American Eagle Outfitters Stock Falls Despite Q3 Profit Gain
Top- and bottom-line increases weren't enough on Wall Street for the parent of Aerie and American Eagle.
The top brass at American Eagle Outfitters Inc. was happy with their own third-quarter results, as the flagship chain returned to growth and Aerie posted double-digit sales gains.
Analysts on a conference call with management were complementary.
And operating profits for the full year were tagged to come at the highend of the prior forecast, reflecting “strengthened demand and continued profit improvement.”
But investors wanted something more and traded shares of the retailer down 15.8 percent to $16.64 on Tuesday.
Such is life for a publicly traded retailer at the whim of both shopper and shareholder.
Net income for the quarter increased 18.9 percent to $96.7 million, or 49 cents a diluted share, from $81.3 million, or 42 cents, a year ago. That put EPS 1 cent ahead of the 48 cents analysts projected, according to FactSet.
Revenues for the three months ended Oct. 28 increased 4.9 percent to $1.3 billion, with a 3 percent increase in the company’s stores and a 10 percent boost online.
In the second quarter, revenues inched up just 0.2 percent.
Jay Schottenstein, AEO’s executive chairman and chief executive officer, told analysts: “Although the macro environment remains highly dynamic, we are seeing encouraging trends. Our brands remain stronger than ever, and our strategic priorities are propelling us forward. AEO’s customers are at the center of our strategy, driving constant innovation that enables us time and time again to deliver exciting collections. And this fall was no exception.”
The CEO described the digital channel as “a star performer.”
“Under the leadership of our new head of digital, David Zhang, he has introduced innovative customer engagement tactics, enhanced our use of data and analytics to drive stronger KPIs,” Schottenstein said. “This work has yielded a remarkable improvement in our e-commerce business, where we see plenty of runway ahead. Stores were also positive in the quarter. We are pleased with early results from new store designs, including our Gateway store in SoHo.”
Revenues at AEO’s Aerie division gained 12 percent to $393 million in the quarter, while the American Eagle business rose by 2 percent to $857 million.
Inventories were down 4 percent to
$769 million at the end of the quarter, with units decreasing 3 percent, reflecting the company’s push to main discipline.
For the full year, American Eagle projected its operating income would range from $340 million to $350 million, at the high end of its prior guidance calling for $325 million to $350 million.
Annual revenues are now set to show a midsingle-digit increase, instead of the low-single-digit gain previously projected.
Earlier this year, AEO started to review its cost structure, focusing at first on gross margins and helping to boost results in the most recent quarter. The company on Tuesday said that “other significant work streams have been identified, actioned and incorporated into the company’s 2024 plans.”
AEO expects the effort to “yield gross margin expansion, as well as SG&A and depreciation leverage, resulting in an improved operating profit rate.”
Now it has to get shareholders back on board.