American Eagle Reports 60% Profit Surge Amid Mixed Quarterly Results
American Eagle Outfitters reported a substantial profit increase of nearly 60% for the fiscal second quarter, buoyed by lower product costs despite falling short of Wall Street’s sales expectations for the second consecutive quarter. The apparel retailer’s shares saw a slight dip of about 3% in early trading on Thursday following the release of its earnings report.
The company’s earnings per share (EPS) reached 39 cents, surpassing the anticipated 38 cents, while its revenue totaled $1.29 billion, slightly below the expected $1.31 billion. For the three-month period ending August 3, American Eagle’s net income surged to $77.3 million, up from $48.6 million in the same quarter last year.
Sales for the quarter increased by approximately 8%, from $1.2 billion to $1.29 billion. However, this growth was partially boosted by a favorable calendar shift, which added $55 million to the second-quarter sales figures. Both American Eagle’s core brand and its intimates line, Aerie, saw revenue increases of 8% and 9%, respectively.
American Eagle’s gross margin for the quarter improved to 38.6%, a 0.9 percentage point increase from the previous year, aligning with analysts’ expectations. This margin expansion was driven by lower product costs, although it remains unclear whether these savings were passed on to consumers through reduced prices.
Looking ahead, American Eagle provided a mixed outlook. For the current quarter, the company anticipates comparable sales growth of 3% to 4%, exceeding the 2.8% growth forecast by analysts. Total revenue for the third quarter is expected to be flat to slightly up, consistent with market expectations. However, the retailer’s full-year forecast suggests a comparable sales increase of around 4% and total revenue growth of 2% to 3%, falling short of analysts’ projections of a 4.2% rise in comparable sales and a 3.5% increase in overall sales.
Finance Chief Mike Mathias expressed a cautious outlook for the latter half of the year, citing uncertainties related to Federal Reserve interest rate decisions and potential political volatility from the upcoming presidential election. In response to a slowing demand for discretionary items, American Eagle has focused on cost-cutting measures and boosting operational efficiencies to safeguard its profitability.
Earlier this year, the company unveiled a strategy aimed at enhancing profitability, targeting a 3% to 5% annual sales growth over the next three years and achieving an operating margin of approximately 10%. During the recent quarter, American Eagle achieved an operating income of $101 million, reflecting a 55% increase, with its operating margin rising by 2.4 percentage points to 7.8%. The calendar shift contributed $20 million to the operating income figure.
The company has seen a strong performance during the back-to-school season, with expectations for continued momentum into September and a potential uptick after Labor Day. President and Executive Creative Officer Jennifer Foyle noted that while the American Eagle brand remains focused on women’s and denim categories, it is also exploring new trends and seeing improvements in its menswear segment.
Foyle emphasized that the brand is not limited to a single category and is preparing to capitalize on opportunities in the latter part of the year. “We are not just a one-fit brand anymore,” she said. “We’re making sure that we’re leaning in as we go into the back half of Q3 and Q4 and we’re ready to play.”
CEO Jay Schottenstein also expressed optimism about the company’s future, stating, “In all the years I’ve been in this business, I probably see the greatest opportunity in the history of the company. From our standpoint, today, we’re a $5 billion business. We think the next few years we could be a $10 billion business. And I would emphasize this: We are committed to making the investment to become that business.”
In summary, while American Eagle reported significant profit growth and improved margins, the company faces a challenging environment with mixed sales results and a cautious outlook for the remainder of the year. The retailer’s focus on cost management, strategic investments, and adaptation to market trends will be crucial as it navigates a potentially turbulent second half of 2024.