American Eagle faced a setback as it missed Wall Street’s sales targets for a second consecutive quarter, causing its shares to fall by approximately 3% in early trading. While revenue for the quarter came in at $1.29 billion, slightly below the expected $1.31 billion, profit grew by nearly 60%, with earnings per share at 39 cents, outperforming the anticipated 38 cents.
The growth in profit was attributed in part to a decrease in product costs, which helped expand the company’s gross margin to 38.6%, 0.9 percentage points higher than the previous year. This improvement was driven by favorable product costs, indicating that American Eagle spent less in manufacturing its assortment during the quarter.
Sales for American Eagle’s intimates line Aerie grew by 9% during the quarter, while its namesake brand saw an 8% increase in revenue. The gross margin expansion and revenue growth were vital contributors to the company’s overall profit growth despite missing sales expectations.
American Eagle issued a better-than-expected outlook for the current quarter but lowered its forecast for the full year, signalling caution for the second half. The company aims to grow profits by 3% to 5% annually over the next three years and achieve an operating margin of about 10%. CEO Jay Schottenstein expressed confidence in the company’s potential, targeting a $10 billion business in the coming years.
Like other retailers facing declining demand for discretionary items, American Eagle is focused on cost-cutting measures and efficiency improvements to prioritize profits amidst sluggish sales. Uncertainty surrounding interest rate decisions and the upcoming presidential election has added challenges for the company, prompting a cautious outlook for the future.
American Eagle aims to expand into new trends while strengthening its women’s and denim categories, the brand’s mainstays. Efforts are also being made to revive the menswear business, indicating a shift towards diversification and adaptability in response to changing market dynamics. The company is gearing up for the back half of the year with a focus on growth strategies and market readiness.
American Eagle’s second-quarter performance reflects a mix of challenges and opportunities as the company navigates through uncertain market conditions. Despite missing sales targets, profit growth and strategic outlook indicate a resilient approach towards sustaining profitability and driving future expansion. With a focus on cost management, brand innovation, and market responsiveness, American Eagle is positioning itself for long-term success and growth in the ever-evolving retail landscape.