What happened

Shares of American Eagle Outfitters (NYSE:AEO) were down 10.3% as of 12:30 p.m. EST Thursday despite in-line fourth-quarter results from the clothing retailer.

More specifically, quarterly revenue increased 12% year over year to $1.23 billion, which translated to 13% growth in adjusted net income to $79.2 million, or $0.44 per share. Analysts, on average, were looking for roughly the same earnings on lower revenue of $1.21 billion.

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So what

The likely culprit for today's decline was American Eagle's gross margin, which contracted 80 basis points from last year's fourth quarter -- to 34.6% of total sales -- driven by higher promotional activity.

In short, while American Eagle's revenue technically arrived slightly above expectations, it had to sacrifice greater profitability in the process. 

Still, American Eagle CEO Jay Schottenstein insisted he was "pleased" with their results, noting the company set a new record for fourth-quarter sales. 

Now what

"Looking ahead to 2018, our brands are well‐positioned for growth," Schottenstein stated. "American Eagle is a true leader in specialty apparel, with one of the strongest jeans brands in the market, and Aerie is one of the fastest growing lifestyle brands."

He added that the company is enjoying "positive momentum" to start the spring season and increased its quarterly dividend by 10%, to $0.1375 per share.

To be sure, for the first quarter of 2018 American Eagle expects comparable sales growth in the mid-single-digit percent range, which should result in adjusted earnings per share of $0.20 to $0.22. Analysts, on average, were modeling first-quarter earnings of $0.19 per share.

Still, with American Eagle stock having more than doubled from its 52-week low set last August, it's apparent that the market wanted more. And until it can drive higher sales without promotions, it's no surprise to see some investors taking their recent profits off the table.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.