American Eagle Outfitters on Wednesday reported that first quarter total net revenue rose 8%, or $63 million, to a record $886 million from $823 million last year, as store comps rose 6%.
By brand in the quarter: Flagship American Eagle's comparable sales rose 4%, following a 4% increase in the year-ago period. Aerie saw its 18th consecutive quarter of double-digit comps, rising 14%, following its 38% increase last year, according to a company press release.
Gross profit rose 7% to $325 million from $304 million a year ago, as the gross margin rate contracted slightly to 36.7% from 37% last year due to markdowns and delivery expense, the company said. Net income reached $40.8 million or 4.6% of revenue, from $39.9 million or 4.8% of revenue a year ago. With adjusted operating margin contracting to 5.6% from 6.4% last year, adjusted operating income fell 6% to $49 million from $52 million last year.
Like Gap, whose first quarter performance led some observers to question the wisdom of its Old Navy separation, American Eagle said the first quarter's cold spring hurt results. Unlike Gap, however, the apparel retailer managed to pull off strong sales and store comps and, executives said Wednesday morning, take share in jeans and lingerie.
It's a disruptive time for apparel retail, noted CFO Bob Madore, but the company isn't suffering like rivals that are announcing store closures, bankruptcies and restructuring. During the quarter, the company opened seven American Eagle stores and closed five, ending with 936 of those flagships, plus 119 Aerie stand-alone stores. Internationally, the company ended with 235 licensed stores, up from 217 last year. The retail expansion is "patient and prudent," executives said, noting that the company seeks only desirable mall locations and won't settle for less.
Lower product costs helped mitigate margin pressures in the quarter. But Madore downplayed the threat of tariffs on expenses, saying that it has been working closely with suppliers in China "for quite a while" as well as diversifying its sourcing geographies. Mexico tariffs are a non-issue for the company, he also said. "The biggest issue [for me personally] is the price of avocados," he said.
The company's side Aerie business isn't just taking market share in lingerie, but also bolstering the flagship. In areas where Aerie sales are within or adjacent to American Eagle stores, women's sales rise, Madore said. In another affront to Gap, however, American Eagle executives touted the company's jeans business — a strong indication that their confidence isn't just centered on the success of its Aerie brand — saying they now consider their brand the leader in the denim category. Plans are set to expand sizing, with women's jean sizes 00 to 24 and men's waist sizes up to 48 in all stores and online. Customers are also reacting well to sustainability moves like the use of recycled polyester and other efforts.
In all, executives said the retailer is primed for the back-to-school season. "The product we make today is the best product we've ever made," CEO Jay Schottenstein told analysts.