American Eagle Outfitters Inc. (NYSE:AEO) reported soft financial results for the first quarter, in line with its preliminary release, as a $75 million write-down in spring and summer merchandise weighed on its performance.
Earlier this month, the company pulled its full-year outlook citing macroeconomic uncertainty.
“As we noted in our preliminary release, the first quarter was a challenging period for our business,” American Eagle CEO Jay Schottenstein said in a statement.
“While we are disappointed with the results, we are taking actions to better position the company and drive stronger performance in the upcoming quarters.
Revenue for the first quarter fell 5% year-over-year to $1.1 billion, in line with estimates.
Comparable sales declined 3%, worse than the 2.1% drop expected, with Aerie comparable sales down 4% and American Eagle comparable sales down 2%.
The company reported an adjusted loss per share of $0.29, more than the loss per share of $0.25 expected.
Jefferies analysts saw several bright spots in the report, such as strength in OFFLINE, Aerie’s activewear line.
Additionally, American Eagle’s efforts to diversify its supply chain remain on track. The company expects to reduce its sourcing from China to less than 10% by the year-end, with fall and holiday seasons dropping to low-single digits.
However, this was overshadowed by ongoing weakness in the core Aerie brand.
“Assortment misses led to write-downs on inventory, while weaker sales and elevated promotions drove expense deleverage and margin contraction,” analysts wrote. “Although trends improved in March and April, Q2 guidance remained muted.”
The analysts believe American Eagle shares will likely be range-bound from here.
“With inventories being cleared ahead of back-to-school and holiday selling, the American Eagle and Aerie brands will need strong merchandising and improved execution to drive a top-line recovery,” they wrote.
“We believe American Eagle will continue to face macroeconomic headwinds that could weigh on results over the next twelve months.”
As such, the analysts maintained their ‘Hold’ rating on American Eagle with a price target of $11.
Shares traded down 1.3% at $11 on Friday morning.