Pittsburgh—Despite an uptick in profit, American Eagle Outfitters (AEO) suffered a drop in sales during its second quarter—and the teen retailer anticipates further declines ahead. The report issued today caused the company’s shares to fall in early trading.
For the quarter ended August 4, AEO posted a 3% increase in net profit to $19.59 million, or 10 cents a share, compared with $19.03 million, or 9 cents a share, a year ago.
Excluding special items, adjusted income was 10 cents a share compared to last year’s 21 cents a share. Analysts’ average estimate expected 10 cents a share.
Net revenue edged down 1.7% to $727.3 million, but still managed to beat analysts’ estimate for $719.46 million in sales. Total comparable store sales, including AEO Direct, were down 7%, versus an 8% increase in the same quarter last year.
‘Disappointing Product Execution in Women’s’
AEO direct business, including ae.com, and aerie.com, reported an 11% increase in comp store sales. Comparable store sales at American Eagle brand stores declined 8%, and decreased 2% at Aerie brand stores.
Gross margin narrowed 360 basis points to 33.8% amid higher markdowns, deleverage of rent as well as increase in selling, general and administrative expenses.
“Our second-quarter results reflected disappointing product execution in women’s. Additionally, we faced a highly promotional and competitive retail landscape and a decline in traffic, which have continued into the third quarter,” said American Eagle CEO Robert Hanson. “We are working hard to strengthen our assortments, marketing efforts and overall execution, while maintaining tight inventories and disciplined expense management.”
As for the specialty retailer’s third quarter, it now expects earnings between 14 to 16 cents a share on comparable store sales in the negative mid-to-high-single digit range.
Analysts’ estimate expects 35 cents a share down from a previous 41 cents a share.
The company lowered its full year capital expenditures forecast to a range of $230 million to $250 million, citing the retiming of projects, from the previous projection of $250 million to $280 million. The capital spending plan includes new store growth, remodels, a new distribution center to support omnichannel sales and new upgraded technologies.