OnlineShop Apparel American Eagle cuts annual revenue forecast on weak apparel demand

American Eagle cuts annual revenue forecast on weak apparel demand

By Anne Florentyna Gnanaraja Sekar and Ananya Mariam Rajesh

(Reuters) -American Eagle Outfitters Inc cut its full-year revenue forecast on Wednesday, as demand for non-essentials, including apparel, slows down due to still-high inflation, sending shares of the company tumbling 18% aftermarket.

Rising rents and product prices in the US have compelled consumers to curb spending on higher-margin items and focus on shelling out their dollars on essentials such as groceries.

The environment for discretionary spending remains volatile, said CFO Michael Mathias in a post-earnings call. “Over the last several weeks, business has slowed down from the first quarter.”

The company expects annual revenue to be flat to down in low single digits, compared with its prior forecast of flat to up low single digits.

It also expects second-quarter revenue to drop in low-single digits, compared with analysts’ average estimate of a 1.6% rise, according to Refinitiv data.

This is in contrast to peer Abercrombie & Fitch Co., which lifted full-year sales forecasts, banking on steady demand from affluent shoppers and on its efforts to fill shelves with in-demand goods.

American Eagle, however, saw revenue for Aerie, a division that makes activewear, swimsuits and bralettes, jump 12% in the first quarter, while its namesake division posted a 2% fall.

“There has definitely been a shift in consumer taste towards athleisure and away from jeans in recent years which doesn’t seem to be changing anytime soon,” said CFRA Research analyst Zachary Warring.

American Eagle posted a quarterly gross margin rate of 38.2%, compared to 36.8% a year earlier, benefiting from lower compensation, transportation and delivery costs.

Promotions and discounts offered by the company helped it to clear excess stock. Its inventory levels decreased by 8% compared to a 46% rise in the year earlier.

The company’s first-quarter revenue of $1.08 billion beat analysts’ estimate of $1.07 billion. Its earnings adjusted 17 cents per share met expectations.

(Reporting by Anne Florentyna Gnanaraja Sekar and Ananya Mariam Rajesh in Bengaluru; Editing by Shilpi Majumdar)

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