American eagle announced Thursday a brand new technique to boost profitable growth over the subsequent three years because the retailer said it had written off $94 million in impairment charges related to its internal logistics business, Quiet Platform.
The company also reported holiday earnings that beat Wall Street expectations due to strong demand and lower markdowns and input costs.
Shares closed 2% lower on Thursday.
Here’s how American Eagle performed within the fiscal fourth quarter in comparison with Wall Street’s expectations, based on an analyst survey from LSEG, formerly referred to as Refinitiv:
- Earnings per share: 61 cents adjusted vs. 50 cents expected
- Revenue: $1.68 billion vs. expected $1.67 billion
The company’s reported net income for the three-month period ended Feb. 3 was $6.32 million, or 3 cents per share, compared with $54.6 million, or 28 cents per share, a 12 months earlier. Excluding one-time items, American Eagle had adjusted profit of 61 cents per share.
Revenue rose to $1.68 billion, up about 12% from $1.5 billion a 12 months ago.
For the present quarter, American Eagle expects revenue to extend within the mid-single-digit percentage range, consistent with estimates of 5%, based on LSEG. For the complete 12 months, the corporate expects revenue to rise 2% to 4%, with the high end exceeding analysts’ expectations of two.9%, based on LSEG.
During the Covid pandemic, American Eagle spent a whole bunch of tens of millions of dollars to amass a series of shipping and distribution corporations that eventually became Quiet Platforms, the retailer’s internal logistics division. It was designed to streamline American Eagle’s own shipping needs, but the corporate also desired to “supersize” the worldwide supply chain by serving as a logistics platform for other corporations.
Last spring, American Eagle admitted that Quiet Platforms was not performing as expected. The segment’s president and chief operating officer had left the corporate because the retailer worked to restructure the business. RetailDive reported.
In the fourth quarter, American Eagle recorded impairment and restructuring charges related to Quiet Platforms of $98.3 million. The majority of this was because of impairments of goodwill, intangible assets and technology, which are not any longer a part of the platform’s long-term strategy. Employee severance costs were $4.3 million.
While the investments may not have the worth they’d once they were made, Chief Financial Officer Mike Mathias told CNBC that the platform has benefited the general business.
“We see benefits in all P&L segments of our brand,” said Mathias. “A large portion of our gross margin growth is attributable to the resulting delivery and supply chain cost benefits.” [platform] that we have now now arrange has made it possible.”
Looking ahead to the subsequent three years, American Eagle unveiled its “Powering Profitable Growth Plan,” which focuses on three key pillars: Amplify, Execute and Optimize. In an obvious nod to the corporate, the pillars also read AEO, the initials and the American Eagle stock ticker.
The strategy goals to realize a rise in annual operating profit of three to five% per 12 months over the subsequent three years. American Eagle can be targeting an operating margin of about 10%.
The retailer has worked to extend profits over the past 12 months as its margins have been weak in comparison with some competitors. In the fourth quarter, the gross margin was 37.3%. It was higher than StreetAccount’s expected 36.6%, but well below the gross margin of its long-time competitor Abercrombie & Fitchwhich on Wednesday reported a fiscal fourth-quarter margin of about 63%.
To increase profits, American Eagle plans to strengthen its brands by expanding its namesake banner, drive expansion of Aerie and expand the activewear range under its offline banner. The company will deal with financial discipline and optimizing its operations to drive growth and long-term profits.
“Starting with American Eagle … we’ve been working over the last three years to really rebuild that brand, streamline the fleet, streamline the item count and really focus on what we’ve missed,” said Jennifer Foyle, president and inventive director of American Eagle Director, said in an interview with CNBC. “We were definitely over-sorted and so there was a lot of work and then building the brand DNA, which will be a nice reveal for back to school.”
She said the corporate has a brand new store design that’s performing higher than average and it has plans to progressively renew its store fleet to construct on this success. The company can be expanding into recent categories, reminiscent of its offline banner, which it launched in 2020 and which outpaced Aerie’s growth in its early years.
“If we open an offline store in the same mall, that store will either match Aerie volume or in some cases exceed Aerie volume,” Foyle said. “I think we win in a very ubiquitous activewear business by entertaining and doing it a little differently than our competition. We are colorful, we are vibrant, the stores are fun and exciting. So I think we really have one. We really believe in what we can do in this business and we like the results.”
