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