Aerie Helps Propel American Eagle Sales Growth
Company shares shot up despite misses in the tops business.
By Kellie Ell on March 4, 2020
Restructuring charges took a big bite out of American Eagle Outfitters’ fourth-quarter profits, but the retailer still showed enough growth to charge up investors.
The retailer, parent company to the American Eagle and Aerie brands, saw its stock jump nearly 7 percent in after-hours trading Wednesday on the strength of its quarterly report.
“Although we faced some challenges in 2019, we made good progress on our strategic growth pillars, posting record revenues,” Jay Schottenstein, American Eagle Outfitters’ chairman and chief executive officer said in his prepared remarks. “We saw strong customer engagement and positive traffic across brands and channels. “I’m also pleased that we successfully cleared through excess holiday inventory, ending the year well-positioned.”
For the three-month period ending Feb. 1, American Eagle Outfitters total revenues were $1.3 billion, up from $1.24 billion in 2018’s fourth quarter. Meanwhile, profits fell to $4.8 million due to more than $76 million worth of impairment tied to 20 stores as well as restructuring charges to cover severance and other costs. Profits tallied $76.2 million a year earlier.
Adjusted earnings per share for the quarter slipped to 37 cents from 43 cents a year earlier.
For all of 2019, sales grew to $4.3 billion, up from $4.03 billion in 2018, while income fell to $191 million, down from $261 million a year earlier.
The company’s bright spots continue to be the American Eagle jeans business and intimates brand Aerie. Aerie had its 21st consecutive quarter of double-digit sales growth with comps increasing 26 percent during the quarter. That’s on top of a 23 percent increase the same time last year.
“Aerie delivered exceptional growth, led by its unique brand positioning and strong customer connection, and has significant runway ahead,” Schottenstein said.
Aerie is the second largest e-commerce lingerie business, according to The NPD Group, thanks in part to the company’s successful AerieReal campaign.
And, while other retailers continue to shutter stores, the intimates brand opened 60 new Aerie locations in 2019, a mix of stand-alone and side-by-side stores, for a total of 332 Aerie stores. Many of them were in new markets, including Denver, Houston and Dallas. Jennifer Foyle, Aerie brand president, said the new stores create a halo effect, motivating shoppers to buy more online. Digital sales make up 45 percent of total Aerie sales, Foyle said.
Schottenstein added that the American Eagle jeans and bottom businesses also continue to grow. Still, the overall American Eagle brand has suffered in recent quarters with soft sales in the tops business. Comparable sales in the American Eagle division fell 3 percent last quarter, on top of a 3 percent increase a year earlier.
Chad Kessler, American Eagle brand president told analysts on a conference call that sales declines in the American Eagle business were driven by higher-than-planned promotional activity. However, he said that jeans business was a “standout,” and continues to take market share from competitors.
As for the tops business, he said men’s T shirts and fleece continue to be growth opportunities.
“It does take time for us to get the assortment righted,” Kessler said.
Meanwhile, as the coronavirus continues to sweep through the fashion industry and supply chains, executives on the call said it was too early to tell what impact it will have on the business, although there is a chance of residual effects, such delayed deliveries. Currently, about 20 percent of company products are sourced out of China.
“Looking ahead, we are laser focused on areas of underperformance and strengthening profit margins,” Schottenstein said. “Product improvements, inventory management and gaining efficiencies are top priorities. Our healthy brands and strong balance sheet position us well to compete in today’s market and we are excited to build upon our strengths and seize the many opportunities ahead for [American Eagle Outfitters].”
Shares of parent company American Eagle Outfitters, which closed up 2.31 percent to $12.87 a share, is down roughly 36 percent year-over-year.