American Eagle Outfitters’ (AEO) digital business demonstrates resilience through the pandemic

Like several of its peers in the retail industry, American Eagle Outfitters (NYSE: AEO) had to close several of its stores during the coronavirus outbreak. However, the company’s digital business, which was already doing well, picked up further momentum during the lockdown period. The company’s investments in its digital capabilities have paid off and the growth trend can be expected to continue in the coming months.

Overview

American Eagle Outfitters is a specialty retailer that operates over 1,300 retail stores in the US and abroad. The company offers apparel, accessories and personal care products under its American Eagle and Aerie brands. As of February 1, 2020, the company operated 940 American Eagle stores and 148 Aerie standalone stores.

Performance

In fiscal year 2019, American Eagle delivered total revenue of $4.3 billion, which reflected an increase of 7% from the previous year. Total comparable sales increased 3%. Comp sales for the American Eagle brand increased $3.5 million while for the Aerie brand, they rose $107.7 million, or 20%.

However, in the first quarter of 2020, American Eagle saw total revenue fall 38% versus the prior-year period due to store closures. Revenues declined 45% for the American Eagle brand and 2% for the Aerie brand.

Stores

American Eagle ended fiscal year 2019 with 1,312 stores which included 1,095 company-owned stores and 217 licensed store locations. During the year, the company opened 66 company-owned stores and closed 26 stores.

In 2020, stores remained closed for almost seven weeks due to the health crisis which took a toll on the first quarter results. The company ended the quarter with 1,093 wholly-owned stores.

Although stores remain a core part of its strategy, American Eagle plans to reassess its physical footprint for each of its brands in the wake of the pandemic and it is very likely that its future store count will be materially lower than in the past.   

Digital channel

In fiscal year 2019, digital revenue rose at a double-digit rate, led by mobile and app sales, as investments made to digital channels and supply chain yielded benefits. During the first quarter of 2020, American Eagle saw strong online demand which accelerated with the store closures.

Digital demand increased 33%, with a 75% growth in Aerie and a 15% growth in the American Eagle brand. Digital reported revenue was up 9%, fueled by strong demand. The company saw a significant increase in digital traffic, conversion and transactions.

American Eagle saw an increase in online orders throughout the quarter with April witnessing the most momentum. This trend continued into May even after the re-opening of a couple of stores. New online customers more than doubled for both brands.   

Outlook

American Eagle faces quite a bit of uncertainty related to the pandemic and expects impacts from store closures and inventory issues to take a toll on sales and margins in the second quarter. However, the company continues to reopen its stores and is seeing momentum in its digital business. This is expected to drive an improvement in top and bottom line results compared to the first quarter.

Click here to read the full transcript of American Eagle Outfitters Q1 2020 earnings conference call