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American Eagle Outfitters (AEO) delivered underwhelming first-quarter earnings that fell short of Wall Street expectations, reflecting deeper challenges in the retail landscape. The apparel brand, known for its focus on teens and young adults, reported a substantial $75 million write-down in unsold spring and summer inventory, as unseasonal weather and misjudged product decisions stifled demand.

This marks a difficult start to the fiscal year for the Pittsburgh-based retailer, which earlier in May withdrew its full-year guidance, citing ongoing macroeconomic headwinds, weaker consumer spending, and industry-wide promotional activity.

Earnings Snapshot: Deeper Losses Than Expected

For the quarter ending May 3, American Eagle reported:

• Adjusted loss per share: $0.29 (vs. $0.22 expected)
• Revenue: $1.09 billion (in line with estimates, but down from $1.14 billion YoY)
• Operating loss: $85.18 million (vs. net income of $77.84 million in Q1 2023)
• Adjusted operating loss: $68.06 million (excluding restructuring and supply chain optimization charges)

Prior to a preannouncement two weeks ago, analysts expected the company to post a profit of $0.11 per share.

Sales Trends: Declines Across Core Brands

Total revenue slipped to $1.09 billion, reflecting softer demand compared to last year. Comparable sales dropped 3%, with the company’s activewear and intimates brand Aerie falling 4%, and the flagship American Eagle brand down 2%.

Jennifer Foyle, President and Executive Creative Director of AE & Aerie, acknowledged that some fashion items didn’t click with customers:

“Some of our big fashion ideas simply did not resonate. Shorts were particularly challenging across all our labels.”

Second-Quarter Outlook: Continued Weakness Anticipated

The company is bracing for continued challenges in Q2, offering more conservative guidance:

• Revenue expected to decline ~5% (vs. earlier estimates of a 4% drop)
• Comparable sales expected down 3%
• Gross margin projected to decline YoY
• Operating income forecasted between $40M–$45M

CEO Jay Schottenstein expressed frustration on Thursday’s earnings call:

“The first quarter was tough. While the results are disappointing, we’re acting decisively to reset the business and return to profitable growth.”

Inventory Strategy and Supply Chain Shifts

The $75 million write-off stemmed from excess merchandise that didn’t sell as expected — a miscalculation that forced deeper-than-planned promotions. AEO also faced weather-related delays in seasonal shopping patterns.

To mitigate future risk, the company is restructuring its global sourcing strategy. According to CFO Michael Mathias, AEO plans to reduce sourcing from China to under 10% of total imports by year-end — down from just under 20% last year.

• The tariff impact for 2025 is estimated at $40 million, with several million already baked into second-quarter forecasts.
• AEO’s current manufacturing footprint includes 101 factories in China, 67 in Vietnam, and 39 in India. Only 12 factories are U.S.-based.

Strategic Moves and Share Repurchases

Despite the tough quarter, AEO is staying committed to shareholder value. The company confirmed it is on track to complete its $200 million accelerated share repurchase program in Q2.

Management emphasized that efforts are now focused on preparing for the critical back-to-school season, where the retailer hopes to regain traction and stabilize margins.

Retail Landscape: Broader Industry Pressures

American Eagle isn’t alone in its cautious approach. Several major retailers, including E.l.f. Beauty, Ross, Mattel, and Canada Goose, have also pulled or downgraded their full-year guidance amid economic uncertainty and evolving consumer behavior. Legacy brands like Macy’s and Abercrombie & Fitch have revised their profit outlooks as well.

As inflation persists and shoppers grow more selective, the apparel sector continues to wrestle with pricing sensitivity and unpredictable buying cycles.

Stock Performance

• AEO shares dropped 8% in after-hours trading following the earnings release.
• The stock is now down roughly 33% year-to-date, reflecting investor concerns over profitability and market positioning.

American Eagle’s first-quarter performance serves as a reminder of the volatility facing even established retail names. With strong brand recognition and a loyal customer base, the company still has a path forward — but success will require smarter merchandising, tighter inventory controls, and agility in a rapidly shifting economic environment.