American Eagle (NYSE:AEO) Misses Q2 Sales Targets, Stock Drops

Young adult apparel retailer American Eagle Outfitters (NYSE:AEO) fell short of analysts’ expectations in Q2 CY2024, with revenue up 7.5% year on year to $1.29 billion. It made a GAAP profit of $0.39 per share, improving from its profit of $0.25 per share in the same quarter last year.

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“Our Powering Profitable Growth strategy is off to a great start, locking in a strong first half and setting us on track to achieve the high end of our prior operating profit outlook for 2024. The second quarter marked our sixth consecutive quarter of record revenue and we successfully leveraged our cost base – advancing a number of strategic priorities to fuel growth across brands and channels and drive operating efficiencies,” commented Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Officer.

With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.

Apparel Retailer

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

American Eagle is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it’s growing off a smaller base than its larger counterparts.

As you can see below, the company’s annualized revenue growth rate of 5.3% over the last five years was sluggish as its store footprint remained relatively unchanged, implying that growth was driven by more sales at existing, established stores.

This quarter, American Eagle’s revenue grew 7.5% year on year to $1.29 billion, missing Wall Street’s expectations. Looking ahead, Wall Street expects sales to grow 1.4% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

A company’s same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

American Eagle’s demand within its existing stores has barely increased over the last eight quarters. On average, the company’s same-store sales growth has been flat.

Key Takeaways from American Eagle’s Q2 Results

We struggled to find many strong positives in these results as its revenue missed analysts' expectations. Overall, this was a weaker quarter. The stock traded down 7.6% to $20.04 immediately following the results.

So should you invest in American Eagle right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.