The Retailer Reports Strong Second-Quarter Earnings, Boosts 2024 Forecast
American Eagle Outfitters, Inc. reported progress on its strategic roadmap with strong second-quarter gains for both its American Eagle and Aerie brands across channels. During the period ending August 3, net income lifted to $77.3 million, a jump from $48.57 million the same period last year. This equates to 39 cents per share, up from last year’s 25 cents. Revenue marked an 8% increase to $1.3 billion, rising from $1.2 billion.
At $101 million, the company’s operating income rose by 55%, surpassing earlier expectations for the year which placed operating income between $95 million and $100 million. This growth includes around $20 million from the shift in the retail calendar. The company also saw an operating margin expansion of 240 basis points to 7.8%.
Projections for 2024 operating income received a slight boost, now expected to be somewhere between $455 million and $465 million, an increase from the original guidance of $445 million to $465 million. Nonetheless, the company has slightly lowered anticipation for total 2024 revenues to rise by 2 to 3%, a decrease from previous estimates of 2 to 4%. Comparable sales in 2024 are projected to increase approximately 4%, and total 2024 revenues are forecast to rise between 2 and 3% as opposed to previous guidance between 2 and 4%.
“We’ve exceeded our original plans and guidance for the first quarter and second quarter,” said Chief Financial Officer Michael Mathias. “Our second-quarter results were strong and build upon our strong first-quarter performance as well.” He attributed this achievement to strength in both the American Eagle and Aerie brands in both in-store and online sales during the second quarter.
Mathias disclosed that American Eagle’s sales were driven predominantly by women’s products, although progress in menswear was noted too. Aerie’s Offline subbrand was named as a key growth driver. He expressed confidence in consumers, asserting,
We feel good about the consumer. Our value equation resonates with consumers. We are in that middle sweet spot where we can navigate the challenges of any specific consumer group.”
Reporting on operations, Mathias revealed that AEO’s inventory aligns well with the company’s revenue trend, and he expects this to continue through the year. The ending inventory rose 4% to rest at $664 million, reflecting sales trends. Expense management disciplines are effectively working for the company, Mathias said, adding that the plan is to cap expenses throughout the year. Gross profit stood at $499 million, up by 10%, showing a gross margin rate of 38.6%, a 90-basis point expansion.
AEO’s “Powering Profitable Growth” strategy, revealed last March, is also off to a promising start, already showing results in the first half of the year and putting the company on track to reach the high end of its previously estimated operating profit for 2024. This strategy aims to achieve mid-to-high teens annual operating income expansion on 3 to 5% annual growth revenue and roughly a 10% operating margin over the next three years. In terms of sales, it’s set to add more than $700 million over the next three years, pushing revenues from $5.26 billion in 2021 to potentially over $6 billion. Key to this are its plans to boost the American Eagle brand and denim business while growing Aerie and accelerating active wear growth via Offline.
AEO is predicting operating income for the third quarter will range between $120 million and $125 million. Comparable sales are expected to see a 3 to 4% increase, with total revenue being flat to slightly up, also reflecting the effect of the retail calendar.