American Eagle On Thursday it announced a new strategy to drive profitable growth over the next three years, as the retailer said it wrote off $94 million in impairment charges related to its Quiet Platform internal logistics business.
The company also reported holiday earnings that beat Wall Street expectations thanks to strong demand and lower markdowns and input costs.
Shares closed 2% lower on Thursday.
Here's how American Eagle fared in its fiscal fourth quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: 61 cents adjusted vs. 50 cents expected
- Revenue: $1.68 billion vs. $1.67 billion expected
The company's reported net income for the three-month period ended Feb. 3 was $6.32 million, or 3 cents per share, compared with $54.6 million, or 28 cents per share, from the previous year. Excluding one-time items, American Eagle posted adjusted earnings of 61 cents per share.
Sales rose to $1.68 billion, up about 12% from $1.5 billion a year earlier.
In the current quarter, American Eagle expects sales to increase by a mid-single-digit percentage, which is in line with estimates of a 5% increase, according to LSEG. For the full year, it expects sales to increase between 2% and 4%, a figure that would exceed the 2.9% expected by analysts, according to LSEG.
During the Covid pandemic, American Eagle spent hundreds of millions of dollars acquiring several shipping and distribution companies that eventually became Quiet Platforms, the retailer's internal logistics arm. It was designed to optimize American Eagle's shipping needs, but the company also sought to “Uberize” the global supply chain by serving as a logistics platform for other companies.
Last spring, American Eagle acknowledged that Quiet Platforms was not performing as expected. The segment's president and chief operating officer had left the company as the retailer worked to restructure the business, RetailDive reported.
During the fourth quarter, American Eagle took $98.3 million in impairment and restructuring charges related to Quiet Platforms, the majority of which were impairments of its goodwill, intangible assets and technology that are no longer part of the company's strategy. long term of the platform. Employee compensation costs accounted for $4.3 million in charges.
While the investments may no longer be worth what they were at the time the company made them, chief financial officer Mike Mathias told CNBC that the platform has benefited the business overall.
“We are seeing benefits across all P&L segments of our brand,” Mathias said. “A good portion of our gross margin gains come from leveraging delivery and supply chain costs that this [platform] that we have now implemented has enabled.”
Looking ahead to the next three years, American Eagle unveiled its “profitable growth plan” that focuses on three key pillars: amplify, execute and optimize. In an apparent nod to the business, the pillars also spell out AEO, the initials of American Eagle and the stock symbol.
The strategy seeks to achieve mid- to high-teens annual operating revenue expansion with annual revenue growth of 3% to 5% over the next three years. American Eagle is also looking to bring its operating margin to approximately 10%.
The retailer has been working for the past year to boost profits as its margins pale in comparison to some competitors. During the fourth quarter, its gross margin stood at 37.3%. It was higher than the 36.6% StreetAccount expected, but well below the gross margin of its longtime rival. Abercrombie & Fitchwhich on Wednesday reported a fiscal fourth-quarter margin of about 63%.
To increase profits, American Eagle plans to amplify its brands by growing its namesake brand, driving Aerie's expansion and developing the sportswear assortment under its Offline brand. You will focus on financial discipline and optimizing your operations to drive long-term growth and profits.
“Starting with American Eagle… we've been really rebuilding that brand over the last three years, rationalizing the fleet, rationalizing the SKU count, really focusing on what we were missing,” Jennifer Foyle, president and creative executive at American Eagle. director, said in an interview with CNBC. “We were definitely too varied, so there's been a lot of work and then building the DNA of the brand, which you'll see as a nice back-to-school presentation.”
He said the company has a new store design that is performing better than average and that it plans to gradually renew its store fleet to build on that success. It's also leaning into new categories, like its Offline banner, which it launched in 2020 and has outpaced Aerie's growth in its early years.
“In the same mall, if we open an offline store, that store is equal to Aerie's volume or in some cases exceeds Aerie's volume,” Foyle said. “In a highly penetrated sportswear business, I think we're winning by entertaining and doing it slightly different than our competition. We're colorful, we're lively, the stores are fun and exciting. So I think we really have a We're really strong in the that we can offer in that business and we like the results.
