American Eagle Outfitters Profits Almost Halve;  Gearing up for the promotional holiday shopping season

American Eagle Outfitters is the newest retailer is gearing up for increasingly promotional ones holiday shopping season as it continues to manage inventory and changing consumer shopping patterns.

The retailer, which includes American Eagle, Airy, Offline by Aerie, Canceled subscription, Todd Snyder and AE77 brands — is revealed quarterly profits Tuesday morning before the market opens, both the upper and lower lines fall. But the company said it had made progress over the past three months in right-sizing the vessel and bringing inventory levels more in line with demand.

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As a result, AEO shares rose nearly 9 percent in premarket hours.

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“I am pleased to deliver a third quarter that exceeded our expectations, with profit margins significantly improving compared to the first half of the year,” Jay Schottenstein, Executive Chairman and CEO of American Eagle Outfitters, said in a statement. “Bold actions to streamline inventory and reduce costs are paying off. Our inventory is in good shape, up 8 percent over last year, with progress continuing into the fourth quarter. We remain disciplined and focused on improving profitability and cash flow while maintaining a healthy balance sheet.

“As we navigate the current macro environment, we remain focused on our strategic initiatives – leading with innovation and smart investment in capabilities that will differentiate us over the long term,” continued Schottenstein. “Our organization is strong and I have tremendous confidence in the sustainability of our brands. We are excited about the upcoming merchandise collections and look forward to delivering an exceptional customer experience across all brands and channels during this time holiday season.”

Found a dress in a store Unsubscribed.

Dress from the brand Unsubscribed. Unsubscribed is AEO’s slow retail brand.

Revenue for the three-month period ended Oct. 29 fell 3 percent to $1.24 billion, from $1.27 billion a year ago. Consolidated store revenue was down 4 percent, while total digital product revenue was down 5 percent from the prior year.

The retailer said overall brand revenue fell 5 percent in the quarter, but was still better than the company’s expectations for a high single-digit decline. AE brand revenue fell 11 percent in the quarter from a year earlier to $838 million. The brand’s PC sales fell 10 percent from last year, or were flat from the third quarter of 2019 before the pandemic.

Headwinds for the quarter include Airy business. Sales in inner wear, the casual wear and swimwear brand posted an 11 percent increase over last year’s results. Comp sales at Aerie fell 3 percent in the quarter from a year ago, but were up 59 percent from 2019.

Aerie Shapewear

Parts of Aerie’s “anti-shaping” Smoothez collection.

The firm said its supply chain business, which include Quiet Logistics and AirTerra, added about 2 percentage points to revenue growth. Enterprise rents and warehouse space were also reduced, partially offset by lower incentive compensation. AEO said it continues to add other third-party brands to the platforms.

Inventory costs for the quarter increased 8 percent to $798 million, compared with $740 million a year ago, as units rose 7 percent. The retailer expects inventory levels for the fourth quarter to be lower than last year.

American Eagle Outfitters posted $81.2 million in total revenue for the quarter, down 46.5 percent from last year’s third-quarter profit of more than $152 million.

Across the industry, retailers are gearing up for weak fourth quarter holiday shopping season as inflation continues and many consumers trade discretionary items for experiences. Excess inventory and reduced margins forced some retailers to increase markdowns ahead of the holidays.

In AEO’s case, the company expects the brand’s fourth-quarter revenue to fall into the mid-single-digit range, while the brand’s competitors are expected to be in line in the third quarter as the retailer plans a heavily promotional holiday shopping season. The company expects a fourth-quarter gross margin in the range of 32 percent to 33 percent, which is at the upper end of its previous guidance.

The firm said in a statement that it remains on track to reduce costs by $100 million as it continues to “reduce costs in store payroll, corporate expenses, professional services and advertising.”

The company ended the quarter with about $82 million in cash and cash equivalents and about $412 million in long-term debt.

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