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American Eagle’s Q1 Guidance Disappoints After Mixed Q4 Results

American Eagle Outfitters Inc.’s fourth quarter was an earnings hit and a sales miss, although the teen retailer’s posting of a 6 percent comp gain did represent 16 consecutive quarters of positive comparable sales and helped the company reach a milestone of $4 billion in annual volume for fiscal 2018.

In a Nutshell: Jay Schottenstein, chairman and chief executive officer, on Wednesday cited strong execution by the teams for the company’s core American Eagle and Aerie businesses, which drove fourth quarter results. “American Eagle and Aerie continued to deliver consistent performance by combining product innovation and great merchandise with an improved customer experience across channels,” he said, adding that hitting the $4 billion milestone in annual volume was achieved “with increased operating profit.”

The company said gross profit rose $5 million, or 1 percent to $431 million. Gross margin in the quarter was flat at 34.6 percent, with lower markdowns offset by higher distribution and compensation expense.

While the company said it plans to close between 10 and 15 American Eagle stores and between five and 10 Aerie standalone stores, it also plans to open 15 to 20 locations for its namesake brand and grow its Aerie doors by an additional 35 to 40 sites.

But looking ahead, investors weren’t thrilled with guidance for the first quarter. At the high end of its range, company estimates were 3 cents below Wall Street’s expectations, suggesting that sales are slowing for the retailer. It didn’t help that the company also missed Wall Street’s sales forecast for the fourth quarter. Investors showed their displeasure by sending shares of American Eagle down 3.6 percent to $20.56 in early after-hours trading.

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Sales: For the quarter ended Feb. 2, net sales rose 1.3 percent to $1.24 billion from $1.23 billion. Consolidated comparable sales rose 6 percent. By brand, American Eagle posted a comp gain of 3 percent on top of last year’s 5 percent increase. Aerie’s comp was up 23 percent, on top of the 34 percent gain last year, and representing the 17th consecutive quarter of double-digit comp growth.

Earnings: Net income fell 18.9 percent to $76.2 million, or 43 cents a diluted share, from $94 million, or 52 cents a year ago. Adjusted diluted earnings per share was 44 cents.

Wall Street was expecting adjusted diluted EPS of 42 cents on revenues of $1.26 billion.

For the first quarter, the company guided EPS to between 19 cents and 21 cents, based on an increase in comp sales in the low single digits and excluding any potential charges. That’s below Wall Street’s consensus estimate of 24 cents before the teen retailer reported fourth quarter results after the equity markets closed the day’s trading session.

CEO’s Take: According to Schottenstein, the company will continue to leverage the strength of its brands, and the firm’s balance sheet and free cash flow will enable it to “make important investments in our business to fuel market share gains, future growth and returns to our shareholders.”