Dive Brief:
- The American Eagle brand’s first quarter comparable sales dropped 2% year over year, mostly driven by declines in women’s bottoms, Aerie and American Eagle President and Executive Creative Director Jen Foyle said on an earnings call Thursday.
- Aerie shined in the period with a 25% bump in comparable sales, per a press release. American Eagle Outfitters’ total net revenue in Q1 grew 10% to $1.2 billion.
- The retailer’s interest expense during the quarter increased because of a transaction agreement in which it sold a portion of its tariff claims, CFO Mike Mathias said on the call. American Eagle Outfitters applied for roughly $190 million in tariff refunds, with a $140 million anticipated net cash benefit from it.
Dive Insight:
Despite being famous for its marketing tie-up with Sydney Sweeney, American Eagle is struggling to sell bottoms more recently.
“We are not satisfied with where the business performed this quarter, especially in women’s,” Foyle said of the American Eagle brand during the call. “We know what needs to be corrected, and the teams are aligned and activated to return AE to growth.”
The brand saw better results in American Eagle’s men’s offerings, the executive noted. On women’s bottoms, the brand is already refining offerings and optimizing to provide fresh newness in anticipation of the back-to-school season.
The poor performance in women’s bottoms was compounded by other factors, TD Cowen analysts led by Jonna Kim said in an emailed note Thursday.
“Specifically, [American Eagle] misallocated assortment and lacked sufficient depth in key winning fits/silhouettes, leading to underperformance in its largest category,” the analysts said. “This was compounded by weaker conversion (particularly in stores), product productivity gaps, and some external pressures (cold weather, need for markdowns).”
But the retailer’s Aerie brand — which also has an athletics subbrand named Offline — continues to show strength for the business.
“We believe Aerie’s comp will prove to be one of retail’s very best by the end of earnings season,” UBS analysts said in a Friday note. “Plus, the market is significantly underestimating Aerie’s subbrand called Offline … It has 117 stores today (some are standalone and others are side-by-side with Aerie). We believe Offline’s store count could triple. This is a reason we continue to expect big growth from Aerie.”
