American Eagle Outfitters (AEO, Financial) is experiencing a significant decline, with its stock down 7%, following its Q1 guidance announcement. The company expects a Q1 adjusted operating loss of approximately $68 million, contrary to analysts' predictions of profitability. Additionally, AEO has withdrawn its FY25 guidance due to macroeconomic uncertainties.
AEO's operating guidance reflects increased promotional activities in Q1 and an inventory charge of about $75 million due to a write-down of spring and summer merchandise. This suggests that while revenue was slightly above expectations, it was achieved through discounted sales, impacting profit margins.
Q1 same-store sales comparisons fell by approximately 3% (American Eagle -2%, Aerie -4%), a decline from Q4's 3% increase (American Eagle +1%, Aerie +6%). The drop in Aerie's Q1 comps is particularly concerning, following strong performances in Q3 and Q4.
AEO expressed disappointment with its Q1 execution, as merchandising strategies failed to meet expectations, leading to higher promotions and excess inventory. However, the company enters Q2 with inventory better aligned to sales trends.
The withdrawal of guidance is unsettling for investors, contributing to the stock's sharp decline. This move indicates the company's uncertainty and the challenging environment it faces.
As Q1 earnings season concludes, attention shifts to retailers, many of which have an April 30 quarter end. AEO's struggles raise caution for other mall-based retailers reporting in the coming weeks.
While AEO has had a history of write-downs and operational challenges, its recent decision to withdraw guidance heightens concerns, particularly for other mall apparel retailers.
