American Eagle shares slump on flat margin outlook, weakness in namesake brand

Sept 10 — American Eagle Outfitters' shares tumbled about 11% on Thursday after the apparel retailer forecast ​flat quarterly gross margins, signaling discounts to clear excess inventory and weak demand at its namesake brand could weigh on profit.

The company also ‌kept its annual comparable sales forecast intact on Wednesday despite posting better-than-expected revenue for the second quarter.

Demand ⁠across the apparel sector has been ​uneven as consumers, pressured by inflation, ⁠focus spending on essentials and hold out for discounts, a trend that has ‌led to a roughly ‌36% decline in the company's shares this year.

Despite stepping up investments ⁠in denim, including a high-profile "Great Jeans" campaign ⁠with actor Sydney Sweeney aimed at attracting higher-spending Gen Z shoppers, American Eagle is losing ground to rivals in the category.

Continued strength at Aerie, the company's women's intimates and activewear brand, was not enough to offset the weakness in the American Eagle label, grappling with uneven demand, particularly in ‌women's denim, with heavier discounts pressuring margins, Raymond ​James analyst Rick Patel said.

Rivals Abercrombie & Fitch increased full-year sales and profit forecasts last month, while Gap raised annual profit expectations after beating quarterly estimates.

"American Eagle continues to struggle as our experts have pointed out a less-clear brand voice and merchandising strategies... AE falls behind the likes of Levi's and Abercrombie," said Patrick Ricciardi, analyst at Third Bridge.

American Eagle executives said on ​Wednesday the brand was still trying to clear older inventory through discounts after a sharp ‌shift in fashion ‌trends, led ⁠by a sudden demand for low-rise jeans, left some merchandise out of favor with shoppers.

Inventory costs climbed 14% in the quarter ended August 1, including costs related to incremental tariffs.

American Eagle's forward price-to-earnings multiple, a common benchmark for valuing stocks, ‌is 9.38, compared with ​Abercrombie's 11.47 and Gap's 8.91.

Abercrombie and Gap ‌shares were trading down about ⁠3% and ​2%, respectively.

(Reporting by Joel Jose and Angela Christy in Bengaluru; Editing by Joyjeet Das and ​Shilpi Majumdar)

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