American Eagle reported a nearly 60% increase in profit for its fiscal second quarter, despite missing Wall Street’s sales expectations for the second consecutive quarter. The apparel retailer’s earnings were bolstered by lower product costs, even as revenue came in slightly below projections.
For the quarter ending August 3, American Eagle posted net income of $77.3 million, or 39 cents per share, surpassing the 38 cents per share that analysts had anticipated. Revenue rose by 8% year-over-year to $1.29 billion, falling short of the $1.31 billion expected. The company’s sales benefited from a calendar shift, which contributed an additional $55 million to the quarter’s revenue.
During the quarter, American Eagle’s intimates brand, Aerie, saw a 9% increase in revenue, while the namesake American Eagle brand grew by 8%. The company’s gross margin improved to 38.6%, up 0.9 percentage points from the prior year, driven by favorable product costs. It remains unclear whether these lower costs translated into reduced prices for consumers.
Looking ahead, American Eagle issued a more optimistic outlook for the current quarter, expecting comparable sales to grow between 3% and 4%, exceeding the 2.8% growth analysts had predicted. The company also forecasts that total revenue for the third quarter will be flat to slightly up, aligning with market expectations.
However, the retailer remains cautious about the full year, projecting comparable sales growth of approximately 4% and total revenue growth of 2% to 3%. These figures fall slightly short of Wall Street’s expectations, which had anticipated a 4.2% increase in comparable sales and a 3.5% rise in overall revenue.
American Eagle has taken a cautious approach as it navigates economic uncertainties, including potential interest rate changes and the upcoming presidential election. To safeguard profits amidst slowing demand for discretionary items, the company has focused on cutting costs and improving operational efficiencies. Earlier this year, American Eagle unveiled a new strategy aimed at boosting sales by 3% to 5% annually over the next three years and increasing its operating margin to about 10%.
CEO Jay Schottenstein 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.” Schottenstein believes that with the right investments, American Eagle could potentially double its business to $10 billion in the coming years.
During the quarter, American Eagle made significant strides towards this goal, posting a 55% increase in operating income to $101 million, with its operating margin improving by 2.4 percentage points to 7.8%. The back-to-school season also showed strong performance, with expectations for continued momentum into September.
As the company moves forward, American Eagle is focusing on expanding its women’s and denim categories while exploring new trends. The menswear segment, which had been underperforming, is also showing signs of recovery, positioning the brand for a strong second half of the year.
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