American Eagle, a well-known apparel company, recently fell short of Wall Street’s sales expectations for the second consecutive quarter. However, the company managed to increase its profit by almost 60%, largely due to lower product costs. Despite the growth in profit, the company’s shares dropped by around 3% in early trading on Thursday following the earnings report. In its fiscal second quarter, American Eagle reported earnings per share of 39 cents, slightly exceeding analysts’ expectations of 38 cents. However, the revenue came in at $1.29 billion, falling short of the anticipated $1.31 billion.
The company’s net income for the quarter ending on August 3 was $77.3 million, or 39 cents per share, compared to $48.6 million, or 25 cents per share, from the same period last year. Sales rose to $1.29 billion, representing an 8% increase from the previous year. Notably, a calendar shift positively impacted second-quarter sales by $55 million.
American Eagle’s line Aerie experienced a 9% revenue growth, while the flagship brand grew by 8% during the quarter. The company’s gross margin stood at 38.6%, 0.9 percentage point higher than the previous year, largely due to favorable product costs. However, it remains unclear if this reduction in costs led to price adjustments by the company.
Although American Eagle issued a better-than-expected outlook for the current quarter, the full-year forecast was slightly lower than analysts had anticipated. The company projects a comparable sales increase of 3% to 4% for the current quarter, exceeding the previous consensus. However, the full-year expectations signal caution, with comparable sales expected to rise around 4% and total revenue up 2% to 3%, slightly below analyst estimates.
CEO Jay Schottenstein expressed optimism about the company’s future prospects, citing opportunities for significant growth in the coming years. The company’s goal is to double its current size, aiming for a $10 billion revenue target. American Eagle aims to boost profits by 3% to 5% annually over the next three years and reach an operating margin of approximately 10%.
Facing a challenging retail environment with slowing demand, American Eagle has focused on cost-cutting measures and operational efficiency to safeguard profits amid sluggish sales. The company unveiled a new strategy earlier this year to drive profit growth and sustain sales expansion. American Eagle is committed to making investments to achieve its ambitious growth targets, emphasizing the significant growth opportunity at hand.
Throughout the quarter, American Eagle demonstrated progress toward achieving its long-term goals. Operating income surged by 55% to $101 million, with an operating margin increase of 2.4 percentage points to 7.8%. The positive impact of the calendar shift boosted operating income by $20 million.
As American Eagle navigates the back-to-school season with a robust performance and a strong outlook for September, the company remains focused on expanding into new categories and trends. Executive Creative Officer Jennifer Foyle highlighted the brand’s emphasis on women’s and denim segments while also diversifying into emerging trends. The menswear segment is also showing signs of recovery, reflecting the brand’s adaptability and evolving strategies.
American Eagle’s recent financial performance highlights a mixed bag of results, with profit growth offsetting sales disappointments. The company’s strategic initiatives and future outlook signal a commitment to driving growth and enhancing profitability amidst a challenging retail landscape. As American Eagle continues to fine-tune its operational efficiency and focus on innovation, the brand remains poised for future success and expansion.