American Eagle On Wednesday, he warned investors that consumers were pulling back spending and seeing a “slower start” than expected.
“As we enter 2025, the first quarter has started a slower than expected, reflecting more robust demand and cold weather,” CEO Jay Schottenstein said in a news release. “While improvements are expected as the spring season begins, we are taking proactive steps to strengthen our top line, manage inventory and reduce costs. We will also focus on long-term strategic priorities as we navigate uncertain consumers and the operating landscape.”
Stocks fell approximately 5% in extended trading.
Downbeat’s commentary on weak guidance from the current quarter and a year ago is the latest warning sign that consumers may be slowing down as shoppers contest sustained inflation and tariff concerns.
Over the past few weeks, a range of other retailers, including both strong and struggling companies, have published weak guidance and careful commentary on current macroeconomic conditions, and 2025 may be weaker than expected for sales.
Beyond that outlook, American Eagle has issued mixed holiday results and comparable sales that beat expectations. Based on an analyst survey by LSEG, here is how the apparel company did in the fourth quarter compared to what Wall Street had expected:
Earnings per share: 54 cents vs. 50 cents forecast: 1.6 billion vs. 1.6 billion
The company had net income for the three months ended February 1st of $144 million, or 54 cents per share, or $6.31 million, or 3 cents per share, a year ago.
Revenue fell to $1.6 billion, a slight decline from $1.68 billion the previous year. Like other retailers, American Eagle benefited from an extra week in the same period last year.
According to StreetAccount, comparable sales that do not include the impact of a weekly sales of less than one week increased 3% ahead of forecasts of 2.1% over the quarter. American Eagle’s intimate and activewear line, Ellie fueled the company’s growth over the quarter, gaining 6%. Meanwhile, the company’s banners with the same name saw comparable sales increase by 1%.
According to LSEG, American Eagle is expected to have a mid-digit decline in sales in the current quarter, but analysts expect revenue to rise by 1.3%. According to LSEG, for the full year, we expect sales to fall by single digits compared to expectations of 3% growth over the year.
In a call with analysts, Treasury Chief Michael Matthias said Airy sales are expected to be positive this year, but that growth will be offset by a sharp decline at the US Eagle Banner.
Tariffs are also expected to weigh the results, according to Matthias. The company currently raises just under 20% of its products from China and expects a $5 million to $10 million hit from its new role in fiscal year 2025. At this time, the company does not plan to pass these costs to consumers and is working to reduce China’s exposure to less than 10% by the end of the fiscal year, Matthias said.
Over the past year, American Eagle has made significant advances in improving profitability, but sales growth has slowed. In the previous three quarters, it missed out on Wall Street sales expectations and issued revenue numbers on Wednesday in line with analyst forecasts, but did not exceed that.
During the quarter, the company admitted that there were several product mistakes and certain items out of stock. The company still has a large mall footprint and there are some signals that the mall is seeing a comeback, but fewer people are in retailers’ stores as it is still significantly lower in US malls. For example, online sales are expected to be positive in the first quarter, but store sales are expected to be steeper than the single-digit mid-digit.
To combat the effects of the mall’s decline, rivals Abercrombie & Fitch have been working to move stores outside the mall while American Eagles work to modify existing fleets. Now, the company’s stores are on average 12 years old and work to make it seven years old. In 2024, approximately 56 stores will be remodeled, and this year, 90-100 doors will be remodeled as part of the $300 million CAPEX guidance.
In a previous quarter, American Eagle says it is fighting against uncertain economic environments and consumers who tend to come out and shop only at key moments, but now a wide range of other retailers report similar dynamics as the cracks in the economy.
In February, consumer confidence fell the biggest since 2021, with job growth slowing more than expected, and unemployment rates stale. These signals and their effects on the market led to concerns that a recession could come, especially if President Donald Trump’s trade war with Canada, Mexico and China continues.
The slowing economy is bad news at any retailer, especially for retailers who primarily sell discretionary items such as new clothing. In a call with an analyst, Schottenstein shared his thoughts on consumers, saying uncertainty is the biggest thing that affects shoppers.
“They fear not just tariffs, but inflation, but the unknown. The government sees people cut off. They don’t know how it affects them. They see the program being cut and they don’t know how it affects them,” Schottenstein said. “They just don’t know how it affects them… they’re going to be very conservative.”
