American Eagle faced disappointment on Wall Street as it missed sales targets for the second consecutive quarter. However, the company managed to increase its profit by almost 60%, thanks to lower product costs. This news led to a 3% decrease in the company’s shares during early trading. Despite falling short of expectations, American Eagle reported earnings per share of 39 cents, slightly higher than the anticipated 38 cents. The revenue for the fiscal second quarter stood at $1.29 billion, slightly lower than the predicted $1.31 billion.
With a reported net income of $77.3 million, American Eagle’s sales rose by approximately 8% to $1.29 billion from the previous year’s $1.2 billion. The sales increase was positively impacted by a $55 million boost due to a calendar shift. During this period, the company’s intimates line Aerie saw a 9% revenue growth, while the namesake brand experienced an 8% increase in revenue.
American Eagle’s gross margin reached 38.6%, a 0.9 percentage point improvement from the previous year and in line with analyst expectations. The expansion in gross margin was attributed to lower product costs, suggesting that the company spent less on its assortment. Moving forward, the company issued a better-than-expected outlook for the current quarter, but a lower forecast for the full year indicates a cautious approach due to a potentially turbulent second half.
For the current quarter, American Eagle foresees comparable sales growth between 3% and 4%, outperforming the 2.8% analyst expectation. The retailer anticipates flat to slightly increasing total revenue for the third quarter. However, the company’s full-year projections fall short of analyst predictions, indicating a conservative stance amid economic uncertainties.
American Eagle, like many other retailers, aims to maintain profitability by cutting costs and enhancing operational efficiency. With a long-term strategy to increase profits by 3% to 5% annually over the next three years, the company’s goal is to achieve a 10% operating margin. CEO Jay Schottenstein expressed optimism about the future, envisioning American Eagle as a $10 billion business within a few years.
During the quarter, American Eagle showed progress towards its growth targets. The company reported operating income of $101 million, a 55% increase from the previous year. The operating margin also expanded by 2.4 percentage points to 7.8%. However, the positive impact of a calendar shift boosted the operating income by $20 million.
As the back-to-school season commences, American Eagle expects strong performance to extend into September and gain momentum after Labor Day, especially in the Northeast region. The company is focusing on women’s and denim categories while exploring new trends to drive future growth. The menswear segment is also showing signs of improvement, indicating a diversified product offering.
While American Eagle may have fallen short of sales expectations, its focus on cost efficiency and strategic growth initiatives position it well for long-term success. By adapting to market trends and enhancing product offerings, the company aims to navigate through challenging economic conditions and emerge as a stronger player in the retail industry.