American Eagle Outfitters expects ‘promotional’ holiday; inventory in good shape

American Eagle Outfitters reported a big dip in its third-quarter earnings but sounded a confident note about its actions to manage its inventory.

“While significant progress has been made in right-sizing inventory, management is taking a cautious view given what is likely to be a highly promotional holiday season,” stated Jay Schottenstein, AEO’s executive chairman and CEO.

The company reported $81.2 million in earnings, or $0.42 per share, for the quarter ended Oct. 29, compared to $152.22 million, or $0.74 per share, in the year-ago quarter. Analysts had expected the company to earn $0.22 per share.

Total net revenue fell 2.4% to $1.24 billion. American Eagle said its supply chain business, Quiet Platforms, contributed approximately 2 percentage points to revenue growth.

[Read More: AEO subsidiary Quiet Platforms offers full supply chain visibility]

Consolidated store revenue declined 4%. Total digital revenue declined 5%. Compared to pre-pandemic third quarter 2019, store revenue increased 3% and digital revenue increased 35%.

By division, Aerie’s revenue rose 11% to $350. Comp sales declined 3% versus third quarter 2021 and was up 59% to third quarter 2019.

American Eagle’s sales fell 11% to $838 million. Comp sales declined 10% versus third quarter 2021 and were flat compared to third quarter 2019.

“I’m pleased to deliver a third quarter that exceeded our expectations, with profit margins meaningfully improved from the first half of the year,” stated Schottenstein. “Bold actions to rationalize inventory and reduce expenses are paying off. Our inventory is in good shape.”

Total ending inventory at cost increased 8% to $798 million compared to $740 million last year, with units up 7%. This compares to last quarter’s increase of 36%, reflecting actions to bring receipts more in line with demand, the company said. Inventory is current for the holiday season. AEO expects fourth-quarter ending inventory to be down to last year.

“We are staying disciplined and focused on improving profitability and cash flow, while maintaining a healthy balance sheet,” Schottenstein said. “As we navigate the current macro environment, we remain focused on our strategic initiatives — leading with innovation and judiciously investing in capabilities that will differentiate us in the long-run.”

For the fourth quarter, the company is guiding brand revenue down in the mid-single digits, and expects brand comps to be consistent with the third quarter. The company is also guiding fourth-quarter gross margin in the range of 32% to 33%, at the higher end of its previous guidance.

The retailer continues drive expense reductions across store payroll, corporate expense, professional services and advertising. It remains on track to deliver $100 million in reductions to the original plan and expects SG&A dollars in the fourth quarter to be approximately flat to last year.

AEO ended the quarter with about $82 million in cash and cash equivalents and about $412 million in long-term debt.