American Eagle (AEO) Earnings in Q1 2024

American Eagle Wednesday said it is making progress in increasing profitability as it works to improve its product assortment and adjust operations. Still, its fiscal first-quarter sales were weaker than Wall Street expected.

However, revenue increased 6% year over year and set a record for the first quarter, the company said in a news release.

Shares fell about 5% in extended trading Wednesday.

Here's how the clothing company fared compared to what Wall Street anticipated, according to a survey of analysts by LSEG:

  • Earnings per share: 34 cents vs. 28 cents expected
  • Revenue: $1.14 billion vs. $1.15 billion expected

The company's reported net income for the three-month period ending May 4 nearly quadrupled compared to the prior-year period. American Eagle posted net income of $67.8 million, or 34 cents per share, compared with $18.5 million, or 9 cents per share, a year earlier.

Sales rose to $1.14 billion from $1.08 billion a year earlier.

American Eagle said it continues to expect operating income in the range of $445 million to $465 million, reflecting revenue growth of between 2% and 4% compared to the prior year. This is slightly below estimates of a 3.4% increase, according to LSEG.

Chief Financial Officer Mike Mathias told CNBC that American Eagle maintains a “cautious” view for the second half of the year as it prepares to weather some tougher comparisons, awaits interest rate decisions from the Federal Reserve and prepares for the “noise” around the upcoming presidential elections. choice.

He added that the company is waiting to see how the back-to-school shopping season goes to get a better idea of ​​how the rest of the year will play out.

For the current quarter, American Eagle expects operating income in the range of $95 million to $100 million, reflecting high single-digit revenue growth, which is in line with the 7.4% increase that the analysts had expected, according to LSEG.

The apparel company, which runs its namesake brand and intimate apparel brand Aerie, is in the midst of a new strategy to drive growth. Its goal is to increase sales by 3% to 5% each year for the next three years and bring its operating margin to approximately 10%.

Some of their efforts are starting to bear fruit. During the fiscal first quarter, American Eagle increased its gross margin by 2.4 percentage points. Mathias said that's the company's second-highest rate since 2008 in the company's earnings call. The gains were driven by better inventory management, lower product and transportation costs and leverage on expenses including rental, delivery and distribution and warehousing.

“Key drivers of growth included women's fashion in general, especially in blouses which I analyzed are a major priority for us. I will also highlight strength in dresses, skirts and jeans; in these areas we are seeing a positive response from customers as we look to capture the casual social attire occasion and broader age demonstration. Both are key growth opportunities within our long-term plan,” added American Eagle President and Executive Creative Director Jennifer Foyle in a statement. the earnings conference call.

American Eagle's strategy has also focused on revamping its product assortment, eliminating items that weren't working for its customers and delving deeper into categories that are resonating.

Foyle told CNBC that the company was simply “overhyped,” meaning it had too many different individual products, often referred to in the industry as SKUs, for consumers to choose from.

“We knew we could do more with less,” Foyle said. “Therefore, greater investments in our funds, but fewer SKUs, so that we can serve our customers in the adjustments they demand of us.”

“We've really taken that category back, we're winning,” Foyle said of the company's denim business. “Definitely for women, some early gains in men, as I mentioned, you'll see more of those gains in the third quarter. We're still very nimble in that category, but we're definitely more balanced than we have been in the past.”

The company has also been working to renovate its stores and introduce new formats. It recently implemented a new store design for American Eagle, which is “breaking the chain's balance,” Foyle said.

“We're excited about remodeling our stores with a new feel for the brand that I think expresses exactly what we've been doing,” he said. “Obviously, the customer loves what they see in the store design based on the results.”

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