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American Eagle Q1 Profits Fall

The teen retailer still managed to beat Wall Street's consensus expectations by one cent.

American Eagle Outfitters Inc. had a tough first quarter against strong year-ago results, but managed to see improved gross margins due to product cost benefits that include supply-chain efficiencies.

For the three months ended May 4, the specialty chain posted a 29.5 percent decline in net income to $28 million, or 14 cents a diluted share, from $39.7 million, or 20 cents, a year ago. On an adjusted basis excluding asset write-offs and special items, earnings were 18 cents a share, which beat Wall Street’s consensus expectations by 1 cent. Net revenues fell 4.1 percent to $679.5 million from $708.7 million, while consolidated comparable-store sales fell 5 percent against a 17 percent gain a year ago.

Shares of American Eagle gained 0.8 percent to close at $20.48 in trading Wednesday on the New York Stock Exchange.

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Robert Hanson, chief executive officer, said, “We are pleased to be able to deliver the level of profitability we did even faced with a tough economic environment.”

The company saw cooler weather causing soft demand for seasonal merchandise, compared with warmer-than-normal weather and strong performance in the year-ago quarter.

The chain also flowed warmer-weather merchandise such as crop tops and shorts in its women’s business, too early in the season.

American Eagle in the quarter had capital expenditures totaling $46 million, with half that related to store investments and the balance connected to information technology and e-commerce investments. Total capital expenditures for the year are expected at between $250 million and $280 million.

Hanson said, “Our intent is to be the best at omnichannel commerce. We are putting the customer at the center of our thinking and removing any barriers to them shopping on their terms.”

The ceo also said the new summer line arrived last week and is adding freshness to the assortment now that the weather has turned warmer. The merchandising team fast-tracked 40 choices in women’s for the second quarter based on early spring results.

As for fast tracking, Hanson explained that the company keeps about 20 percent of customer choices open at the beginning of each season. The retailer tests, sorts and tracks early selling from customer reactions to the product line. Working with certain suppliers on platform fabrics, raw materials and securing available production lines enables American Eagle to flow additional goods that will sell into the stores within 45 to 90 days, typically in the same selling season.

The company has also refined its product development calendar, increasing the cycles to six from four times annually. It also has removed between four to six weeks from the overall development timeline per cycle.

Back-to-school floor sets will begin to flow in the beginning of July, although the earlier sets will be focused more on transitional merchandise. Most of the b-t-s selling is done in August and September, with August the time when there will be a bigger push on flowing denim offerings.

The company provided second-quarter diluted earnings per share guidance at between 19 and 21 cents. For the year, diluted EPS is forecasted at between $1.42 and $1.45.