This is a summary of the second quarter fiscal 2008 earnings call conducted by American Eagle Outfitters (AEO) on August 26, 2008.
Management:
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CEO, Director: James V. O''Donnell
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President and Chief Merchandising Officer: Susan P. McGalla
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Executive VP, CFO: Joan Hilson
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Vice President, IR: Judy Meehan
Key Investor Issues:
- The company earned $59.8 million, or 29 cents per share in the quarter compared with $81.3 million, or 37 cents per share, in the year-ago period.
- Sales slid 2% from a year ago to $688.8 million, while same-store sales declined 9%.
- The merchant issued a downbeat outlook for the third quarter projecting earnings in a range of 31 cents to 36 cents per share.
Second Quarter Highlights:
The second quarter financial results were not up to the company’s standards. American Eagle Outfitters is in a difficult consumer and retail environment. Store traffic and consumer demand have been down compared to prior years and additionally American Eagle women’s business has been very challenging.
In the second quarter, comp store sales declined, resulting in earnings of $0.29 per share, which was 22% below last year.
Within the AE brand, women’s business was the most difficult, posting a mid-teen comp decline. Men’s business continued to post consistent performance with low-single-digit comp increases.
As the macro environment started to deteriorate early this year, the company further reduced the inventory investments and increased measures of control to reduce the expenses.
These initiatives have helped the company manage through a difficult quarter. For an example, a more conservative inventory plan enabled second quarter markdowns to be lower than last year.
In addition, strong expense management resulted in a 1% increase in SG&A dollars over last year.
This was achieved even with the addition of 50 incremental new store openings in the first half of this year and investments in the company’s future growth.
The AE brand is strong, well-positioned, and top of mind with the 15- to 25-year old customers.
The company is focused on maintaining that position and driving market share. To that end, the company is currently expanding its value offerings and stepping up promotional events.
Examples of everyday low pricing on key destination categories include the following:
- new women’s fashion tops priced under $20;
- full zip soft hoodie at $29.50;
- men’s and women’s graphics priced at $15.50 and $19.50.
On the promotional front, the company offered its customers buy one, get one 50% off on jeans and tees during key back to school selling periods.
The event successfully drove traffic and importantly increased transactions. Additionally, this is a more profitable selling strategy than end-of-season clearance events.
On the women’s side of the business, the company is focused on strengthening the assortments to be more on trend.
The company would expect steady improvements to occur over the next few quarters. With its fall line, the company is seeing a positive reaction to femininity and more versatility and styling, which is balanced with the AE classics.
On the AE men’s side, the company is focused on sustaining consistency across categories while also introducing new businesses.
The Aerie brand is performing well. New standalone stores are ramping up ahead of plan. In July, the company launched A List, Aerie’s loyalty program, to a very positive customer response. A List redemptions are driving incremental traffic to the stores and the company is pleased with performance across all categories. This fall, some highlights include the new Sasha bra, expanded choices in undies, and newness in the company’s dorm collection.
The company continues to see an improvement in MARTIN + OSA results in the second quarter.
