American Eagle‘s two key brands are moving in different directions.
Revenue at the retailer’s namesake banner fell during its fiscal first quarter, even after it ramped up its marketing campaign with actress Sydney Sweeney. Meanwhile, sales at its intimates brand Aerie spiked during the quarter.
The trends at the retailer appeared to disappoint Wall Street, as shares tumbled more than 10% in extended trading.
In the three months ended May 2, comparable sales at the American Eagle banner fell 2%, far worse than the 3.1% growth that analysts had expected, according to StreetAccount. Meanwhile, comparable sales at Aerie soared 25%, beating expectations of 19.1%.
Net revenue for the American Eagle brand dropped 2% to $678.4 million, while Aerie revenue jumped about 34% to $480.83 million.
Combined, the business saw comparable sales grow 8%, short of expectations of 8.6%, according to StreetAccount.
“While results at American Eagle were mixed, our teams are moving decisively to reignite the women’s business and strengthen product execution and brand positioning,” CEO Jay Schottenstein said in a news release
“Looking ahead, our priorities are clear. Despite continued consumer and macroeconomic uncertainty, we remain confident in our ability to navigate near-term headwinds,” he added.” We are focused on operational excellence and disciplined execution to drive long-term value for AEO and our shareholders.”
Here’s how the apparel company performed during the fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
Earnings per share: 14 cents vs. 12 cents expectedRevenue: $1.20 billion vs. $1.19 billion expected
During the quarter, American Eagle posted net income of $23.53 million, or 14 cents per share, compared with a loss of $64.90 million, or 36 cents per share, a year earlier.
Sales rose to $1.20 billion, up 10% from $1.09 billion a year earlier.
American Eagle reiterated full-year guidance and issued an outlook for the current quarter. For the year, the company expects mid-single digit percentage comparable sales growth and an increase in gross margin.
In the second quarter, the retailer is expecting comparable sales to rise by a mid-to-high single digit percentage, compared to estimates of 6.5% growth, according to StreetAccount. It’s expecting its gross margin to be down compared to the prior year during the period.
During the quarter, American Eagle reignited its campaign with the “Euphoria” star Sweeney ahead of the summer shopping season, but took a tamer approach than the controversial campaign it launched last year under the slogan: “Sydney Sweeney has great jeans.” This time around, instead of cleavage and double entendres, Sweeney was all smiles in a modest, casual look on the beach.
Though the two campaigns were different, the effect has been the same – neither led to a major increase in sales at American Eagle’s namesake banner.
During a call with analysts, Schottenstein said marketing is leading to stronger engagement among new and existing customers, but moving forward, the company will “recalibrate spending” to ensure it’s getting the strongest return on investment. Later on, President Jennifer Foyle said marketing has driven “awareness and consideration” and now the company is “focused on conversion.”
During the quarter, selling, general and administrative costs, which include marketing, increased 11% to $376 million — which was in line with sales growth at Aerie but less so at American Eagle. For the back half of the year, the company said it plans to focus more of its marketing dollars on social influencers and other forms of digital media, which carry a higher propensity of conversion, the company said.
Beyond marketing woes, Foyle said the sales declines at American Eagle primarily came from the women’s bottoms segment — not having enough of the styles shoppers wanted and too much of the ones they didn’t.
“As merchants, we move quickly when we see opportunities and when we see misses. And we are already making adjustments. As we head into the crucial back-to-school season, we are refining our bottoms architecture, specifically optimizing key silhouettes and risers while leveraging our chase capabilities to inject fresh newness,” said Foyle. “At the same time, we are scaling high-demand categories within women’s tops to fully maximize ongoing consumer momentum.”
When asked how its core consumer was holding up given high gas prices and other macroeconomic pressures, Schottenstein said he thinks the U.S. economy is “very strong” and only going to get better.
“We think with gas prices hopefully will start settling down very shortly and with the, you know, current affairs, hopefully we’ll come to some type of finish,” said Schottenstein. “Hopefully it’ll be a very good finish for the world and we’re very optimistic on that.”
