American Eagle Outfitters Inc.’s second-quarter profits doubled but fell short of projections, and an increase in inventories — some of which was tied to an expansion of the retailer’s accessories business — spooked investors and sent the stock down to a two-year low.
Net income rose to $19.7 million, or 10 cents a share, from $9.7 million, or 5 cents, a year earlier. Still, profits fell 1 cent shy of analyst expectations. Sales for the three months ended July 30 rose 3.7 percent to $675.7 million from $651.5 million, and comparable-store sales were flat.
The company’s stock fell 8.8 percent to $10.60. In midday trading, the stock fell as low as $10.01 — a level not seen since March 2009.
American Eagle also cut its profit outlook for the full year to 85 cents to 95 cents a diluted share. In May, the firm said earnings would be “similar” to last year’s take from continuing operations of $1.02.
“There is no doubt you would have liked [us] to have achieved stronger financial results,” Roger Markfield, vice chairman and executive creative director, told analysts on a conference call. “But we held our own in a highly competitive and promotional environment. I was pleased to see second-quarter sales improve nicely from the first quarter as we began to transition toward a more comprehensive key item strategy in stronger fashion content.”
Analysts zeroed in on inventories, which grew 30 percent on a cost per square foot basis and 15 percent on a unit per square foot basis compared with a year earlier. The inventory buildup reflected the move to a year-round key item strategy and the planned addition of another 150 accessories shops in American Eagle stores by Christmas, bringing the total number of the shop-in-shops to 400.
“We do not view [second-quarter] results and the revised outlook as that bad, given the recent struggles here,” said Jefferies analyst Randal Konik in a research note. “However, we are disappointed with the lack of inventory control, especially in the current uncertain environment. Until management can properly contain inventory, we see no reason to buy this stock.”
Some of the increase in the cost of the company’s inventory came from higher cotton prices, an expense that has eased some lately.
“Higher cotton prices pressured margins and will continue to do so in the second half of the year,” said James O’Donnell, chief executive officer. “There are several indications that the cost of cotton is stabilizing. If that’s the case, there is opportunity to recoup a good portion of the margin that we lost.”
American Eagle is looking for a successor to O’Donnell, who in March said he would retire.
And the company has been repeatedly called out as a possible target for a leveraged buyout.
“[American Eagle] has many characteristics that make it a potentially attractive LBO target, including a clean balance sheet with ample cash and no debt, strong free cash flow, attractive valuation on depressed margins and potential for change from new leadership,” said Adrienne Tennant, an analyst at Janney Capital Markets. “In addition, potential new management could institute positive changes.”
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)
Breaking News: @hedislimane joins @celine as its new artistic, creative and image director. One of fashion’s preeminent image-makers and trendsetters, Slimane is to join the LVMH brand on Feb. 1 and unveil his first fashion proposition for men and women next September during Paris Fashion Week. It marks a major homecoming for Slimane, who cemented his reputation – and influenced men’s tailoring for more than a decade – as the designer of Dior Homme between 2000 and 2007. He went on to reinvent and ignite the house of Yves Saint Laurent, which he rechristened Saint Laurent, between 2012 and 2016 – all the while maintaining a close relationship with the Arnault family, which controls LVMH and Dior. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
“Personally I believe the Eighties have been the richest and more vivacious period for international fashion,” Giorgio Armani said when asked what his favorite decade of fashion is. It was a moment of disruption and experimentation and only thinking back to the first years of that decade is always an emotion for me, for what they have meant to me and my work.” The influence is clear in @giorgioarmani spring 2018 collection, pictured here, which was full of bright colors and unexpected prints. Read more about which decades designers loved most on WWD.com #wwdfashion #wwddecades (📷: @aitorrosasphoto)
For Lady Gaga’s only Italian show on her “Joanne World Tour,” the singer wore a range of @versace_official outfits. The standout piece: this custom-made bodysuit inspired by the brand’s spring 2018 collection. #wwdfashion (RG: @ladygaga)
@_camillaruth_ is expanding on the wellness-craze concept with @westbourne – a new NYC restaurant that’s both a healthy-minded café as well as a business that gives back to the community. Marcus works with the Robin Hood foundation to give back to The Door, a non-profit providing youth development services, and also hires employees through The Door. Read our full interview with Marcus on giving back through food on WWD.com. #wwdeye (📷: @lexieblacklock)