American Eagle Outfitters reported quarterly earnings on Thursday that missed expectations, reflecting a $75 million write-down in spring and summer merchandise, following the retailer pulling its full-year guidance earlier this month due to macroeconomic uncertainty.
“The first quarter was a challenging period for our business,” CEO Jay Schottenstein said in a release. “While we are disappointed with the results, we are taking actions to better position the company and drive stronger performance in the upcoming quarters. Our brands remain resilient. The team is executing with urgency as we look to strengthen both the topline and profit flow-through.”
The Pittsburgh retailer’s results do not come as a surprise for investors, considering it preannounced some of its results two weeks ago. At that time, it also announced it would withdraw its full-year guidance as it manages slow sales, steep discounting and a volatile macroeconomic environment.
Shares fell about 8% in extended trading.
Here’s how the apparel company did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Loss per share: 29 cents adjusted vs. loss of 22 cents expected
- Revenue: $1.09 billion vs. $1.09 billion expected
Prior to the preannouncement, analysts had been expecting earnings per share to be an 11-cent profit.
The company, which makes fashion clothing targeted at teens and young adults, reported an operating loss for the three-month period that ended May 3 of $85.18 million compared with a net income of $77.84 million a year earlier.
Excluding one-time charges related to restructuring and a supply chain optimization project, AEO posted an adjusted operating loss of $68.06 million. The loss also reflects “higher than planned” promotions and a write-off of $75 million in spring and summer merchandise.
Revenue dropped to $1.09 billion, in line with expectations but down slightly from $1.14 billion a year earlier.
Comparable sales were down 3% during the quarter, led by a 4% decline at the company’s intimates and activewear line, Aerie. The namesake brand saw comparable sales down 2%.
AEO issued downbeat guidance for the second quarter, expecting revenue to be down 5% compared to an estimate of 4%, comparable sales down 3% and gross margin down year-over-year. Its operating income for the second quarter is expected to be between $40 million and $45 million.
Schottenstein said during a conference call with investors on Thursday that he was “disappointed” by the first-quarter results. He said earlier this month that the $75 million write-off is due to miscalculated merchandising strategies resulting in excess inventory and higher promotions.
Jennifer Foyle, president and executive creative director for AE & Aerie, said on Thursday’s call that the brand had misses on the merchandising product in a handful of key categories, which was compounded by a cool spring and a slow start to the quarter in February. She said shorts were a tough product across all AEO brands.
“Some of our big fashion ideas for the season simply did not resonate with our customer,” Foyle said, discussing Aerie’s performance.
Executives on the call repeatedly highlighted the company’s goal to be on track for the important back-to-school season later this year.
American Eagle is not the only retailer to withdraw or modify financial guidance this year based on President Donald Trump’s ever-changing trade policy.
E.l.f. Beauty, Canada Goose, Ross and Mattel all pulled their full-year guidance recently due to trade uncertainty. Other brands, like Abercrombie & Fitch and Macy’s have cut their profit outlooks.
On Thursday’s call, CFO Michael Mathias said the company is on track to reduce its sourcing exposure to China to under 10% this year, with the fall and holiday season down to low single digits. He said the mitigated tariff impact to the full year is around $40 million, including a “couple million dollars” in the second quarter that is already embedded in the guidance, and the rest is spread out later in the year.
During last quarter’s call with investors, CFO Michael Mathias said the company sources just under 20% of its products from China. He said then that tariffs could result in a $5 million to $10 million hit and could affect gross margin, although at the time he said the company was not planning on passing costs onto the consumer. On Thursday, the executives did not specify whether prices would be raised.
According to AEO’s website, the company works with the greatest number of factories in China (101), Vietnam (67) and India (39). It works with just 12 factories in the United States.
Before withdrawing its guidance, AEO warned back in March that shoppers are pulling back on spending.
The company added Thursday that it is on track to complete its $200 million accelerated share repurchase program in the second quarter.
As of Thursday’s close, AEO stock has fallen roughly 33% year-to-date.
