American Eagle Outfitters’ Shares Pantsed By Q4 Outlook

Andrew Klips |

American Eagle Outfitters, Inc. (AEO) delivered third-quarter earnings that matched analysts, although the bar wasn’t set very high as sales and profits fell sharply during the period. The better-than-feared report was ignored as the teen apparel retailer offered a feeble outlook for the current quarter amidst ongoing struggles in a promotion-heavy market.


Profits Flatline

For the quarter ended November 2, the Pittsburgh-based company reported revenue of $857.3 million, down from 6 percent from $910.4 million in the year prior quarter.  Net income plunged to $24.9 million, or 13 cents per share, from $78.6 million, or 39 cents per share, in the third quarter of 2012. Adjusted earnings, which excludes a charge related to the company’s plans to close a distribution center and other one-time items, were 19 cents per share, down by 54 percent from 41 cents per share in last year’s quarter.

Wall Street was expecting the nosedive in adjusted earnings and sales, calling for profits of 19 cents per share on revenue of $856 million.


Comparable Sales Dip

Consolidated comparable sales, including AEO Direct, dropped by 5 percent. Within this category, sales at namesake stores dropped 5 percent, while aerie sales shed 3 percent. AEO Direct sales, which are made up of sales at and, offset those losses with a 17-percent improvement.

Gross profit decreased 21 percent to $299 million and 670 basis points to 34.9 percent of revenue, mostly because of greater promotional activity and the deleverage of rent on negative comparable sales.

“Our financial performance is clearly unsatisfactory and not consistent with our objectives. As we continue to navigate through an intensely promotional North American retail landscape, we are making improvements in merchandising and marketing, while aggressively pursuing efficiency gains, expense reductions and ensuring disciplined inventory management,” said Robert Hanson, chief executive of AEO, in a statement today.

Along those lines, selling, general and administrative expenses declined by 6 percent to $206 million.


Intense Competition, Reduced Guidance

Looking ahead, the company issued guidance for the current quarter for profit in the range of 26 cents to 30 cents, based on a mid single-digit decline in same-store sales. Analysts were expecting a profit of 39 cents per share.  During the fourth quarter last year, American Eagle reported adjusted earnings of 55 cents per share.

The teen retail market has grown intensely competitive, with AEO rivals like Abercrombie & Fitch Co. (ANF) , Gap (GPS) and Urban Outfitters Inc. (URBN) fighting for market share by running deep discounts to try and lure in shoppers.

Shares of AEO are down more than 8 percent in early Friday trading at $15.04 adding to a downward trend in 2013 that has seen the stock lose about 20 percent of its value through Thursday’s close.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
AEO American Eagle Outfitters Inc. 16.80 -0.86 -4.87 7,933,509
ANF Abercrombie & Fitch Company 15.52 -0.23 -1.46 2,184,899
BOTH Bioethics Ltd 0.50 0.00 0.00 0
GPS Gap Inc. (The) 26.55 0.14 0.53 2,539,828
URBN Urban Outfitters Inc. 33.74 0.16 0.48 1,434,646


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