Right-sizing inventory, reducing costs and scaling its new logistics services business paid off for American Eagle Outfitters (AEO) during the third quarter, the company said Tuesday (Nov. 22) in its quarterly earnings release.
During the quarter ended Oct. 29, the clothing and accessories retailer achieved an operating profit of $118 million that exceeded its pre-pandemic 2019 levels. The firm’s brand revenue declined 5%, which was better than the high-single-digit decline it had expected.
“Bold actions to rationalize inventory and reduce expenses are paying off,” AEO Executive Chairman of the Board and CEO Jay Schottenstein said in the release. “Our inventory is in good shape, up 8% to last year, with progress continuing into the fourth quarter.”
AEO shares were up 13% Tuesday morning, after the press release was issued.
One contributor to AEO’s gains is the firm’s new logistics services subsidiary, Quiet Platforms. By providing operational efficiencies and capacity to AEO as well as helping third-party clients optimize their logistics, Quiet Platforms added two percentage points to AEO’s revenue growth.
“As we evaluate our plans for Quiet, we are exploring different options to support future growth,” AEO said in the release.
To clear out excess inventory during the quarter, the company increased its markdowns on those items. It also brought its incoming inventory more in line with demand — ending the quarter with inventory that was up 8% as opposed to the previous quarter’s 36%, according to the release.
For the fourth quarter, AEO expects brand revenue to be down in the mid-single digits and gross margin to be 32% to 33%, which is at the high end of its previous guidance. While progress has been made around inventory, the company expects this holiday season to be “highly promotional,” which reduces margins.
“As we navigate the current macro environment, we remain focused on our strategic initiatives — leading with innovation and judiciously investing in capabilities that will differentiate us in the long run,” Schottenstein said in the release. “Our organization is strong and I have tremendous confidence in the resilience of our brands.”
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