Shares of American Eagle Outfitters Inc. dropped 6.5 percent to $25.50 in trading Wednesday as investors were disappointed with the retailer’s profit outlook.
The teen retailer posted second-quarter earnings results Wednesday morning that bested Wall Street’s expectations, but it guided third-quarter earnings per share to the range of 45 cents to 47 cents, below analysts’ projections of 49 cents.
American Eagle reported net income that more than doubled from year-ago figures, $60.3 million, or 34 cents a diluted share, from $21.2 million, or 12 cents. Net sales rose 14.2 percent to $964.9 million from $844.6 million, with consolidated comparable sales up 9 percent. The quarter’s results were helped by a shift in the retail calendar, moving an estimated $40 million in sales to the second quarter from the third.
The company said that by brand, American Eagle’s comps rose 7 percent in the quarter versus flat comps last year, while Aerie’s comps jumped 27 percent on top of a 26 percent gain in the year-ago quarter. Also helping the quarter’s results was an increase in the gross margin rate, which rose 170 basis points to 36.6 percent of revenue, versus an adjusted 34.9 percent a year ago. The company said that was due primarily to rent leverage.
Chief executive officer Jay Schottenstein told analysts during the company conference call, “I am extremely pleased to see strong business momentum continue” and that the quarter’s results “exceeded our expectations.” He also noted, “Great talent, strong brands and product leadership are fueling our success.”
According to the ceo, the company’s teams for its two brands — American Eagle and Aerie — have “successfully transitioned [American Eagle] during a period of real disruption in the retail sector. We have grown into a multi-brand company…”
He also emphasized that with the latest quarter’s results, the company has achieved its “20th straight quarter of record jeans sales,” adding that the offer of compelling fits and styles strongly resonate with the retailer’s core consumer and are also helping to attract new ones to the brand.
On the Aerie front, Schottenstein said the brand’s performance is “nothing short of spectacular, marking nearly four years of consecutive double-digit growth.” The ceo also emphasized that the company is focused on reaching its next brand milestone of $1 billion in sales.
And the third pillar of growth involves growing and deepening the company’s connection with customers at both brands, Schottenstein said. He noted that new ad campaigns and digital marketing investments have put greater emphasis on a customer-focused selling culture. The company has also elevated its store designs, he said.
Schottenstein said a fourth strategic pillar for growth is on delivering financial returns, and his comments were centered on the company’s second-quarter financial position of having more than $363 million in cash and investments, and no debt. “As I look ahead, I’m very optimistic….We are uniquely positioned for profitable growth and superior shareholder returns.”
Chief financial officer Bob Madore said the third-quarter outlook was based on comps sales in the high-single digits and total revenue growth in the mid-single digits. That forecast reflects the estimated $40 million shift into the second quarter due to the shift in the retail calendar. The third-quarter EPS guidance of 45 cents to 47 cents compares with adjusted EPS of 37 cents last year, and excludes potential impairment and restructuring charges.
Chad Kessler, global brand president of the American Eagle brand, said the company delivered record sales volume “on less promotional activity, driving a higher margin” in the quarter. He noted that strength was seen across most merchandise categories for men’s, with comps up 4 percent, and women’s, where comps rose 8 percent.
“Digital continues to pose the strongest growth for the brand, driven by increases in mobile,” Kessler said. He also said the fall season is “off to a great start with encouraging new fashion trends and strong results in some of our most important fall and winter categories.”
Jen Foyle, global brand president of Aerie, said the quarter marked the brand’s 15th consecutive quarter of strong double-digit sales growth. She said the company is building its leadership position within the “Body Positivity movement,” and noted that the redesigned bra line delivers “even more innovation and comfort.”
She too noted her optimism for the second half of the year and beyond, and said the store opening plans for next year will ramp up to 50 to 80 locations, including a number of new markets. That projection is closer to estimates over a three-year period, depending on what locations become available and when.