American Eagle (AEO) earnings Q4 2023

American Eagle on Thursday announced a new strategy to boost profitable growth over the next three years, as the retailer said it wrote off $94 million in impairment charges related to its internal logistics business Quiet Platform.

The company also reported holiday earnings that beat Wall Street’s expectations thanks to strong demand and lower markdowns and input costs. 

Shares closed 2% lower Thursday.

Here’s how American Eagle did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: 61 cents adjusted vs. 50 cents expected
• Revenue: $1.68 billion vs. $1.67 billion expected

The company’s reported net income for the three-month period that ended Feb. 3 was $6.32 million, or 3 cents per share, compared with $54.6 million, or 28 cents per share, a year earlier. Excluding one-time items, American Eagle posted adjusted earnings of 61 cents per share. 

Sales rose to $1.68 billion, up about 12% from $1.5 billion a year earlier. 

In the current quarter, American Eagle expects sales to be up by a mid-single digit percentage, which is in line with estimates of up 5%, according to LSEG. For the full year, it expects sales to be up 2% to 4%, the higher end of which would beat the 2.9% analysts had expected, according to LSEG. 

During the Covid pandemic, American Eagle spent hundreds of millions of dollars acquiring a number of shipping and distribution companies that eventually became Quiet Platforms, the retailer’s internal logistics branch. It was designed to streamline American Eagle’s own shipping needs, but the company also sought to “Uber-ize” the global supply chain by serving as a logistics platform for other companies. 

Last spring, American Eagle acknowledged that Quiet Platforms wasn’t performing as it had expected. The segment’s president and chief operating officer had left the company as the retailer worked to restructure the business, RetailDive reported.

During the fourth quarter, American Eagle took $98.3 million in impairment and restructuring charges related to Quiet Platforms, the bulk of which were impairments to its goodwill, intangible assets and technology that are no longer a part of the platform’s long-term strategy. Employee severance costs made up $4.3 million in charges.

While the investments may no longer be worth what they once were at the time the company made them, finance chief Mike Mathias told CNBC the platform has benefited the overall business. 

“We’re seeing benefits from across our brand’s p&l segments,” said Mathias. “A nice portion of our gross margin gains have come from delivery and supply chain cost leverage that this [platform] we’ve now put in place has enabled.”

Looking ahead to the next three years, American Eagle unveiled its “powering profitable growth plan” that focuses on three key pillars – Amplify, Execute and Optimize. In an apparent nod to the business, the pillars also spell out AEO, American Eagle’s initials and stock ticker. 

The strategy seeks to deliver mid-to-high teens annual operating income expansion off of 3% to 5% annual revenue growth over the next three years. American Eagle also seeks to get its operating margin to approximately 10%. 

The retailer has been working over the last year to boost profits as its margins pale in comparison to some competitors. During the fourth quarter, its gross margin stood at 37.3%. It was higher than the 36.6% that StreetAccount had expected, but far below the gross margin of its longtime rival Abercrombie & Fitch, which on Wednesday reported a fiscal fourth quarter margin of about 63%. 

To increase profits, American Eagle plans to amplify its brands by growing its namesake banner, boost Aerie’s expansion and develop the activewear assortment at its Offline banner. It will focus on financial discipline and optimizing its operations to fuel growth and long-term profit.

“Starting with American Eagle… we’ve been up to really rebuilding that brand for the past three years, rationalizing the fleet, rationalizing SKU count, really targeting what we were missing on,” Jennifer Foyle, American Eagle’s president and executive creative director, said in an interview with CNBC. “We were definitely over assorted and so there’s been a lot of work and then building the brand DNA, which you’re going to see a nice unveil for back to school.” 

She said the company has a new store design that’s doing better than average, and it has plans to renovate its store fleet gradually to build on that success. It’s also leaning into new categories, such as its Offline banner, which it launched in 2020 and has outpaced Aerie’s growth in its early years. 

“In the same mall, if we open up an Offline store, that store is either equal to the Aerie volume, or in some cases, outpacing the Aerie volume,” said Foyle. “In a very highly penetrated business of activewear I think we’re winning by entertaining and doing it slightly different than our competition. We’re colorful, we’re animated, the stores are fun and exciting. So I think we really have a really stronghold on what we can deliver in that business and we like the results.”