american eagle The retailer on Thursday announced a new strategy to boost earnings growth over the next three years, saying it had written off a $94 million impairment charge related to its intralogistics business, Quiet Platform.
The company also reported holiday earnings that beat Wall Street expectations due to strong demand and lower price cuts and input costs.
The stock closed down 2% on Thursday.
According to a survey of analysts by LSEG (formerly Refinitiv), American Eagle’s performance in the fiscal fourth quarter compared with Wall Street expectations as follows:
- Earnings per share: Adjusted 61 cents vs. expected 50 cents
- Revenue: $1.68 billion, $1.67 billion expected
The company reported net profit of $6.32 million, or 3 cents a share, for the three months ended February 3, compared with $54.6 million, or 28 cents a share, in the same period a year earlier. Excluding one-time items, American Eagle reported adjusted earnings of 61 cents per share.
Sales increased to US$1.68 billion, an increase of approximately 12% from US$1.5 billion in the same period last year.
American Eagle expects sales to grow by a mid-single-digit percentage this quarter, in line with expectations for a 5% growth, according to LSEG. According to LSEG, full-year sales are expected to grow 2% to 4%, with the upper limit exceeding analysts’ expectations of 2.9%.
During the pandemic, American Eagle spent hundreds of millions of dollars acquiring a number of transportation and distribution companies that eventually became Quiet Platforms, the retailer’s intralogistics arm. It aims to streamline American Eagle’s own transportation needs, but the company also seeks to “Uberize” global supply chains by serving as a logistics platform for other companies.
Last spring, American Eagle admitted that Quiet Platforms’ performance was not meeting expectations. The unit’s president and chief operating officer have left the company as the retailer works to restructure the business, RetailDive reports.
In the fourth quarter, American Eagle took $98.3 million in impairment and restructuring charges related to Quiet Platforms, most of which were impairments on its goodwill, intangible assets and technology that are no longer part of the platform’s long-term strategy. Employee severance costs accounted for $4.3 million of the expense.
While the investments may no longer have the same value as when the company made them, finance chief Mike Mathias told CNBC the platform benefits the overall business.
“We see benefits in the P&L segment of our brands,” Matias said. “A large portion of our gross margin gains come from the delivery and supply chain cost leverage that we’ve achieved with this (platform) we’ve built now.”
Looking ahead to the next three years, American Eagle has launched its “Driving Profitable Growth Plan” focused on three key pillars – amplification, execution and optimization. The abbreviations and stock code of AEO, American Eagle are also spelled out on the pillars, which is an obvious recognition of the business.
This strategy strives to achieve annual operating income growth of 3% to 5% for mid- to high-end teenagers in the next three years. American Eagle also strives to increase its operating profit margin to around 10%.
The retailer has struggled to boost profits last year as its profit margins pale in comparison to those of some rivals. Gross profit margin in the fourth quarter was 37.3%.That’s higher than StreetAccount’s forecast of 36.6%, but well below its long-term rival’s gross margin Abercrombie & FitchOn Wednesday, the company reported fourth-quarter profit margins of about 63%.
To increase profits, American Eagle plans to expand its brand through the expansion of its namesake banner, promote the expansion of Aerie and develop sportswear assortments on its offline banners. It will focus on financial discipline and optimizing operations to drive growth and long-term profits.
“Starting with American Eagle…over the last three years, we’ve been really rebuilding the brand, rationalizing the fleet, rationalizing the SKU count and really targeting what we were missing,” Director Jennifer Foyle, president and executive creative of American Eagle, said in a statement. Said in an interview with CNBC. “We do have too much variety, so we did a lot of work and then established the brand DNA and you’ll see a great unveiling back at school.”
She said the company’s new store designs were better than average and it planned to gradually renovate its store fleet to build on that success. It’s also leaning into new categories, such as offline banner ads, launched in 2020, which grew faster than Aerie in its early years.
“In the same mall, if we open an offline store, the store will either equal or in some cases exceed Aerie’s sales,” Foyle said. “In the activewear industry, which is very highly penetrated, I think we win through entertainment, and we do it a little bit differently than our competitors. We’re colorful, we’re energetic, and the stores are fun and exciting. So I think we do have a real advantage that we can offer in that business and we like the results.”
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