American Eagle Outfitters has joined other US apparel makers in estimating strong earnings for key holiday selling season but said it expected lower profit margins as against a year ago period. Chief Financial Officer Robert Madore said they expect markdowns in promotional environment to remain pretty consistent with last year, which is what we’ve seen in the beginning of the holiday season thus far. The company might be as aggressive on promotions as it was last December, post Aeropostale’s bankruptcy, when it sought to keep shoppers from flocking toward heavily discounted Aeropostale apparel. American Eagle’s gross margin - gross profit as a share of revenue - dropped 1.2 percentage points to 39 per cent in the Q3 ended Oct. 28, due largely to higher warehousing and shipping costs on online orders and enhanced promotions. Despite these drawbacks, American Eagle delivered Q3 earnings and comparable sales ahead of Wall Street targets, driven by strong demand for its Aerie line of lingerie and significantly strong sales for its Aerie brand. Aerie has driven much of the company’s growth in recent quarters.
Comparable sales from the brand rose by 19 per cent in the latest quarter while those for American Eagle marginally moved up by 1 per cent, reversing many quarters of decline. Recent sales at American Eagle have also been driven by newer trends in women’s jeans, helping the company maintain an remarkable 33 per cent share of the U.S. denim market for young shoppers.
Last month, Gap Inc. and Abercrombie & Fitch also forecast strong holiday-quarter earnings, driven by demand for their Old Navy and Hollister apparel. American Eagle’s net income dropped 16 per cent to $63.7 million, stung by promotions and a $14 million charge. Excluding one-time items, the company earned 42 cents per share, topping analysts’ estimate of 38 cents. Revenue rose 2 per cent to $960.4 million. Analysts had expected $960.8 million.
