American Eagle reported missing Wall Street’s sales targets for the second consecutive quarter, causing its shares to fall over 8% in early trading. However, despite the sales disappointment, the company’s profit grew significantly by almost 60% due to lower product costs. The reported net income for the three-month period was $77.3 million, or 39 cents per share, compared to $48.6 million, or 25 cents per share, a year ago.
Earnings per share for the quarter came in at 39 cents versus the expected 38 cents, while revenue reached $1.29 billion, slightly below the anticipated $1.31 billion. Sales for the period rose to $1.29 billion, an 8% increase from the previous year. The growth in sales was partly attributed to a calendar shift, which positively impacted second-quarter sales by $55 million. American Eagle’s gross margin was 38.6%, a 0.9 percentage point increase from the prior year, driven by favorable product costs.
Despite the better-than-expected outlook for the current quarter, American Eagle’s forecast for the full year was lower than what analysts had anticipated. The company expects comparable sales to grow around 4% for the year, with total revenue up 2% to 3%, falling short of analyst expectations. The retailer remains cautious for the second half of the year, citing potential uncertainties surrounding interest rate decisions and the upcoming presidential election.
To combat slowing demand and protect profits, American Eagle has implemented cost-cutting measures and efficiency improvements. Earlier this year, the company unveiled a new strategy aimed at increasing profits and achieving annual sales growth of 3% to 5% over the next three years. Additionally, American Eagle aims to elevate its operating margin to approximately 10%. During the quarter, the company made progress towards these goals, with operating income reaching $101 million, a 55% increase, and the operating margin expanding by 2.4 percentage points to 7.8%.
While American Eagle may have fallen short of sales expectations, the company’s focus on cost management and profit growth demonstrates a proactive approach to navigating challenging market conditions. By maintaining a cautious outlook and implementing strategic initiatives for growth and efficiency, American Eagle aims to solidify its position in the retail industry and drive sustainable profitability in the long run.