American Eagle Outfitters Inc. (NYSE:AEO) shares fell nearly 16% Thursday after mixed second-quarter results, with revenue modestly above consensus even as reported earnings got a significant boost from tariff refunds.
Consolidated sales rose 8% to $1.38 billion, with comparable sales up 6%, led by Aerie and improving trends at the core American Eagle brand.
Jefferies said the quarter came in at the high end of expectations, with management guiding for third-quarter comps in the mid-to-high single digits.
Aerie remained the standout, with revenue up 25% and comps up 19%, supported by broad-based strength across apparel, activewear, intimates, and digital and store channels. Jefferies pointed to continued customer acquisition and market share gains in intimates, with brand awareness still only around 59%, leaving room for further growth.
The American Eagle brand told a different story, with comps down 1%. Jefferies noted sequential improvement from the first quarter, with men's posting a fourth straight quarter of positive comps and new denim fits gaining traction ahead of back-to-school, though weakness in parts of the women's business weighed on results.
Merchandise margin deleveraged 330 basis points as gains at Aerie were more than offset by markdowns at American Eagle. Jefferies expects further markdown activity in the third quarter as the company works through elevated inventory, which rose 14% year-over-year in dollar terms on excess seasonal goods and older denim styles.
Management guided for consolidated gross margin to be roughly flat year-over-year in the third quarter, modestly higher in the fourth quarter, and up for the full fiscal year. Full-year operating income guidance of $540 million to $550 million includes a $161 million net tariff-refund benefit booked in the second quarter.
Jefferies raised its fiscal 2027 EPS estimate by 29%, now 26% above consensus, and reiterated its Hold rating, saying better execution at Aerie is being balanced by continued pressure at American Eagle.
