WWD: American Eagle Profit Growth Tops Estimates

By: Evan Clark | Link to article

After a year of inventory control, the retailer is cautious, but looking forward to a breather that will help it streamline and drive profitability.

American Eagle Outfitters Inc. moved quickly to rein in inventories last year — helping the retailer hold its own against some tough fourth-quarter comparisons and giving it some breathing room to fine tune in 2023.  

AEO’s fourth-quarter net income increased 8.3 percent to $54.6 million from $50.4 million, while adjusted earnings per share tallied 37 cents, coming in 7 cents ahead of the 30 cents projected by analysts. 

Revenues for the three months ended Jan. 28 slipped 0.8 percent to $1.5 billion from $1.51 billion a year earlier — better than the 1.8 percent decline analysts had penciled in against what was the company’s best fourth-quarter sales on record. Quiet Platforms, the company’s supply chain business, added 1 percentage point to revenue growth, while revenues from the brands declined 2 percent.

AEO ended the quarter with inventory up 6 percent by dollars and up 4 percent by units. 

Mike Mathias, executive vice president and chief financial officer, told WWD in an interview that AEO was able to control price promotions — despite a glut of industry-wide sale signs — because of its push to realign inventories earlier in the year. 

“Last March…we saw the Q1 trend and said, ‘OK, our backhalf plans need to be adjusted now across inventory, expense and capital,” Mathias said. “We took very quick action.” 

That turned out to be a key move — and one AEO learned over the pandemic. 

“If you think about what we did last March, it was definitely flexing muscles that we built in March of 2020,” he said, referring to the early days of the pandemic, when the retail world more or less shut down. “That was the ultimate battle test. We and others now have this muscle to pivot when needed and do it more quickly than ever before. And I think that what 2020 forced us to do, it forced us to build that capability.”

The company has had to flex that muscle more often than it would have liked over the past few years, but Mathias said this year was starting off with something closer to normal. 

“The thing we can’t control is the health of the consumer,” the CFO said. “That’s the uncertainty that we and everyone else retail still has.”

He also said 2023 seems ready to give AEO a chance to “breathe” and “find efficiencies across the business now that we don’t have specific things to tackle, like supply chain, freight costs.”

“Our challenge from here is building a better model to flow through that revenue to the bottom line,” he said. He called it, “a significant project in 2023.”

The growth in the fourth quarter continued to come from Aerie, which saw revenues rise 8 percent to $464 million in the quarter, while the American Eagle business saw its top line decline 8 percent to $962 million. 

For the full year, the company’s net income decreased 70 percent to $125.1 million as sales dipped 0.4 percent to $5 billion. 

This year, AEO is looking for revenues to range from flat to up in the low-single digits while operating income increases to a range of $270 million to $310 million, up from the $269 million logged in 2022. 

“Looking ahead, I am encouraged by several positives,” said Jay Schottenstein, executive chairman and chief executive officer, in a statement. “Our inventory levels are healthy. The global supply chain has stabilized, restoring agility to our operations with a more normalized cost environment. Our brands are poised to deliver innovation and quality to our customers and to benefit from emerging fashion trends. Yet, our visibility into the macro remains limited and we are taking a cautious view on 2023. We will stay disciplined, maintain sharp control over expenses and seek ongoing efficiencies to drive shareholder returns.”