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American Eagle’s Q2 results beat market estimates

American Eagle Outfitters Inc. (NYSE: AEO) reported better-than-expected revenue and earnings for the second quarter of 2019 but provided a lower-than-anticipated earnings guidance for the third quarter, sending shares falling over 11% in premarket hours on Wednesday.

Net revenue rose 8% year-over-year to $1.04 billion, surpassing estimates of $1 billion. Revenue results included $40 million for Japan license royalties.

Consolidated comparable sales increased 2% compared to a 9% comp sales increase last year. Comp sales for the American Eagle brand fell 1% while Aerie’s comp sales rose 16%.

American Eagle Outfitters quarterly comparable sales trend

On a GAAP basis, net income was $65 million, or $0.38 per share, compared to $60 million, or $0.34 per share, last year. Adjusted EPS amounted to $0.39, beating forecasts of $0.32.   

Total ending inventories at cost increased 15% to $535 million while ending inventory units were up 10%. The increase reflects inventory to support strong demand for AE Jeans and new store openings mainly for Aerie.

In the second quarter, American Eagle incurred capital expenditures of $55 million, which were mainly related to store remodels, new store openings and investments to improve digital capabilities. The company expects annual capital expenditures to range from $200-215 million.

During the quarter, the company opened 6 American Eagle stores and closed 3, ending with 939 American Eagle stores, including 158 Aerie side-by-side locations. The company also opened 13 Aerie stand-alone stores and closed 1, ending with 131 Aerie stand-alone stores. Internationally, the company ended the quarter with 236 licensed stores compared to 223 last year.

For the third quarter of 2019, the company expects comparable sales to increase in the low to mid single digits and adjusted EPS to be approx. $0.47-0.49. Analysts have been estimating third-quarter EPS of $0.52.

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