Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Eagle Outfitters Inc (AEO, Financial) achieved a record revenue of $1.3 billion in the second quarter, marking the sixth consecutive quarter of record revenue.
- The company reported a 4% increase in comparable sales and an 8% total revenue increase for the quarter.
- Operating income grew by 55% year-over-year, demonstrating significant leverage in the cost base.
- Aerie achieved another record revenue result with comps increasing 4%, driven by strength in apparel and the Offline active sub-brand.
- The company exited the quarter with a strong balance sheet, holding $192 million in cash and no debt.
Negative Points
- The swim category underperformed, impacting Aerie's overall performance.
- The company noted a moderation in sales during July, which was an industry-wide trend.
- Despite strong performance, the company is cautious about the dynamic macro environment and the importance of inventory and expense discipline.
- There is an expected shift in revenue due to the retail calendar, which may impact quarterly comparisons.
- The company faces ongoing competitive pressures in the promotional environment, which could affect margins.
Q & A Highlights
Q: Jen, can you go deeper into the early reads on back-to-school performance between Aerie and American Eagle? How do you think about the duration of back-to-school in terms of having a second wind after September?
A: We're pleased with the acceleration in back-to-school, particularly in denim, which is a mainstay for American Eagle. Women's denim is performing well with new silhouettes. Aerie is also seeing growth in categories like soft dressing and OFFLINE activewear. We expect back-to-school demand to stretch into early September, especially in the Northeast.
Q: Could you speak to the core consumer relative to new customer acquisitions? What are you seeing from your existing customer, and what do you think is driving new customer acquisition?
A: We're leaning into our marketing campaigns and new categories like 24/7 and AE77. This is helping us attract new customers and retain existing ones. Both brands saw double-digit growth in their customer files, indicating widening appeal and effective retention strategies.
Q: On gross margin, how should we think about third-quarter relative to fourth-quarter expectations?
A: With the revenue shift in the calendar, we don't expect gross margin to expand as much as in the first half. However, we still see favorability in our initial markups and are managing promotions and markdowns intelligently.
Q: What are you expecting from the promotional environment from other retailers?
A: The promotional environment is always competitive, but we manage markdowns intelligently and compete when necessary. Our price-quality equation is strong, which helps us maintain discipline in promotions.
Q: How are you seeing traffic in stores versus digital?
A: Both stores and digital channels were positive in the second quarter and continue to be strong into the third quarter. Traffic is healthy in both channels.
Q: Can you give more specifics on what you're seeing quarter-to-date by brand?
A: Both brands were positive in the second quarter. Aerie, excluding swim, was up 7%. This trend has continued into August, with AE maintaining its second-quarter trend and Aerie picking up.
Q: How are you planning for the holiday season?
A: We're planning for a similar elongation of demand as seen in recent years, with a focus on maintaining strong performance through peak traffic periods.
Q: What are your thoughts on the real estate environment and store growth plans?
A: We see a lot of opportunities with our new store designs and formats. We're planning 25 to 30 new Aerie and OFFLINE stores this year and 20 to 25 AE store closures, keeping us net neutral on total stores. We're also executing 70 to 80 remodels, which are showing great results.
Q: Can you talk about the moving pieces of your updated sales guidance for the full year?
A: The updated guidance reflects tightening in other revenue components, not our core AE and Aerie business. We're still expecting approximately 4% comp growth for the year.
Q: How do you stack-rank the opportunities within SG&A for cost savings?
A: Key focus areas include store labor, corporate compensation, advertising, and services purchased. These areas showed leverage in the second quarter and will continue to be managed tightly.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
