American Eagle Outfitters (AEO 0.18%) released its second-quarter earnings results on Sept. 9. The company reported a loss of $0.03 per share on revenue of $884 million, largely the result of coronavirus-related store closures during the quarter. This was above consensus projections for a loss of $0.17 on revenue of $818 million.
The company saw a nice improvement from the first quarter, helped by record performance from its Aerie line and strong digital sales. Here are three other important takeaways from the earnings report.
Aerie introduces (from top left) Ali Stroker, Beanie Feldstein, Dre Thomas, Hari Nef, Keiana Cavé, Lana Condor, Manuela Barón, and Tiff McFierce, alongside current Role Models (from bottom left) Aly Raisman, Brenna Huckaby, Iskra, Jenna Kutcher, and Molly Burke in its #AerieREAL Role Model Spring '20 campaign. Image source: Aerie / Andrew Buda
1. Digital continues to be strong
Second-quarter total digital revenue (ordered sales) increased by 48% year over year, while Aerie's digital demand surged by 113%. The total digital revenue was American Eagle's fastest growth in over 10 years. The 48% increase was an improvement from the first quarter's 33% year-over-year increase.
CEO Jay Schottenstein elaborated on the digital business on the investor call. "Investments over the past several years in our digital platform, omnichannel capabilities and supply chain are providing the engine to fuel our business and keep pace with our strong customer demand," he said.
American Eagle also saw its mobile channel gain momentum. There was a 45% year-over-year increase in app downloads and 39 million sessions during the second quarter. The customers engaging on mobile are important to the retailer's business. "Our mobile app customers are the most engaged and have the highest spend levels and more than double that of non-app customers," said Chief Operating Officer Michael Rempell.
Expanded international presence is also a key part of American Eagle's strategy. The consumer discretionary company opened local shopping sites this quarter in Malaysia, Japan, Hong Kong, Australia, Singapore, Taiwan, and Mexico.
2. Aerie's growth is impressive
Aerie's revenue increased 32% from the prior year to about $250 million during the second quarter, a record for the business. Even more impressive was the sales growth that happened despite store closures. This highlights how well Aerie's digital business is doing -- accounting for 70% of the quarter's sales. Customer acquisition also rose 22% year over year.
The lifestyle brand benefited from its strong on-trend merchandise, strong brand position, and the growing demand for athleisure clothing. To further the growth at Aerie, American Eagle launched OFFLINE, a new athleisure line. Rempell said he sees great revenue opportunity for OFFLINE. "OFFLINE offers even more growth potential within the $16 billion women's active apparel market," he said.
Growth for Aerie is expected to continue, with store expansion and strong digital sales. American Eagle plans to open 25 new Aerie locations in 2020, including a few freestanding OFFLINE shops. The specialty retailer sees both retail stores and digital as important growth drivers for Aerie. "We know that stores generate increased brand awareness, expand customer reach, and raise average spend in underpenetrated markets," Rempell said.
3. The near-term outlook and cash position look good
While American Eagle did not provide formal guidance during the second-quarter earnings report, management said it sees "continued sequential improvement from the first half of the year." This projected growth is supported by strength in e-commerce and over 90% of the store base being reopened since the pandemic restrictions. It also sees a typically robust demand from back-to-school spread out over a longer time span this year.
The company is well-positioned for increased demand continuing in the next few quarters. It's improved its supply chain with four additional regional hubs opening in September 2020. "These hubs will provide improved delivery performance, cost benefits and sufficient capacity for us to manage digital demand for the back half of the year," Rempell said.
American Eagle is also adding logistics partners and distribution capacity to meet delivery capacity for the important holiday season and projected strong demand in e-commerce.
American Eagle is making efforts to shore up its financial position, ending the quarter with $899 million in cash and equivalents. The company's debt ratio is 0.72, indicating more assets than debt on the balance sheet. Management reduced capital spending to between $100 million and $125 million, from $210 million in 2019.
Overall, the retailer had a good quarter and appears well-positioned for the rest of the year, with its continued growth from Aerie and e-commerce. It also invested in its supply chain and logistics to ensure it can meet demand for the upcoming important holiday shopping season.
