“This is an unprecedented time in retail. As we cycle exceptional demand from last year, a tougher macro environment is impacting consumer spending behavior. Second quarter performance reflected these challenges, constraining revenue and amplifying margin pressure as we fully cleared through excess spring and summer goods,” said Jay Schottenstein, AEO’s executive chairman of the board and chief executive officer.

The gross profit of American Eagle Outfitters (AEO) was recorded at $370 million in the second quarter of fiscal 2022, a decline of 26 per cent from $502 million in fiscal 2021 and reflected a gross margin rate of 30.9 per cent. Higher markdowns drove 750 basis points of the rate decline with roughly a third reflecting higher end of season selloffs.

In the second quarter, AEO recorded selling, general and administrative expense of $308 million, an increase of 5 per cent. SG&A increased 110 basis points as a rate to sales versus second quarter 2021 primarily due to increased store wages, corporate compensation, professional services and advertising, partially offset by lower incentive compensation accruals.

“In a shifting macro environment, we are focused on controlling the controllables. We entered the second half with inventory levels in a much better position and an assortment that is current for the Fall season. Given ongoing external uncertainties, we have taken additional actions to improve financial performance. We have made more expansive expense reductions and are pulling back further on capital expenditures. As an additional cautionary move, we have paused our quarterly cash dividend to strengthen our cash position. Our brands and products remain highly relevant and sought after by our customers. I am confident we will successfully navigate current challenges, and set AEO up for a stronger future,” explained Schottenstein.

Quarter-to-date, demand trends remain difficult, with brand revenue down in the high-single digits following exceptional growth and a record back-to-school season last year. Assuming current trends, the third quarter gross-margin rate would be in the mid-30s and fourth quarter in the low-30s. This reflects higher markdowns in anticipation of a more promotional retail environment and the company’s seasonal clearance cadence which is more weighted to the fourth quarter.

Fibre2Fashion News Desk (RR)