American Eagle Outfitters, Inc. Q1 FY2025 earnings call

Key Points

• The company had a $68 million adjusted operating loss in the first quarter due to margin impact and a $75 million inventory write-down.
• American Eagle comps were down 2% and Aerie comps declined 4% due to product misses, higher design and transportation costs at Aerie, and cold spring weather.
• Actions taken include closing two edge fulfillment centers, implementing increased rigor in the buying process, focusing on supply chain optimization, mitigating tariffs, and strategic manufacturing moves.
• Capital allocation included a $200 million accelerated share repurchase program, $31 million in open market share repurchases, and $22 million in cash dividends.
• Focus on the back-to-school season and working to improve product performance for future quarters.

In the first quarter, American Eagle comps were down 2% and Aerie comps declined 4%. Consolidated revenue was $1.1 billion, a 5% decline from the previous year. Comparable sales decreased 3%. Gross profit dollars were $322 million, including approximately $75 million in inventory write-downs on spring and summer goods. The gross margin was 29.6%. The merchandise margin decreased 960 basis points due to inventory write-downs, higher in-season markdowns, product costs, and increased freight.

The company paused full-year guidance but provided Q2 expectations: revenue is expected to trend similar to the first quarter with a 5% decline and comparable sales down approximately 3%. Operating income is expected to be in the range of $40 to $45 million. Gross margin is expected to be down year over year primarily due to higher in-season markdowns and BOW cost deleverage. SG&A dollars are expected to be roughly flat. Currency pressure is expected to alleviate in the second half of the year.

• Macro environment and cold spring weather presented challenges.
• Product execution misses led to inventory write-downs and margin pressure.
• Tariffs and supply chain uncertainties impacted the business.

Q: Matthew Boss asked about the consumer view and retail landscape impact.

A: Jay Schottenstein said the company is optimistic, hoping for a tax plan to stimulate the economy in the second half, and mentioned that initial macro concerns are settling.

Q: Jay Sole asked Jen Foyle about merchandising issues.

A: Jen Foyle discussed product repairs, focus on back-to-school, and areas of strength like Offline by Aerie.

Q: Dana Telsey asked about capital allocation and merchandise assortment.

A: Mike Mathias talked about reducing CapEx guidance to $275 million, recadencing projects, and Jen Foyle mentioned denim is still doing well and focus on back-to-school marketing.

Q: Marni Shapiro asked about denim performance and marketing.

A: Jen Foyle said denim is strong in women's, men's is seeing acceleration, and marketing is weighted towards back-to-school.

Q: Rick Patel asked about promotions and SG&A outlook.

A: Mike Mathias discussed promotions in the second quarter and flat SG&A for the year with increased advertising spend for back-to-school.

Q: Jonah Kim asked about digital performance and tariff impact.

A: Jen Foyle said digital had an uptick and they're mitigating tariff impact through production and planning.

Q: Alex Stratton asked about guidance reinstatement and Q2 metrics.

A: Mike Mathias talked about needing more visibility to reinstate full-year guidance and focusing on metrics like traffic, AUR, and conversion.

Q: Chris Nardone asked about Q2 trends and margin impact.

A: Mike Mathias said brands are trending similar to the comp guide, and product cost is favorable with mitigated tariff impact in the second quarter.