american eagleThe two key brands are moving in different directions.
Revenue at the retailer's eponymous brand fell during its fiscal first quarter, even after it stepped up its marketing campaign with actress Sydney Sweeney. Meanwhile, sales of its intimate apparel brand Aerie soared during the quarter.
The retailer's trends appeared to disappoint Wall Street, as shares fell more than 10% in extended trading.
In the three months ended May 2, American Eagle's comparable sales fell 2%, much worse than the 3.1% growth analysts were expecting, according to StreetAccount. Meanwhile, comparable sales at Aerie soared 25%, beating expectations of 19.1%.
American Eagle brand net revenue fell 2% to $678.4 million, while Aerie revenue rose approximately 34% to $480.83 million.
Overall, the business saw comparable sales growth of 8%, below expectations of 8.6%, according to StreetAccount.
“While results at American Eagle were mixed, our teams are moving aggressively to reignite the women's business and strengthen product execution and brand positioning,” CEO Jay Schottenstein said in a news release.
“Looking ahead, our priorities are clear. Despite continued macroeconomic and consumer uncertainty, we remain confident in our ability to weather near-term headwinds,” he added. “We are focused on operational excellence and disciplined execution to drive long-term value for AEO and our shareholders.”
Here's how the apparel company performed during the fiscal first quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG:
- Earnings per share: 14 cents vs. 12 cents expected
- Revenue: $1.2 billion vs. $1.19 billion expected
During the quarter, American Eagle posted net income of $23.53 million, or 14 cents per share, compared with a loss of $64.90 million, or 36 cents per share, a year earlier.
Sales rose to $1.2 billion, up 10% from $1.09 billion a year earlier.
American Eagle reiterated its full-year guidance and issued an outlook for the current quarter. For the year, the company expects mid-single-digit comparable percentage sales growth and an increase in gross margin.
In the second quarter, the retailer expects comparable sales to increase by a mid-to-high single-digit percentage, compared with estimates of 6.5% growth, according to StreetAccount. It expects its gross margin to decline compared to the prior year during the period.
During the quarter, American Eagle rebooted its campaign featuring “Euphoria” star Sweeney ahead of the summer shopping season, but took a more subdued approach than the controversial campaign it launched last year under the tagline: “Sydney Sweeney Has Great Jeans.” This time, instead of cleavage and double meanings, Sweeney was all smiles in a modest, casual beach look.
Although the two campaigns were different, the effect was the same: neither led to a significant increase in sales of American Eagle's eponymous brand.
During a call with analysts, Schottenstein said that marketing is driving stronger engagement among new and existing customers, but that going forward, the company will “recalibrate spending” to ensure it gets the highest return on investment. Later, president Jennifer Foyle said marketing has driven “awareness and consideration” and the company is now “focused on conversion.”
During the quarter, selling, general and administrative costs, which include marketing, increased 11% to $376 million, which was in line with sales growth at Aerie, but less so at American Eagle. For the second half of the year, the company said it plans to focus more of its marketing spend on influencers on social media and other forms of digital media, which carry a higher propensity to convert, the company said.
Beyond the marketing problems, Foyle said sales declines at American Eagle came primarily from the women's bottoms segment: not having enough styles of what shoppers wanted and too many of what they didn't want.
“As retailers, we move quickly when we see opportunity and when we see failure. And we're already making adjustments. As we approach the crucial back-to-school season, we're refining our pant architecture, specifically optimizing key silhouettes and bands while leveraging our chasing capabilities to inject novelty,” Foyle said. “At the same time, we are expanding high-demand categories within women's blouses to fully maximize current consumer momentum.”
When asked how his largest consumer was faring, given high gas prices and other macroeconomic pressures, Schottenstein said he believes the U.S. economy is “very strong” and is only going to get better.
“We think with gas prices, we hope they start to stabilize very soon and with, you know, current issues, hopefully we'll get to some kind of end,” Schottenstein said. “We hope it's a very good ending for the world and we're very optimistic about it.”
