related parties and a description of the respective transactions is stated below. 

As of July 31, 2004, the Schottenstein-Deshe-Diamond families (the "families") owned 21% of the outstanding shares of Common Stock of the Company. The families also own a private company, Schottenstein Stores Corporation ("SSC"), which includes a publicly-traded subsidiary, Retail Ventures, Inc. ("RVI"), formerly Value City Department Stores, Inc., and also owned 99% of Linmar Realty Company until June 4, 2004.  The Company had the following transactions with these related parties during the three and six months ended July 31, 2004 and August 2, 2003. 

The Company and its subsidiaries sell end-of-season, overstock and irregular merchandise to various parties, including RVI.  These sell-offs, which are without recourse, are typically sold below cost and the proceeds are reflected in cost of sales.  During April 2004, the Company entered into an agreement with an independent third-party vendor for the sale of merchandise sell-offs, thus reducing sell-offs to related parties.  Below is a summary of merchandise sell-offs for the three and six months ended July 31, 2004 and August 2, 2003:

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The Company had approximately $15,000, $4,219,000 and $3,759,000 included in accounts receivable at July 31, 2004, January 31, 2004 and August 2, 2003,  respectively, that pertained to related party merchandise sell-offs as well as a corporate aircraft arrangement, which is further discussed below.

SSC and its affiliates charge the Company for various professional services provided to the Company, including certain legal, real estate and insurance services. For the three months ended July 31, 2004 and August 2, 2003, the Company paid approximately $85,000 and $369,000 respectively, for these services.  For the six months ended July 31, 2004 and August 2, 2003, the Company paid approximately $125,000 and $749,000, respectively, for these services. 

During the six months ended July 31, 2004, the Company discontinued its cost sharing arrangement with SSC for the acquisition of an interest in several corporate aircraft.  The Company paid $0.4 million for the three months ended August 2, 2003 and $0.1 million and $0.7 million for the six months ended July 31, 2004 and August 2, 2003, respectively, to cover its share of operating costs based on usage of the corporate aircraft under the cost sharing arrangement.  No payments were made during the three months ended July 31, 2004 as part of this arrangement.    

On June 4, 2004, the Company, through a subsidiary, Linmar Realty Company II LLC, purchased for $20.0 million Linmar Realty Company ("Linmar Realty"), a general partnership that owned the Company's corporate headquarters and distribution center.  The purchase price, less a straight-line rent accrual adjustment of $2.0 million, was recorded as land and building on the consolidated balance sheet during the three months ended July 31, 2004 and is being depreciated over its anticipated useful life of twenty-five years.  Prior to the purchase, the Company had an operating lease with Linmar Realty for the corporate headquarters and distribution center.  Rent expense was $0.2 million and $0.6 million for the three months ended July 31, 2004 and August 2, 2003, respectively, and $0.8 million and $1.2 million for the six months ended July 31, 2004 and August 2, 2003, respectively, under the lease.

6. Accounting for Derivative Instruments and Hedging Activities

On November 30, 2000, the Company entered into an interest rate swap agreement totaling $29.2 million in connection with the term facility. The swap amount decreases on a monthly basis beginning January 1, 2001 until the termination of the agreement in December 2007. The Company utilizes the interest rate swap to manage interest rate risk. The Company pays a fixed rate of 5.97% and receives a variable rate based on the one-month Bankers' Acceptance Rate. This agreement effectively changes the interest rate on the borrowings under the term facility from a variable rate to a fixed rate of 5.97% plus 140 basis points.

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company recognizes its derivative on the balance sheet at fair value at the end of each period. Changes in the fair value of the derivative that is designated and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income.  Unrealized net gains (losses) on derivative instruments of approximately $131,000 and $(39,000) for the three months ended July 31, 2004 and August 2, 2003, respectively, and $54,000 and $(4,000) for the six months ended July 31, 2004 and August 2, 2003, respectively, net of related tax effects, were recorded in other comprehensive income. 

The Company does not believe there is any significant exposure to credit risk due to the creditworthiness of the bank. In the event of non-performance by the bank, the Company's loss would be limited to any unfavorable interest rate differential.

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Other comprehensive income is comprised of the following: