AEO Inc. Reports Second Quarter Revenue and Operating Profit Above Expectations; Raises Annual Outlook Reflecting Strengthened Demand and Profit Initiatives
- Record second quarter revenue of $1.2 billion, up slightly to last year
- Operating profit of $65 million, up significantly, with growth across brands
- Aerie posted all-time high second quarter revenue
- American Eagle continued to see a sequential improvement in revenue trends
- Realizing initial benefits from profit improvement initiatives
September 6, 2023
PITTSBURGH — (BUSINESS WIRE) – American Eagle Outfitters, Inc. (NYSE: AEO) today announced financial results for the second quarter ended July 29, 2023.
“I am pleased to report second quarter revenue and operating profit that exceeded our expectations. Demand picked up in June and July reflecting brand strength and on trend collections that are resonating well with customers, supported by exciting new marketing campaigns. It’s encouraging to see positive momentum continue into the third quarter, across brands and channels,” commented Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Officer.
“Looking to the second half, we are excited about future product arrivals, leveraging the positive response to early fall goods and delivering innovative customer connections. At the same time, we are keeping a sharp eye on the consumer environment and planning appropriately. We are taking action to position the business for improved profit, with preliminary initiatives included in our increased 2023 outlook. As we continue to optimize our operations, I am confident in our ability to strengthen profitability longer-term.”
Second Quarter 2023 Results:
- Total net revenue of $1.2 billion was up slightly to the second quarter of 2022. Store revenue was up 4%. Digital revenue declined 7%.
- Aerie revenue of $380 million rose 2% versus second quarter 2022. Comp sales were flat. American Eagle revenue of $767 million declined 1% versus second quarter 2022. Comp sales declined 2%.
- Gross profit of $453 million increased approximately 22% compared to $370 million in the second quarter of 2022 and reflected a gross margin rate of 37.7% compared to 30.9% last year. Merchandise margin expansion was driven by lower markdowns reflecting inventory control and lower transportation and product costs. Gross profit also benefited from early profit improvement initiatives as well as lower delivery, distribution and warehousing costs.
- Selling, general and administrative expense of $332 million was up 8% to last year. Higher corporate compensation, incentives and other corporate expense were partially offset by cost efficiencies. SG&A increased 190 basis points as a rate to sales versus second quarter 2022.
- Operating income was $65 million, reflecting a 5.4% margin.
- Diluted EPS was $0.25. Average diluted shares outstanding were 196 million.
Inventory
Total ending inventory declined 7% to $637 million compared to $687 million last year, with units down 11%. The company continues to maintain inventory discipline.
Capital Expenditures
Capital expenditures totaled $46 million in the second quarter. For 2023, management continues to expect capital expenditures to approximate $150 to $175 million.
Profit Improvement Focus
This year, the company launched a comprehensive review of its cost structure, with near-term opportunities identified primarily within the gross margin, which represents approximately 70% of the company’s expense base. In the second quarter, initial benefits were realized, contributing to the year-over-year improvement in the gross margin. The increased outlook for fiscal 2023, incorporates additional back half benefits in addition to stronger business trends. The profit improvement project is ongoing with initiatives being launched across the company’s expense base, which are expected to yield results over the next 12 to 24 months.
Outlook
For the year, management expects revenue to be up low single digits to last year, compared to prior guidance for revenue in the range of flat to down low single digits. Operating income is expected to be in the range of $325 to $350 million, up from prior guidance of $250 to $270 million. This reflects better than expected business performance in the second quarter, in addition to strengthened demand and continued profit improvement in the back half of the year. The outlook includes approximately $25 million in benefits from the company’s profit improvement initiatives. With better business trends, the company is accruing incentives and expects SG&A to be up in the low double digits for the year.
For the third quarter, management’s outlook reflects revenue up low single digits with operating income in the range of $115 to $125 million. With incentive accruals skewed to the back half of the year, SG&A is expected to increase in the mid-teens. Depreciation is expected to be similar to the second quarter.
Conference Call and Supplemental Financial Information
Management will host a conference call and real time webcast today at 4:30 p.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to www.aeo-inc.com to access the webcast and audio replay. Additionally, a financial results presentation is posted on the company’s website.
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About American Eagle Outfitters, Inc.
American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle® and Aerie® brands. Our purpose is to show the world that there’s REAL power in the optimism of youth. The company operates stores in the United States, Canada, Mexico, Hong Kong and Japan, and ships to approximately 80 countries worldwide through its websites. American Eagle and Aerie merchandise also is available at more than 260 international locations operated by licensees in approximately 30 countries. In 2022, AEO released its first annual Building a Better World report, which outlines two decades of ESG achievements through the company’s Planet, People and Practices initiatives. For more information, please visit www.aeo-inc.com.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This release and related statements by management contain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which represent our expectations or beliefs concerning future events, including third quarter and annual fiscal 2023 and annual fiscal 2024 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on many important factors, some of which may be beyond the company’s control. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise and even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The following factors, in addition to the risks disclosed in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 and in any other filings that we may make with the Securities and Exchange Commission in some cases have affected, and in the future could affect, the company’s financial performance and could cause actual results for fiscal 2023 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this release or otherwise made by management: the negative impacts of the COVID-19 pandemic and related operational disruptions; the risk that the company’s operating, financial and capital plans may not be achieved; our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately; seasonality of our business; our inability to achieve planned store financial performance; our inability to react to raw material cost, labor and energy cost increases; our inability to gain market share in the face of declining shopping center traffic; our inability to respond to changes in e-commerce and leverage omni-channel demands; our inability to expand internationally; difficulty with our international merchandise sourcing strategies; challenges with information technology systems, including safeguarding against security breaches; and global economic, public health, social, political and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, which could have a material adverse effect on our business, results of operations and liquidity.
