American Eagle Issues Cautious Outlook Amid Consumer Spending Concerns
American Eagle Outfitters has alerted investors to a notable slowdown in consumer spending, leading to a less promising start for the year than the company had initially anticipated. CEO Jay Schottenstein stated in a recent news release, “Entering 2025, the first quarter is off to a slower start than expected, reflecting less robust demand and colder weather.”
Current Economic Challenges
Schottenstein’s remarks underscore the impact of ongoing consumer uncertainty, as shoppers face persistent inflation and potential increasing tariffs. This caution comes amid a wave of similar warnings from various retailers regarding a softer sales outlook for 2025.
Financial Performance Summary
Despite a mixed performance over the holiday season, American Eagle reported comparable sales that exceeded market expectations. According to analyst surveys conducted by LSEG, here are the highlights from the apparel retailer’s fiscal fourth-quarter report:
- Earnings per share: 54 cents, surpassing the expected 50 cents
- Revenue: $1.60 billion, matching analyst expectations
The company’s net income for the quarter ending February 1 was recorded at $104 million, a significant increase from $6.31 million in the same period a year prior, despite a modest year-on-year decline in total sales from $1.68 billion.
Forecast and Expectations
For the upcoming quarter, American Eagle anticipates a mid-single-digit decline in sales, diverging from analysts’ predictions of a 1.3% revenue increase. Over the full fiscal year, the company expects low single-digit sales declines against a broader market expectation of 3% growth.
Operational Adjustments
During discussions with analysts, Chief Financial Officer Michael Mathias mentioned that although sales for American Eagle’s Aerie brand are projected to remain strong, this growth may be offset by a decline in sales for its main brand.
Mathias further noted that the company is likely to face additional financial pressure from tariffs, particularly as it sources nearly 20% of its products from China. American Eagle expects to incur costs between $5 million and $10 million due to these new duties in fiscal 2025. However, current plans do not involve passing these costs onto consumers, as the company aims to reduce its reliance on Chinese sourcing below 10% by the end of the fiscal year.
Market Trends and Consumer Behavior
American Eagle’s results reflect broader trends observed across the retail industry, particularly among brands selling discretionary goods. Recent economic indicators, including a marked drop in consumer confidence and a slowdown in job growth, have heightened fears of an impending recession.
Schottenstein commented on the prevailing consumer sentiment, pointing out, “They have the fear of the unknown, not just tariffs, not just inflation. They see the government cutting people off. They don’t know how that’s going to affect them… they get very conservative.”
Strategic Initiatives
In light of declining sales at physical retail locations, American Eagle is working on remodeling its store fleet, which averages 12 years in age. In fiscal 2024, the company remodeled around 56 stores and aims to upgrade between 90 and 100 locations in the upcoming year, part of a broader $300 million capital expenditure plan.
As consumer behavior continues to shift, American Eagle remains committed to its long-term strategic goals while navigating the uncertain economic landscape.
