American Eagle Outfitters (AEO) has reported second-quarter results that topped expectations, signaling early signs of recovery after a stretch of uneven performance.
The apparel retailer reported revenue of $1.28 billion, down 1 per cent from a year earlier but ahead of analyst estimates. Comparable sales declined 1 per cent, with a 3 per cent gain at Aerie partially offsetting a 3 per cent drop at the American Eagle brand.
Gross profit rose 7 per cent to $500 million, lifting gross margin to 38.9 per cent, while operating income increased 2 per cent to $103 million, with an operating margin of 8 per cent.
“The actions we have taken to better align inventory and strengthen execution laid the groundwork for our results this quarter,” said Jay Schottenstein, executive chairman of the board and CEO, AEO.
“Highlighted by Aerie’s top-line increase and better sell-throughs overall, we achieved our second-highest enterprise revenues ever recorded for the second quarter.”
Recovery signal for the second half
Retail analyst Neil Saunders, MD at GlobalData, called the results a notable improvement.
“While sales remain weak at AEO, there has been a step change for the better since last quarter, with the pace of decline moderating,” Saunders said.
Operationally, Saunders pointed to improved merchandising and tighter inventory discipline as key factors behind the gross margin expansion.
“Merchandising has sharpened, with product assortments improving into the second quarter after some misses earlier in the year,” he added.
Saunders said the brand weathered controversy surrounding its recent Sydney Sweeney denim campaign, which drew mixed public reaction but “had no serious detrimental impact on sales”.
Following the earnings beat, American Eagle reinstated its full-year guidance, projecting adjusted operating income between $255 million and $265 million. The company expects flat revenue and low-single-digit comparable sales growth in the second half of the fiscal year.
Saunders believes the company is well-positioned to build on recent gains, pointing to seasonal strengths in outerwear and holiday gifting.
“While AEO has had a disappointing run, we do not believe the business is broken. It simply needs a little more pep in its step – and that now seems to be coming through.”
