American Eagle Outfitters Inc. (NYSE:AEO) has revised its full-year revenue forecast downwards, citing a slowdown in demand for non-essential items and clothing in the face of persistent inflation.
The company now anticipates annual revenue to remain flat or decline by low-single digits, a revision from its previous forecast of flat to slightly higher figures.
Additionally, it expects second-quarter revenue to decrease by low-single digits, contrasting with analysts' average estimate of a 1.6% increase, according to Refinitiv data.
As a result, American Eagle shares fell over 15% on Thursday morning.
That said, the retailer’s first-quarter print was quite positive. During the quarter ended April 30, 2023, American Eagle's revenue of $1.08 billion slightly surpassed analyst expectations of $1.07 billion, while its adjusted earnings of $0.17 per share were in line with projected estimates.
While American Eagle experienced a 2% decline in revenue for its namesake division, its Aerie division, which specializes in activewear, swimsuits, and bralettes, saw a notable 12% increase in revenue during the first quarter. CFRA Research analyst Zachary Warring commented on the shift in consumer preferences, noting a continued preference for athleisure over traditional jeans.
Despite the challenges, American Eagle managed to improve its gross margin rate for the quarter, reaching 38.2% compared to 36.8% the previous year. This was attributed to lower compensation, transportation, and delivery costs. The company successfully cleared excess inventory through promotions and discounts, resulting in an 8% decline in inventory levels compared to a significant 46% increase the previous year.
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