Double-digit percentage gains in both third-quarter income and sales at teen retailer American Eagle Outfitters lifted its shares 7.1 percent Wednesday.
This story first appeared in the November 29, 2012 issue of WWD. Subscribe Today.
For the three months ended Oct. 27, net income rose 50 percent to $78.6 million, or 39 cents a diluted share, from $52.4 million, or 27 cents, last year. Net sales rose 11.1 percent to $910.4 million from $819.4 million. Comparable-store sales, including AE Direct, gained 10 percent in the quarter, compared with the 7 percent increase last year.
In the current quarter, the retailer completed the sale of its children’s business, 77kids, which was represented as a discontinued operation in the current and year-ago periods.
Robert Hanson, chief executive officer, told Wall Street analysts in a conference call, “This quarter marks the third consecutive quarter of double-digit top-line growth,” adding that the third-quarter operating margin expanded to just over 14 percent, the company’s best since 2008.
“With greater trend responsiveness, more frequent flows and embedded inventory management principles, our product team did a great job driving top-line growth and merchandise profitability….We drove increased traffic into stores and saw 20 percent growth in our active customer base for both AEO and aerie,” Hanson said.
He said sales in its Direct business grew 27 percent, due to increased traffic, with Direct profitability rising 46 percent.
Hanson also noted that most stores were up and running within a few days after Hurricane Sandy’s arrival.
The ceo told analysts the company in the third quarter completed its strategic plan and is now in implementation mode. The primary goal over the next 18 months is to grow the North American business, such as improving the supply chain with more frequent merchandise flows and tighter production calendars. The retailer is also reviewing the store fleet, whether it’s determining which unproductive sites to close or a remodeling program for select stores each year. It is planning on remodeling about 50 stores a year during the next several years.
Hanson said the company has opportunities to open a “large number of A+ locations in underpenetrated markets,” and plans to open “at least six new American Eagle Outfitters stores” in 2013 in areas such as New York, Miami and Los Angeles.
Hanson noted that the firm accelerated its AE rewards program as part of an enhancement to its e-commerce efforts. Orders placed can now be fulfilled either via inventory at the store level or at its distribution centers.
For the fourth quarter, the retailer guided diluted earnings per share at between 54 cents and 56 cents.
For the nine months, net income rose 36.8 percent to $137.3 million, or 69 cents a diluted share, on a net sales gain of 12.8 percent to $2.36 billion.