Gross margins and a 7 percent comps gain helped American Eagle Outfitters Inc. post first-quarter results that beat Wall Street’s estimates, bucking the earnings trend that has plagued the teen sector.
Shares of American Eagle rose 5.5 percent to close at $16.61.
For the three months ended May 2, the company said net income spiked to $29.1 million, or 15 cents a diluted share, from $3.9 million, or 2 cents, a year ago. Net revenues rose 8.3 percent to $699.5 million from $646.1 million. Comparable-store sales rose 7 percent, compared with a 10 percent decline in the year-ago quarter. By brand, American Eagle comps rose 7 percent, while Aerie saw a comps gain of 12 percent. Gross profit rose 16 percent to $262 million, rising 260 basis points to 37.5 percent as a rate of return.
Wall Street’s consensus was 12 cents a share on revenues of $692.3 million.
The company guided second-quarter 2015 earnings per share at between 11 cents to 14 cents, on a high single-digit increase in comps.
Matthew R. Boss, analyst at J.P. Morgan, said that the retailer had its “best performance since 2012,” and that American Eagle’s business momentum from the first quarter into the second quarter to date sets it up “well into the crucial back-to-school selling period with easier compares” through the third quarter.
Jay Schottenstein, interim chief executive officer said in a conference call to Wall Street analysts, “The team has done a great job building on business momentum we saw in the latter part of 2014 and we are pleased to see [that] into the current period….Our merchandise assortments are more innovative, on trend, and better quality, while also offering outstanding value.”
He added that in the quarter, the company’s SG&A expense was “well-controlled, enabling us to deliver strong sales leverage. Inventories are in good shape, and the team managed well through the port slowdowns.”
Charles Kessler, global brands president of American Eagle Outfitters, said on the call that the merchandising team “turned up our focus on merchandise innovation,” noting that denim and soft and sexy tops were just a few examples, in addition to improving product quality. He noted, “[W]e’re delivering strong seasonal concepts that are well curated and edited to be consistent with our brand heritage, yet highly relevant to the latest trends in style.” The marketing team also shifted its focus to “products first, rather than a singular focus on price.”
Jennifer Foyle, global brand president of Aerie, said the quarter saw “our average unit retails increase and markdowns decline.” Further, the Aerie digital business “has been extremely strong, and we are also seeing good improvements from our store repositioning efforts.
Mary Boland, chief financial and administrative officer, said in a telephone interview, “We had great comp performance. We are proud of the merchandise assortment. Our customers are voting for it. We also saw great AUR improvement, and significantly less promotions in the quarter.”
Boland noted that the company had good cost controls in the period.
Standouts in the quarter for women’s were woven knits and tops, a category that Boland said in the past was just “okay” and where the retailer now sees opportunity to grow the business. Another area that has been trending well is the dress category.
In men’s, shorts and tops, along with graphic tees are doing well, although polos are somewhat pressured as a category.
Denim remains an opportunity for the retailer. Boland said that despite predictions of a demise in denim, the company believes the category will be a major one for back-to-school, with sales dependent on “our ability to drive innovation.”
Boland said the current mix is 60 percent women’s and 40 percent men’s, although that could vary a bit depending on season.
On the Aerie front, Boland said that the side-by-side approach, with “Aerie stores next to an American Eagle box is probably the best approach. It’s highly productive, highly profitable and where we are headed here in the U.S.”