American Eagle’s stock is spiraling Monday after the retailer said its past three months saw lackluster sales and too many discounts, forcing it to cut its earnings forecast by more than half.
“We are not at all happy with our second quarter results, which were impacted primarily by a disappointing performance of our AEO women’s assortment and weak traffic,” Chief Executive Officer Robert Hanson said in a statement issued after the market closed Monday (shares were down 15% at 4:39 p.m.). “Results were exacerbated by a highly promotional retail environment, which intensified over the course of July,” he said. The company increased the “depth and breadth of markdowns” so it can start the third quarter with clean inventory, he said.
As retailers prepare to report earnings this month, the American Eagle news comes as a bad sign for how mall sales will fare in the second quarter (they follow most other companies because their fourth quarter ends in January, to include a complete picture of holiday-related sales).
The second quarter was supposed to be better for teen retailers, which because of the year’s earnings calendar, included an extra back-to-school shopping week, said Rob Wilson, president and founder of Tiburon Research Group, an independent equity research firm. That means the third and fourth quarter may also fall short of expectations, he said.
“It’s going to get ugly, not only for AEO and teens, but many others,” he said in an email. Adding to that, rampant promotions and discounts at the mall paired with higher sourcing costs may continue to hurt profit margins at retailers, he said.
American Eagle said overall revenue fell 2% in the second quarter and sales at stores open for a year or more, including online purchases, fell 7%. Second quarter profit will be 10 cents a share from the range of 19 cents to 21 cents projected earlier this year. The company will report earnings on Aug. 21.