American Eagle has once again fallen short of Wall Street’s sales targets for the second consecutive quarter. Despite this disappointing news, the company reported a significant increase in profit of nearly 60%, largely attributed to lower product costs. The market responded negatively to this news, with the company’s shares dropping more than 8% in early trading.
In its fiscal second quarter, American Eagle reported earnings per share of 39 cents, slightly higher than the expected 38 cents. However, revenue came in at $1.29 billion, missing expectations by $20 million. The company’s net income for the quarter was $77.3 million, significantly higher than the $48.6 million reported a year earlier.
Sales for the quarter rose to $1.29 billion, representing an 8% increase from the previous year. A key driver of this growth was a calendar shift, which positively impacted sales by $55 million. Both American Eagle’s intimates line Aerie, and its namesake brand saw revenue growth, with Aerie growing by 9% and the namesake brand by 8%.
American Eagle’s gross margin stood at 38.6%, 0.9 percentage points higher than the previous year, in line with analysts’ expectations. The increase in gross margin was due to favorable product costs, indicating that the company spent less on manufacturing its products. However, it is unclear if this cost saving was passed on to consumers in the form of lower prices.
Future Outlook
While the company issued a better-than-expected outlook for the current quarter, its full-year forecast fell short of analysts’ expectations. American Eagle anticipates comparable sales to grow by 4% for the year, with total revenue increasing by 2% to 3%. This cautious approach suggests that the company is bracing itself for a challenging second half of the year.
Like many retailers facing a slowdown in consumer demand, American Eagle has focused on cutting costs and improving efficiencies to maintain profitability. Earlier this year, the company introduced a new strategy aimed at achieving annual sales growth of 3% to 5% over the next three years. While the company made progress towards this goal in the last quarter, it still has a long way to go to reach its target operating margin of 10%.
While American Eagle’s recent financial results show some positive signs, the company still faces challenges in meeting market expectations and driving sustained growth. It will be crucial for American Eagle to address its sales performance issues and continue to focus on cost-saving measures to remain competitive in the ever-evolving retail landscape.