American Eagle Outfitters stock plummets on profit miss, paused dividend
American Eagle Outfitters (NYSE:AEO) $American Eagle Outfitters(AEO)$stock slid by double-digits in Wednesday’s extended session after the company posted a disappointing second quarter earnings result.
The Pennsylvania-based retailer posted significantly lighter than expected EPS alongside in-line revenue. Gross profit declined 26% from a particularly strong 2021 and reflected an over 11% margin contraction. “This is an unprecedented time in retail. As we cycle exceptional demand from last year, a tougher macro environment is impacting consumer spending behavior,” CEO Jay Schottenstein said. “Second quarter performance reflected these challenges, constraining revenue and amplifying margin pressure as we fully cleared through excess spring and summer goods.”
Despite the clearing of excess goods, inventory remained elevated year over year, rising 36% from the prior year.
M Science Senior Analyst Matthew Jacob told Seeking Alpha in an interview ahead of the release that while Aerie and denim trends appeared positive in his channel checks, smaller basket sizes among consumers added some caution ahead of the report. While he correctly predicted the sales to hit the target set by analysts, he also warned clients on margins and guidance given inauspicious results from peers like Urban Outfitters (URBN) and Nordstrom (JWN).
On guidance, CEO Jay Schottenstein offered yet more caution.
“In a shifting macro environment, we are focused on controlling the controllables,” he said. “Given ongoing external uncertainties, we have taken additional actions to improve financial performance. We have made more expansive expense reductions and are pulling back further on capital expenditures. As an additional cautionary move, we have paused our quarterly cash dividend to strengthen our cash position.”
Thus far in the third quarter, the company added that “demand trends remain difficult, with brand revenue down in the high-single digits'' from 2021. Gross margins are expected to remain depressed in the mid-30% range into the close of the year as the retailer continues promotional activity to clear inventory. Inventory levels are expected to continue year over growth in the current quarter before reversing trend in the fourth quarter.
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