American Eagle Outfitters shares dropped 13% to $14.66 in early trading on Thursday, a day after the retailer reported second-quarter results that leaned on a $161 million net tariff refund.
Earnings came in at $0.79 per diluted share, up 75.6% from a year earlier. The Zacks consensus was 21 cents. But the refund did the lifting, and 247 Wall St. noted that without it the underlying operating performance looks “markedly softer.” Revenue rose 7.5% to $1.38 billion, just above the $1.37 billion analysts expected. Comparable sales across the company gained 6%.
Aerie up, American Eagle brand flat
The split between brands is what worried investors. Aerie revenue climbed 25% to $535.8 million and comparable sales rose 19%. Management credited strength across channels and categories, and said OFFLINE benefited from demand for Cloud Fleece, sports bras and bottoms.
The American Eagle brand made $805.9 million, up 0.7%, but comparable sales fell 1%. Men’s posted a fourth straight quarter of positive comps, and women’s fashion bottoms and newer denim fits gained traction. The company is still rebalancing older and seasonal inventory. It now expects the namesake brand to be roughly flat for the rest of the year, where it had earlier forecast low-single-digit growth in the second half.
What the refund did to margins
Gross profit rose 34.4% to $672.1 million and gross margin widened 980 basis points to 48.7%. A net $179 million refund benefit in gross profit supplied 1,300 basis points of that. Merchandise margins actually fell 330 basis points, as better results at Aerie were outweighed by markdowns at American Eagle.
Operating income was $211.4 million, up 105.1%, with a 15.3% margin. Inventory ended the quarter at $817.9 million, up 13.9% in cost and 9% in units. Cash stood at $148 million, and total liquidity including the revolver at $783 million. Capital spending was $66 million. A quarterly dividend of 12.5 cents a share returned $21 million to shareholders.
Peers fall too
Abercrombie & Fitch slipped 3% to $148.16. It had reported its own refund-assisted quarter on August 26, with about $100 million in tariff refunds adding roughly $1.75 a share. CFO Robert Ball said then that the “underlying business performed above our expectations” excluding the refund. Urban Outfitters also lost 3%, to $75.20, after reporting 10% revenue growth to $1.7 billion in late August.
The SPDR S&P Retail ETF was down 0.4% and the S&P 500 ETF down 0.67%.
Sources
- American Eagle Outfitters Sinks 13% as $161M Tariff Refund Flatters Beat; Urban Outfitters Drops 3%, Abercrombie & Fitch Slips
- American Eagle Q2 Earnings Beat on Tariff Refunds, Aerie Strength
