Teen apparel retailer American Eagle Outfitters has lifted its earnings guidance for the third quarter, thanks to reduced promotional activity and lower expenses.

"Third quarter earnings exceeded our expectations and margins were ahead of last year," said interim CEO Jay Schottenstein. "We are encouraged by our ability to reduce promotional activity, particularly given the challenging and highly promotional retail climate."

American Eagle Outfitters now expects third-quarter earnings per share, excluding one-time charges, to reach $0.22, compared to its earlier guidance of $0.17-0.19 and above last year's $0.19.

The earnings improvement over last year was primarily due to an improvement in markdowns and lower expenses, the company said. Revenues declined slightly on a comparable sales decline of 5%.

Stifel analyst Richard Jaffe described the results as "impressive" as the retailer was able to reduce promotional activity, despite a highly promotional retail environment.

Although he is "encouraged" by the improvement, Jaffe believes external headwinds such as its lack of a strong fashion trend, shift in consumer spending to electronics and other non-apparel goods, and costs associated with the west coast port crisis will pressure fourth-quarter results.

"Additionally, we believe the company's holiday assortment is uninspiring, evidence to us that the merchandise turnaround remains a work in progress."