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Denim’s New Cycle Bodes Well for American Eagle

Last week, American Eagle Outfitters Inc. (AEO) guided first quarter expectations to over $1 billion in sales. It’s positive news for any retailer working to rebound from losses accrued during the pandemic, let alone one that specializes in one of the most ostracized garments during quarantine: the classic blue jean.

Behind this denim rejuvenation, according to AEO executives, is pent-up demand for pre-pandemic fashion and the much-touted new denim cycle. Echoing Levi Strauss & Co. president and CEO Chip Bergh’s recent comments about the jeanswear category cycling out of its decades-long skinny jean phase and into one that calls for wider fits, Jennifer Foyle, AEO chief creative officer, said the American Eagle (AE) brand is seeing a definite shift into looser women’s denim shapes, such as flare jeans.

It’s a change that Foyle likened to denim’s last cycle into skinny, during which she was at competitor Gap. “I definitely have been there and have experience in that shift and that transition. So, I’m pretty excited about what we’re about to face,” she said during a call about the quarter.

The one caveat now in this new cycle is that demand for comfort is at an all-time high, but Foyle isn’t concerned about what that may mean for AE’s denim collections. “Comfort is at the forefront of everything we do,” she said. “Our jeans are the most comfortable jeans.” The brand’s “great results” in both its men’s and women’s jeans businesses are indicative of this. “I think it speaks volumes for this time period where everyone assumed that we were only selling sweatpants. We really had a nice run in denim as well,” Foyle said.

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AE’s fourth quarter’s results sequentially improved from the third quarter. With continued pressure on stores, AE’s revenue declined nine percent, yet digital grew 20 percent, and overall adjusted operating profit increased 29 percent. “We ran a very healthy business, and that remains a major priority as we look to the future,” said Jay Schottenstein, AEO chairman and CEO.

Schottenstein added that “our leading jeans franchise was yet again a standout in the quarter” despite reducing holiday promotions. For spring, however, the brand is dialing up the marketing for its denim range with the “Jeans Are Forever” campaign featuring stars of the hit Netflix show “Outer Banks.” AE also launched a new innovative shopping experience in partnership with Snapchat.

“We are really excited about this launch as we continue to introduce new ways to fuel customer engagement,” Schottenstein said.

New data by UBS retail estimates that American Eagle has “strong leverage” to benefit from consumers’ renewed interest in jeans, given 15 to 25 percent of its sales is likely in the denim category.

“It goes without saying, but a change of trend in bottoms is great for the AE business,” said Michael Rempell, AEO EVP and COO. “Anything that gives people a reason to go out and refresh their bottoms wardrobe, should be really, really strong for the AE business.”

The future, Foyle said, spells opportunity, especially for brands with strong denim roots and “assortments that are well-oiled.” The back-to-school collection, she noted, isn’t about fast-fashion. “It’s just the right fashion,” she said.

“I think the brands that thrive and that have longevity also have a nod to timeless. And you see it, the fast fashion retailers come and go, but the ones that survive are the ones that balanced,” she said. “We’re a heritage brand, and I’m pretty excited because I feel like that’s part of the trend that’s happening right now.”

With vaccinations in the U.S. moving at a rapid pace, Schottenstein said he expects the retail landscape to improve in the coming months, which may tee up opportunities to nab new store locations at affordable rents for the company. “I think going into next year, we’re going to see a boom in this country,” he said. “It’s going to be like a roaring ’20s. You’re going to see a lot of excitement. You’re going to see people getting out.”