• Revenue: $1.3 billion, down 1% year-over-year.
• Comparable Sales: Increased 3% for the quarter.
• Operating Income: $106 million, including $18 million in impairment and restructuring costs; adjusted operating income was $124 million.
• Adjusted Operating Margin: 9.6%, flat compared to last year.
• Gross Margin: 40.9%, down from 41.8% last year.
• SG&A Expenses: Decreased 3%, leveraging 50 basis points.
• Cash and Liquidity: $160 million in cash and over $800 million in total liquidity.
• Capital Expenditures: $61 million for the quarter, with full-year spend expected between $225 million to $245 million.
• Dividends and Share Repurchases: Over $200 million returned to shareholders year-to-date.
• Inventory: Up 5% year-over-year, positioned well for the holiday season.
• Adjusted Earnings Per Share: $0.48 for the quarter.

• Warning! GuruFocus has detected 4 Warning Signs with AVAV.

Release Date: December 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• American Eagle Outfitters Inc (NYSE:AEO) reported a 3% increase in comparable sales for the third quarter, building on a 5% growth from the previous year.
• Aerie achieved record revenue with a 5% comp growth, marking its 11th consecutive year of revenue growth.
• The company maintained a strong balance sheet with $160 million in cash and no debt.
• American Eagle and Aerie retained top rankings as shopping destinations for youth, according to Piper Sandler's survey.
• The company is expanding its store footprint, with plans to open 45 new Aerie stores next year, up from four this year.

Negative Points

• The company experienced some demand choppiness and less consistency in its direct business compared to last year.
• Gross profit decreased by 3% due to increased markdowns and a flat initial markup (IMU) compared to the previous year.
• The strong US dollar is expected to pressure fourth-quarter results, with a $15 million impact from currency fluctuations.
• The intimates category continues to face industry-wide challenges, although AEO has maintained its market share.
• The company revised its fourth-quarter comp outlook to a 1% increase, reflecting caution due to potential demand fluctuations and calendar shifts.

Q & A Highlights

Q: Could you speak to what you've seen in terms of the progression of demand into the fourth quarter at Aerie? And what are the opportunities you see to potentially accelerate the pace of growth at Aerie as we look across the assortment or the store fleet? A: Aerie saw record revenues in Q3, and we are pleased with the five comp on the [12th]. Moving into holiday, we're seeing some choppiness, but we're cautious and focused on delivering strong results. We're exploring new categories like sleep, which has been outstanding, and we're opening 45 new stores next year to drive customer acquisition.

Q: Could you speak to your expectations for promotions in the fourth quarter relative to what you saw in the third quarter? And just overall health of your inventory today? A: Inventory is up 5% at the end of the quarter and well-positioned across brands and categories. We are planned similarly for promotions this holiday season compared to last year, so we don't expect additional markdowns or margin erosion. Our focus remains on efficiency across the P&L, including delivery, distribution, and supply chain costs.

Q: Can you explain the choppiness you're seeing and how this period has performed relative to your expectations at each of the brands? A: The choppiness is partly due to warmer weather and hurricanes affecting September and October. We saw similar patterns in early November, but business picked up during Thanksgiving and Black Friday. We are cautious about potential post-Christmas choppiness and will update our outlook in January.

Q: Could you discuss the new customers you're bringing in, particularly in adjacent categories and new brands like AE 24/7 and AE77? A: Both American Eagle and Aerie have seen double-digit growth in customer acquisition. Our Live Your Life campaign and collaborations with brands like Timberland have been successful. We're also seeing positive results from store renovations, which are attracting new customers.

Q: Can you talk about the denim category and the competitive landscape over the last three months? A: We are holding our share in both men's and women's denim. Women's fashion has been particularly strong, and we've seen acceleration into Q4. Our team is focused on developing new fabrications and fits, and we're chasing denim trends aggressively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.