American Eagle Outfitters, Inc. (AEO) shares are taking a significant dive in pre-market trading on Thursday following the release of the company’s second-quarter earnings report. While the company managed to beat analyst expectations on adjusted earnings per share (EPS), revenue fell short, leading to a mixed bag of results.
The company reported adjusted EPS of 39 cents, exceeding the consensus estimate of $0.38. However, revenue rose 8% year-over-year (Y/Y) to $1.29 billion, missing the street’s projection of $1.31 billion. This discrepancy between earnings and revenue growth is likely contributing to the negative market reaction.
Despite the revenue miss, the company showed positive signs in key areas. Comparable sales for American Eagle rose 5%, while Aerie, its sister brand, saw a 9% increase in comparable sales. Store revenue also increased by 7%, and digital revenue climbed 12% during the quarter.
The company’s gross profit rose by 10% Y/Y to $499 million, resulting in a gross margin rate of 38.6%, representing a 90 basis point improvement. This growth was attributed to higher merchandise margins, fueled by favorable product costs and expense leverage, particularly in rent and digital delivery costs. Total ending inventory grew by 4% Y/Y to $664 million. Capital expenditures reached $61 million in the second quarter and $97 million year-to-date.
Looking ahead, American Eagle Outfitters projected third-quarter operating income between $120 million and $125 million. Comparable sales growth is expected to range between 3% and 4%, with total revenue expected to be flat to slightly up. For the full fiscal year 2024, the company now anticipates operating income between $445 million and $465 million.
The company also revised its fiscal 2024 comparable sales growth guidance to around 4%, with total revenue projected to rise 2% to 3% (compared to the prior outlook of 2% to 4%). For FY24, management continues to expect capital expenditures to be between $200 million and $250 million.
American Eagle CEO Jay Schottenstein expressed optimism about the company’s performance, stating, “Our Powering Profitable Growth strategy is off to a great start, locking in a strong first half and setting us on track to achieve the high end of our prior operating profit outlook for 2024.” He further emphasized, “The second quarter marked our sixth consecutive quarter of record revenue, and we successfully leveraged our cost base – advancing a number of strategic priorities to fuel growth across brands and channels and drive operating efficiencies.”
Investors interested in gaining exposure to American Eagle Outfitters can consider the Avantis U.S. Small Cap Value ETF (AVUV) and the Invesco S&P SmallCap Consumer Discretionary ETF (PSCD).
AEO shares are currently down 6.68% at $20.25 in pre-market trading.
