American Eagle Reports Positive Denim Comp Trends
- Oops!Something went wrong.Please try again later.
American Eagle Outfitters reported a net revenue increase in the second quarter.
In a Nutshell: “We are leveraging flexibility in our supply chain to chase high-demand items,” said outgoing chief operating officer Michael Rempell during the company’s quarterly earnings call. “Across channels, we’re making improvements and seeing a real difference in key performance metrics, which I believe will enhance the customer experience and support sales growth.”
More from Sourcing Journal
The company’s new AI-based technology investment to optimize sizes and inventory replenishment is already driving “quicker and more accurate placement with improved in-stock levels,” Rempell said. This is improving service demand with lower inventory.
American Eagle Outfitters has doubled its pickup orders since its enhanced the buy online, pickup in store option. This is helping the company trim shipping costs and drive higher sales.
The company reported multi-year lows for both cost per shipment and the number of shipments required to fulfill an order. Rempell said this helps AEO deliver products faster. The company expects inbound product cost and freight will be a tailwind in the second half.
“Business picked up in June across brands and channels with strength sustaining until July as our early back-to-school collections rolled out,” Jay Schottenstein, executive chairman and executive CEO, said. “We made quick product adjustments [and] chased into demand profitably while also maintaining healthy inventories and controlling promotions.”
Jen Foyle, president and executive creative director for American Eagle and Aerie, said July was the best month in the quarter with both brands “comping positively.” Because inventory was in good shape, “promotions and end-of-season clearance were down dramatically to last year,” she said.
Foyle said store growth led the revenue increase for Aerie. Fleece, bottoms and tops did well. “Our activewear extension, Offline by Aerie, also had a standout quarter across tops, sports bras, active shorts and fashion items,” she said.
Aerie has “a lot of runway” in the $80 billion intimates market where its brand awareness is just 50 percent.
While revenue at American Eagle was down, the brand saw “significant improvement in profitability, she said, and July’s positive comps trends continued into the third quarter.
“Women’s tops had another quarter of growth with continued improvement in comp trends across denim and non-denim bottoms as well. Men’s also saw improvement in bottoms driven by pants. Over the past several quarters, with brand margins restored to healthier levels, we are now focusing on growth,” Foyle said. The company wants to expand the premium jeans line called AE77 and the men’s activewear concept, 24/7.
Male and female shoppers are responding to wider-leg silhouettes and supporting the company’s back-to-school bottoms business. Denim is “everything we do,” Foyle said.
Net Sales: For the 13 weeks ended July 29, net revenue inched up to $1.20 billion from $1.198 billion in the same year-ago quarter. Store revenue rose 4 percent, while digital revenue fell 7 percent.
By brand, American Eagle revenue slipped 1 percent to $767 million, while comp sales were down 2 percent. Revenue for Aerie—which Schottenstein said achieved another record revenue quarter with strong profit—rose 2 percent to $380 million, although comp sales in the quarter were flat.
The company said inventory was down 7 percent to $637 million from year-ago levels.
For the six months, net revenue rose 1.3 percent to $2.28 billion from $2.25 billion.
Earnings: The company swung to the black, with net income at $48.6 million, or 25 cents a diluted share, against a net loss of $42.5 million, or 24 cents, in the comparable year-ago period.
Wall Street was expecting diluted earnings per share of 16 cents on revenue of $1.2 billion.
For the third quarter, the company expects revenue to increase in the low single digits. For the year, revenue is also expected to rise in the low single digits, up from prior guidance on May 24 forecasting revenue in the range of flat to down low-single digits.
Schottenstein said the company’s comprehensive cost structure review and initiatives to improve profitability should produce results over the “next 12 to 24 months.”
“Quarter-to-date, product acceptance and overall demand has been very encouraging. Trends through the back-to-school shopping period have been strong with AE positive and Aerie delivering a double-digit comp quarter-to-date. Yet with significant business still ahead, we’re maintaining a cautious view,” Mike Mathias, chief financial officer, said.
For the six months, net income was $67.0 million, or 34 cents a diluted share, against a net loss of $10.7 million, or 6 cents, a year ago.
CEO’s Take: “As we continue to fuel this momentum with strong merchandise and innovative marketing, we will stay focused on delivering efficiencies across the business and improve profit flow-through,” Schottenstein said.
