American Eagle beats estimates with strong holiday season
American Eagle Outfitters on Monday announced that its holiday same-store sales increased 8%, beating the holiday forecast from FactSet cited by Dow Jones for 5% growth.
The teen apparel retailer reiterated its previous fourth quarter earnings guidance for between 42 cents to 44 cents per diluted share — well above its adjusted earnings of 39 cents last year. The company reports its fourth quarter and fiscal 2017 results on March 8, according to a company press release.
A month ago the company reported its 11th consecutive quarter of positive sales growth, as total net revenue in the third quarter rose 2% to $960 million. At the same time, gross profit in the quarter was $375 million, down from $378 million last year, and the gross margin rate declined 120 basis points to 39%. Higher promotions and increased shipping costs, associated with a strong digital business, drove the drop in profit, the company said.
The holidays lifted many retail boats this year, and American Eagle was one of those. "We are extremely pleased to report a successful holiday season with record sales and strong momentum across the American Eagle and Aerie brands," Jay Schottenstein said in a statement. "Customers responded well to our merchandise offerings, which fueled positive traffic both online and in stores."
The report comes after the company announced a healthy third quarter last month, too, and that was also against a backdrop of stronger apparel sales. That raises the question of how much of American Eagle's growth springs from underlying natural demand versus its own improvements over the past year, noted GlobalData Retail Managing Director Neil Saunders in comments emailed to Retail Dive. "The company has much more work to do before it can claim to be back to full health," he said last month.
There's also the dip in profits unearthed in the third quarter, as e-commerce significantly ate away at margins, an indication of the trade-off retailers face as they stoke digital sales—where fulfillment is more expensive and more complex and the expectation for promotions often higher.
Meanwhile, the brand's growth is dependent on denim at the moment, a potential problem if it goes out of fashion, Saunders warned, though the retailer appears to be successfully pushing a wider assortment. "From our customer data, there is evidence to suggest that those shoppers who visit to buy jeans are now buying more in other categories too — this is particularly true for men," he said. "By using denim as a springboard to promote other parts of its offer, we believe American Eagle is on the right track."
Aerie is an even better story, serving up robust results, especially online — yet with plenty of room to continue to grow as it continues to steal market share from Victoria's Secret, which, by contrast, suffered over the holidays. Saunders said that Aerie's ongoing potential derives from two sources: its growing customer base and its merchandising expansion, adding that "the category extensions into products like soft knit tops and leggings are helping to increase average transaction values."
- press release via BusinessWire American Eagle Outfitters Provides Fourth Quarter Update, Reiterates EPS Guidance
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