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American Eagle plans 50 to 80 new Aerie stores

Dive Brief:
  • American Eagle Outfitters on Wednesday reported that total revenue rose 14% year over year to $965 million, as comparable sales rose 9%. Net income rose 6.2% to $60.3 million as operating income rose 7.9% to $76.4 million, according to a company press release.

  • By brand, American Eagle's comparable sales (which were flat last year) rose 7% and Aerie's comparable sales rose 27%, the company said. E-commerce sales are folded into both revenue and comp metrics, but digital sales continue to grow at a "double-digit pace," according to the release.

  • Those results were well past consensus analyst forecasts, but shares fell as the company's third quarter earnings guidance of between 45 cents and 47 cents per share missed investor expectations for closer to 49 cents, as cited by Investors Business Daily. American Eagle expects comparable sales to rise in the high-single digits and total revenue growth in the mid-single digits, which includes some $40 million shifted from a calendar adjustment, according to the release.

Dive Insight:

American Eagle CEO Jay Schottenstein on Wednesday morning told analysts on a conference call that store revamps for flagship and Aerie lingerie stores are paying off, with higher customer conversions, transactions and traffic, including at malls.

"Comp sales were significantly better than expected at +9.0%, versus [our] consensus of +6.3%/+6.4%," noted B. Riley FBR analysts in a note emailed to Retail Dive, adding that its "inventory is in good shape." The company's total ending inventories at cost rose 8% to $466 million, in line with its expectations, and the company expects third quarter ending inventory to be up in the high-single digits, according to its release.

The company is seeing particularly good results from changes to its denim assortment, and it believes there's still opportunity to boost sales both at home and internationally, executives said. The company's optimism around that segment, which includes centering its denim within its loyalty program, stands in stark contrast to VF Corp.'s recent decision to spin off its Lee and Wrangler brands into a separate, lower growth unit.

Although executives called out its online sales as particularly strong, the company is also expanding its brick-and-mortar footprint, with plans for 50 to 80 new Aerie locations alone, including in new markets. Where that number falls depends on whether the company can find ideal locations, executives said, noting that figuring out real estate supply and executing the expansion will likely entail getting to 80 stores over the next couple of years. But its expansion plans also include capitalizing on what the company sees as opportunities abroad for its American Eagle flagship.

The retailer was also able to steer away from promotions, starting in the first quarter, and that should continue into the third quarter, executives said.

Selling, general and administrative expense rose to $234 million from $204 million last year, and as a rate to revenue deleveraged 20 basis points to 24.3%, according to the release. A lot of that was due to a conscious effort to increase pay and staffing, especially customer-facing store staff, in light of the need in denim and lingerie for extra sales assistance, executives said.

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