American eagle on Wednesday said it was making profits by increasing profitability as it refined its product mix and improved operations. Still, sales in the fiscal first quarter were weaker than Wall Street expected.
Nevertheless, revenue increased 6% year over year, which was a record in the first quarter, the company said in a press release.
Shares fell about 5% in extended trading on Wednesday.
Here’s how the apparel company performed compared to Wall Street forecasts, based on a survey of analysts conducted by LSEG:
- Earnings per share: 34 cents against the expected 28 cents
- Income: $1.14 billion against the expected $1.15 billion
The company’s net profit for the three months ended May 4 increased almost fourfold compared to the year-ago period. American Eagle reported net income of $67.8 million, or 34 cents per share, compared with $18.5 million, or 9 cents per share, a year earlier.
Sales rose to $1.14 billion from $1.08 billion a year earlier.
American Eagle said it continues to expect operating income to be in the range of $445 million to $465 million, reflecting revenue growth of 2% to 4% from the prior year. According to LSEG, this is slightly below the estimate of 3.4%.
Finance chief Mike Mathias told CNBC that American Eagle maintains a “cautious” view into the second half of the year as it prepares for tougher comparisons, awaits Federal Reserve interest rate decisions and braces for “noise” around the upcoming presidential term. choice.
He added that the company is waiting to see how the back-to-school shopping season plays out to get a better picture of what the rest of the year will look like.
For the current quarter, American Eagle expects operating income in the range of $95 million to $100 million, reflecting high-single-digit revenue growth, which is in line with analysts’ expectations of 7.4% growth, according to LSEG.
The clothing company, which operates its namesake banner and promotes the Aerie brand, is in the process of implementing a modern strategy aimed at spurring growth. It plans to grow sales by 3-5% annually over the next three years and achieve an operating margin of approximately 10%.
Some efforts are starting to bear fruit. American Eagle increased gross margin by 2.4 percentage points in the first fiscal quarter. Mathias said this was the company’s second-highest ratio since 2008 in earnings guidance. Gains were driven by better inventory management, lower product and transportation costs, and impact on expenses including rent, delivery and distribution, and warehousing.
“The key growth drivers were women’s products in general, especially blouses, which, as I checked, is our top priority. I will also highlight the strengths of dresses, skirts and jeans. We are seeing positive customer response in these areas as we look to capture the casual social attire opportunity and broader age demo. Both of these opportunities represent key growth opportunities within our long-term plan,” added American Eagle president and innovative director Jennifer Foyle on the earnings call .
American Eagle’s strategy also focused on modernizing its product mix, removing elements that weren’t working for customers and analyzing categories that were in high demand.
Foyle told CNBC that the company was simply “overpricing” – meaning it had too many different individual products, often referred to in the industry as SKUs, for consumers to choose from.
“We knew we could do more with less,” Foyle said. “So, deeper investment in our underwear, but fewer SKUs so that we serve our customers to the extent that they demand of us.”
“We’ve really got the category back, we’re winning,” Foyle said of the company’s denim business. “Definitely for women, some early earnings for men, as I mentioned, you’ll see more of those earnings in the third quarter. We remain very agile in this category, but we are definitely more sustainable than in the past.”
The company is also working on reorganizing its stores and introducing modern formats. It recently implemented a modern store design for American Eagle that “outperforms the chain’s balance,” Foyle said.
“We are excited to redesign our stores with a modern brand feel that I think reflects exactly what we have been working on,” she said. “The customer clearly likes what they see in the store design based on the results.”
