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American Eagle, the ladies and men’s specialty casual fashion retailing group founded originally by the Schottenstein family of Columbus Ohio, came out yesterday with disappointing earnings for its first quarter of 2014.
The company’s two primary brands are American Eagle Outfitters casual wear, and the “aerie” brand of intimates and personal care products for girls.
Consolidated revenues for the quarter at US$646 million were down in total by 5% from the US$648 million achieved in the same period a year earlier.
The company’s net profit though was just US$3.9 million for the first quarter, down a whopping 86% compared to the almost US$28 million it had earned in the same quarter of the previous year. Profits tumbled after the company was forced to liquidate huge amounts of inventory left over from Christmas with very large write-downs.
For the whole of 2013 profits had earlier fallen as well, by 60% compared to 2012, on revenues that were also down about 5% for that year.
Company Chairman Jay Schottenstein tried to put a positive spin on the results, saying “Results were consistent with our expectations.” After going through three CEOs in a little over two years, Schottenstein had appointed himself interim CEO in January after then CEO Robert Hanson left, and he added, “The quarter reflected weak sales and increased markdowns. We are committed to improved profitability and are working hard to implement our plan to strengthen our brands, channels and operations.”
American Eagle has been losing out lately to more nimble competing retailers such as H&M and Zara who also target the key 15 to 25 year old demographic, who have succeeded in compressing the supply chain time lag from fashion runways to stocking store racks with the latest hot items. Chairman Schottenstein has already identified that what is termed fast-fashion “should probably be 20% to 30% of the business.”
Same store sales were down 10% in the quarter. The company now plans to close as many as 150 North American stores over the next three years, including 70 in 2014 alone. About two thirds of the stores scheduled for closure will be its flagship American Eagle stores.
The company hopes that closings will yield recurring operating cost savings which will help limit the erosion of margins that has taken place, with an expectation of annual cost savings of between US$10 million and US$15 million for the 1, 000 store chain.
The planned reduction in stores is the inevitable result of continuing weak sales and increased merchandise markdowns to clear out inventories. It seems its customers are increasingly, it seems, disenchanted with many of their fashion and design choices these days.
Even though American Eagle actually beat analysts’ expectations of a break-even for the first quarter, the company’s shares closed down 6% percent yesterday anyway, cutting its market capitalisation to just US$2.05 billion. American Eagle is also now providing guidance of only a likely break even in the current second quarter.