American Eagle Slides on Wider-Than-Expected Q1 Loss & Dim Q2 Outlook

American Eagle Outfitters, Inc. AEO reported drab first-quarter fiscal 2025 results, wherein the top and bottom lines missed the Zacks Consensus Estimate and declined year over year.

AEO posted a loss of 29 cents per share in the fiscal first quarter. The reported figure was wider than the Zacks Consensus Estimate of a loss of 25 cents. Also, the bottom line declined significantly from earnings of 34 cents reported in the year-earlier quarter.

American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise

 

American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote

American Eagle's shares dropped nearly 7% yesterday in the after-hours trading session, driven by soft first-quarter fiscal 2025 performance, which was mainly hurt by the macroeconomic pressures, including tariffs. The company’s downbeat outlook also hurt investor sentiments. Shares of the Zacks Rank #3 (Hold) company have lost 9% in the past three months against the industry’s growth of 4%.

AEO Stock's Price Performance

An Insight Into AEO’s Q1 Revenues

Net revenues of $1.09 billion fell 5% year over year and marginally missed the Zacks Consensus Estimate of $1.091 billion. The decrease can be primarily attributed to the cold spring and broader macroeconomic uncertainties, including tariff concerns, which further impacted consumer demand. Consolidated comparable sales (comps) fell 3% in the quarter. Our model predicted a negative comp of 4.7% for the fiscal first quarter.

Brand-wise, revenues declined 4.3% year-over-year to $693.9 million at the American Eagle brand. Also, comps for the brand fell 2%.

Revenues declined 3.5% year-over-year to $359.8 million for the Aerie brand. Comps for the Aerie brand fell 4%. We expected a sales decline of 4.8% year over year at the American Eagle brand and 5% at Aerie in the reported quarter.

An Insight Into AEO’s Margins & Expenses

Gross profit dipped 30.5% year-over-year to $322.4 million. However, the gross margin of 29.6% declined significantly from 40.6% reported in the year-ago quarter. The decline was mainly due to a 960-basis point (bps) drop in merchandise margins, caused by inventory write-downs, higher in-season markdowns, and increased product costs. Additionally, Buying, Occupancy and Warehousing expenses were deleveraged 140 bps due to lower sales, further contributing to the overall margin decline.

Selling, general and administrative (SG&A) expenses increased 2% year-over-year to $338.8 million. As a percentage of sales, SG&A expenses deleveraged 190 bps to 31.1%. While the company benefited from lower compensation and incentive costs, this was more than offset by higher advertising spending, aimed at supporting brand visibility and future growth.

American Eagle reported an adjusted operating loss of $85.2 million, considerably down from adjusted operating earnings of $77.8 million in the prior year quarter.

AEO’s Financial Health Snapshot

American Eagle ended the fiscal first quarter with cash and cash equivalents of $87.8 million, with long-term debt of $110 million. Total shareholders’ equity was $1.5 billion as of May 3, 2025. Inventory dipped 5% year-over-year to $645 million at the end of the reported quarter.

Capital expenditures were $62 million in the fiscal first quarter. The company expects to incur capital expenditures of $275 million for fiscal 2025.

In the fiscal first quarter, American Eagle launched a $200 million accelerated share repurchase (ASR) program. Based on the stock’s closing price on March 14, this represented approximately 18.1 million shares, or about 9.5% of the company’s fully diluted outstanding shares. The ASR is expected to be finalized in the fiscal second quarter. In addition to the ASR, AEO also repurchased shares worth of $31 million in the open market and distributed $22 million in dividends, paying a quarterly cash dividend of $0.125 per share, underscoring its commitment to shareholder returns.

What to Expect From AEO in Q2?

American Eagle has maintained the withdrawal of its fiscal 2025 outlook due to ongoing macroeconomic uncertainty and the need to reassess its forward plans in light of first-quarter results.

For the second quarter of 2025, the company expects revenues to decline by 5% and comps to decrease by 3%. Gross margin is projected to be down year over year, while SG&A expenses are expected to remain flat compared to last year. Depreciation and amortization is estimated at $54 million, and operating income is anticipated to be $40-$45 million. The effective tax rate is expected to be around 25%, and the weighted average share count is projected at 175 million shares.

Key Picks

Some better-ranked stocks in the same space are Canada Goose GOOS, Allbirds Inc. BIRD and Stitch Fix SFIX.

Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Canada Goose’s current fiscal year’s earnings and sales implies growth of 10% and 2.9%, respectively, from the year-ago actuals. GOOS delivered a trailing four-quarter average earnings surprise of 57.2%.

Allbirds is a lifestyle brand with naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for Allbirds’ current financial year’s earnings implies growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.

Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for SFIX’s fiscal 2025 earnings implies growth of 64.7% from the year-ago actual. SFIX delivered a trailing four-quarter average earnings surprise of 48.9%.

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This article originally published on Zacks Investment Research (zacks.com).

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