American Eagle Outfitters Inc. is either looking at a big market shift or just a big style miss as it heads into the important second half of the year, and management at the South Side teen clothing retailer hopes it is ready for either scenario.
The company's shares fell almost 10 percent Wednesday to close at $14.76, down $1.62, after American Eagle lowered third-quarter projections and said it has revamped its merchandise for the last part of the back-to-school quarter as well as for the entire holiday quarter. A few weeks earlier, it had lowered second-quarter projections, triggering concerns about the whole teen retailer segment.
For the three months ended Aug. 3, American Eagle reported net income of $19.6 million, or 10 cents per share, compared to $19 million, or 10 cents a share, a year ago. Sales at stores open at least a year fell 7 percent in second quarter, and total revenue was down 2 percent to $727 million, compared to $740 million during the same period a year ago.
Things were gloomy enough this summer that the company cut expenses by roughly $10 million and delayed some capital spending on things like new stores, remodels and upgraded technology.
For the third quarter, American Eagle is now projecting earnings in the range of 14 to 16 cents per share. Analysts polled by Thomson Financial had been looking for 35 cents per share.
CEO Robert Hanson, on a conference call with analysts Wednesday, said the company did not deliver enough innovation and value in some of its core areas, such as women's denim, but it also didn't help that the competition has been offering discounts and that its teen client base is having a harder time getting jobs.
"The environment has been extremely challenging," Mr. Hanson said.
American Eagle is seeing sales growth through its online and mobile operations, which could eventually affect how many traditional stores it would need. A new San Francisco technology center represents an investment in attracting talent that will help position the retailer for the new developments, said Mr. Hanson, noting that the West Coast office will partner with teams in Pittsburgh and New York.
Despite the merchandising disappointments in recent months, he said the team responsible for the miss was the same one that produced good results last year and he's confident that they'll get back on track.
Teresa F. Lindeman: email@example.com or 412-263-2018. First Published August 21, 2013 9:00 AM