WWD: American Eagle Outfitters Posts Positive Quarter

But investors aren’t satisfied with the results.

By Kellie El | Link to article

American Eagle Outfitters is back to school and back to breaking records.

The retailer reported second-quarter earnings Wednesday before the bell, once again improving on top and bottom lines.

Total revenues for the three-month period ending Aug. 3, were more than $1 billion, up from $964 million last year. The sales figure included $40 million for licensed royalties from a third-party operator of American Eagle stores in Japan.

Meanwhile, the company posted $64.9 million in profits during the quarter, compared with $60.3 million during 2018’s second quarter. It was also American Eagle Outfitters’ 18th consecutive quarter of positive comparable sales growth.

But the growth might not be fast enough for investors. While the results were good, they were below expectations. The company’s stock, which is down more than 37 percent year-over-year, fell more than 15 percent during Wednesday’s trading session, closing 11.62 percent in the red to $14.38 a share.

“We had a number of wins and accomplishments in the second quarter, yet we were disappointed to report operating results below our expectations,” Jay Schottenstein, chairman and chief executive officer of American Eagle Outfitters, said in his prepared remarks. “We faced challenges largely stemming from underperformance in certain seasonal categories and a delayed start to back-to-school.”

Chad Kessler, global brand president of American Eagle, added that things like shorts and women’s knit tops at American Eagle missed expectations last quarter.

Even so, it’s hard to ignore some of American Eagle Outfitters’ brighter spots⁠ — like it’s jean’s business and intimates brand Aerie.

In fact, the demand for denim is so strong that American Eagle had its 24th quarter of consecutive positive jeans sales. In June, the retailer launched its “Curvy Collection.”

“The jeans business is amazing and it continues to grow,” Kessler told analysts on Wednesday’s conference call. “There’s even more demand than what we offer today for the customer. We continue to see the opportunity to expand productivity throughout the assortment with more jeans. Now I think that could lead to some concerns…that jeans can get too big. But four or five years ago when everyone said jeans were dead, we were writing record jeans business and we continue to do so.”

Sister brand Aerie also continues to trend well.

Jen Foyle, Aerie global brand president, said Aerie’s bra business⁠ — particularly its bralettes⁠ — continue to be “on fire.”

“It’s our business and we own it,” Foyle told analysts on the company conference call. “We’re looking forward to chasing more bralettes actually.”

Comparable same-store sales at Aerie jumped 16 percent last quarter. That’s on top of a 27 percent jump the same time last year. In June, Robert Madore, chief financial officer and executive vice president of American Eagle Outfitters, predicted that Aerie would likely reach billion-dollar status within the next year or year and a half.

“We’re striving for that,” Foyle told WWD, adding that Aerie has some new products coming next year, but was tight-lipped on the details. “We’re really going to try to stretch into this billion-dollar [business] sooner than later.”

That could explain why earlier this year the company said it would open between 60 and 75 new Aerie stores in the coming year, a mix of stand-alone Aerie stores and American Eagle-Aerie side-by-side stores. Last quarter, the company opened 20 new Aerie stores — 13 stand-alone and seven side-by-side locations — all of them model with Aerie’s new store format, including things like added greenery and experience tables.

“You feel a community when you enter our stores,” Foyle said. “That’s what we’re marching toward in every market.”

Madore added that throughout the entire retail fleet, about 95 percent of stores are profitable.

“That 5 percent that isn’t are either new stores that haven’t hit their sales productivity maturity levels, or a flagship in nature have other purposes other than just for profitability,” Madore told analysts on Wednesday.

Meanwhile, the company’s other projects include tapping Lil Wayne for a new streetwear collaboration over the summer and plans to release new beauty products before the holidays.

“We’re just dipping our toe into the water,” Schottenstein told analysts, referring to the upcoming fragrance launch. “We see a lot of opportunity and we’re very gung-ho as far as this year.”

The ceo added that the entire company has taken action to strength the business and is pleased with the third quarter-to-date sales results.

“Let’s put it this way, I feel much better about the future than the analyst feel, watching the stock going down; I’ve got a lot more confidence than the analyst,” Schottenstein said on the conference call. “And I’ll just put it this way: shame on all of the naysayers.”