American Eagle Outfitters Stock Slumps on Same-Store Sales Miss

American Eagle Outfitters stock is down 36% this year. (Bing Guan/Bloomberg)

Key Points

• American Eagle Outfitters stock fell after its fiscal second-quarter comparable-store sales missed Wall Street estimates.
• The retailer’s Aerie brand revenue grew 25% from the prior year, while same-store sales for the core American Eagle brand declined 1%.
• American Eagle raised its full-year operating income target to between $540 million and $550 million.

While American Eagle Outfitters’ namesake brand has continued to struggle, its powerhouse label Aerie has become the crown jewel driving growth for the retailer.

American Eagle stock dropped 10% after the retailer reported fiscal second-quarter earnings that topped analyst expectations on profit and revenue, but missed Wall Street’s estimates on comparable-store sales.

American Eagle reported profit of 79 cents a share, beating Wall Street’s forecasts of 22 cents a share, on revenue of $1.38 billion, slightly topping expectations for $1.37 billion. Revenue grew 8% from the prior year.

Shares were already down slightly during the regular session, closing down 1.9% to $16.89 on Wednesday. It has fallen 36% this year.

“AE saw sequential improvement from the first quarter, including the fourth consecutive quarter of growth in men’s, and we remain focused on opportunities to drive greater consistency in the women’s business,” CEO Jay Schottenstein said in a press release.

Same-store sales, though, disappointed. For the fiscal second quarter ended Aug. 1, total comparable sales rose 6% from the prior year, while analysts had forecast a 6.7% increase.

Though American Eagle hasn’t wowed investors, Aerie—the company’s underwear and swimwear brand—continues to propel growth for the retailer. Revenue for Aerie grew 25% from the prior year, with comparable sales up 19%. By contrast, same-store sales for the core American Eagle brand declined 1%.

Outside of operational performance, much of American Eagle’s profit growth was driven by a $196 million federal tariff refund received in the fiscal second quarter. Management noted that it has collected nearly all of the money it applied for, meaning this financial cushion is unlikely to recur in future quarters.

Operating profit more than doubled from last year, growing to $211 million from $103 million, which management attributed to the tariff refund.

Factoring in the refund, American Eagle raised its operating income target for both the third fiscal quarter and the fiscal year. It now sees operating income for the fiscal year in the range of $540 million to $550 million, up from its pervious outlook of $390 million to $410 million.

Management said merchandise margins, however, declined 330 basis points—likely driven by heavy promotional discounting at American Eagle, which offset margin growth at Aerie.

The slump in American Eagle, and across the retail sector, comes as no surprise to investors. Retailers have faced mounting concerns over macroeconomic headwinds and inflation, which have prompted cautious shoppers to hold on to their wallets and prioritize essentials like gas and groceries over clothing and accessories.

Write to Mariapaula Gonzalez at mariapaula.gonzalez@barrons.com

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