A consumer walks past the shop of American clothes and niknaks retailer American Eagle in Hong Kong.
Budrul Chukrut | Light rocket | Getty Images
American Eagle missed Wall Street’s sales targets for the second consecutive quarter on Thursday, but profit rose nearly 60%, thanks partly to lower product costs.
The company’s shares fell greater than 7% in premarket trading on Thursday.
Here’s how the apparel company performed in its second fiscal quarter in comparison with Wall Street expectations (based on an analyst survey conducted by LSEG):
- Earnings per share: 39 cents in comparison with expected 38 cents
- Revenue: $1.29 billion versus expected $1.31 billion
The company reported net income for the three-month period ended Aug. 3 was $77.3 million, or 39 cents per share, in comparison with $48.6 million, or 25 cents per share, a 12 months earlier.
Sales rose to $1.29 billion, a rise of around 8 percent over the previous 12 months’s figure of $1.2 billion. This sales increase would have been lower had it not been for a calendar shift that had a positive impact on sales within the second quarter and amounted to $55 million.
During the quarter, American Eagle’s Aerie lingerie line saw sales increase 9%, while its namesake brand grew 8%.
American Eagle’s gross margin was 38.6%, up 0.9 percentage points from a 12 months ago and in step with analysts’ expectations. The increase in gross margin was as a result of “favorable product costs,” which suggests American Eagle spent less on its assortment through the quarter. It’s unclear whether the corporate cut prices consequently.
The long-standing mall brand reported better-than-expected outlook for the present quarter but lower-than-anticipated full-year earnings, suggesting the corporate continues to be bracing for a turbulent second half of the 12 months.
According to StreetAccount, American Eagle expects comparable sales growth of between 3 and 4 percent for the present quarter. This is best than the expansion of two.8 percent expected by analysts.
According to LSEG, the retailer expects total sales to be flat or increase barely within the third quarter – which is in step with expectations.
For the total 12 months, the corporate expects comparable sales to extend by about 4%, with total revenue rising by 2% to three%, below analyst expectations. Wall Street had expected comparable sales to extend by 4.2% and total revenue to extend by 3.5% for the total 12 months, in response to StreetAccount and LSEG.
In May, Chief Financial Officer Mike Mathias told CNBC that American Eagle was maintaining a “cautious” stance for the second half of the 12 months because it awaited rate of interest decisions from the Federal Reserve and ready for “noise” related to the upcoming presidential election.
Like other retailers grappling with falling demand for consumer goods, American Eagle is attempting to cut costs and increase efficiency to guard its profits at the same time as sales are sluggish. Earlier this 12 months, the corporate unveiled a brand new technique to boost profits and is working to grow sales 3 to five percent annually over the subsequent three years and produce operating margins to about 10 percent.
During the quarter, American Eagle made some progress toward that goal. The company reported operating income of $101 million, a rise of 55 percent, while operating margin increased 2.4 percentage points to 7.8 percent. Operating income would have been lower had it not been for the calendar shift, which had a $20 million positive impact on the metric.
