American Eagle Outfitters (AEO: sentiment, chart, options) is up more than 9% at midday after the retailer reported its fiscal first-quarter earnings. Net income slipped 44% to $43.9 million, or 21 cents per share, while revenue rose 5% to $640.3 million. Same-store sales fell 6%, and gross margin for the period dropped from 48.7% to 41.2%. Margins were eroded because AEO ramped up markdowns during the quarter to help drive sales. However, the per-share profits beat Wall Street's expectations for earnings of 19 cents.

Chief executive Jim O'Donnell assured investors that the company is "taking quick action to strengthen the business" amid a slowdown in consumer spending. For the second quarter, AEO expects to earn 28 to 30 cents per share, encompassing the consensus analyst estimate of 29 cents per share.

Expectations were running low for the retailer ahead of its earnings report. On the International Securities Exchange (ISE) yesterday, traders bought 3,617 AEO puts to open, compared to just 231 calls. The stock's single-day put/call ratio on the ISE was a whopping 15.66, as traders preferred bearish bets by a margin of nearly 16-to-1.

However, today's earnings-induced rally hasn't provided enough fuel to push AEO through resistance from its 20-week moving average. This trendline, in conjunction with its 10-week counterpart, has ushered AEO to a loss of 46% from its January 2007 peak.