American Eagle Outfitters Inc. (AEO) hit $5 billion in 2021 volume, and looks to Aerie to broaden its customer demographic.
In a Nutshell: “2021 was a milestone year for AEO. We crossed $5 billion in revenue for the first time in company history, grew our active customer file to record highs and achieved our strongest profit result in well over a decade,” American Eagle Outfitters CEO Jay Schottenstein said, praising employees’ “outstanding performance” against “macro challenges.”
“We leveraged our healthy cash position to fuel Aerie’s growth and made key acquisitions, creating an industry-leading supply chain platform with significant long-term growth and profit potential,” he added.
In a conference call to Wall Street analysts, Schottenstein said the company has exceeded its 2023 financial targets. “We now have our eyes set on a new target of $800 million in operating profit, including 5.8 billion in revenue, and a 13-and-a-half percent operating margin,” he said.
Schottenstein said the company has a “significant opportunity to continue to grow Aerie as we penetrate key markets.” The AirTerra and Quiet Logistics acquisitions are part of AEO’s “incredible” transformation and will solidify cost savings and efficiencies on the company’s P&L (profit/loss) statement, while unlocking a new growth platform, he added.
Jennifer Foyle, chief creative officer for AEO and brand president for Aerie, said the intimates brand reached $1.4 billion in revenue for the year, up 39 percent from 2020 and adding over $500 million since 2019. Aerie is now eyeing $2.2 billion in revenue, up from a previous $2 billion goal.
“Demand was strong across core Aerie apparel and intimates, as well as the offline store footprint,” she said, adding that activewear is also showing great momentum 18 months after launch. Supply chain disruptions in South Vietnam limited Aerie’s fourth-quarter profit margins as the company increased its usage of air freight to deliver product. The brand also delayed new store openings in light of building material shortages, Foyle said.
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A new product assortment helped American Eagle post a “terrific year with record revenue up 30 percent” from 2020 and up 2 percent from 2019, according to Foyle, while the men’s business saw “tremendous growth” and denim fueled the women’s side.
“As I look ahead, I’m excited with emerging fashion trends and the continued appetite for casual and active apparel. This benefits both of our brands. Spring looks strong across brands, with seasonal goods checking [the boxes], and we expect to have a positive spring,” Foyle said.
February brought the company’s lowest-ever markdown rate, which meant that “we did not carry over a lot of messy inventory,” Foyle said. “We were cleaner in our clearance levels in both brands.” Jeans, she added, “are still on fire.” Tried and true denim fits are still working, even as the brand adds new silhouettes. The denim business reached $2 billion in fourth-quarter sales, she said.
AEO approaches its assortment to attract a “wider demographic now, so we’re not just focused on the teenager necessarily,” Foyle said, adding that customers skew on the “older side.”
The company is testing pricing options, and so far “we’re not seeing a lot of resistance as long as the customer understand the quality and embraces the value,” Foyle said, adding that AEO will “protect our opening price points.” So far, pricing is moving toward a better-best strategy, and the clothing chain wants to keep certain entry targets in place to attract new customers.
“To me, the sign of a healthy company is the ability to have higher price points on new lines and be able to do some higher prices on key items and drive sales,” Schottenstein said.
AEO chief operating officer Michael Rempell added that logistics acquisitions give the company a state-of-the-art supply chain platform that has attracted the attention of other retailers that want to use the service. “As the business expands, we expected material revenue and profit stream for AEO, and we’re looking forward to sharing more about the long-term value-creation opportunity,” he said.
Net Sales: Total revenue for the three months ended Jan. 29 gained 17 percent to $1.51 billion from $1.29 billion. Digital sales fell 3 percent in the quarter.
Aerie revenue rose 27 percent to $428 million, while American Eagle rose 11 percent to $1.04 billion.
For the year, revenue rose 33 percent to $5.01 billion from $3.76 billion a year ago.
Earnings: Net income rose to $50.4 million, or 25 cents a diluted share, from $3.5 million, or 2 cents, in the year-ago quarter. Adjusted diluted earnings per share (EPS) was 35 cents.
Wall Street was expecting adjusted diluted EPS of 35 cents on revenue of $1.51 billion.
For 2022, the company said it expects operating profit in the range of $550 million to $600 million on revenue growth in the mid-teens, versus adjusted operating profit of $603 million in 2021. The company said it was taking a cautious view for the year based on a number of macro uncertainties.
“Due largely to stimulus in the first half of 2021, which contributed to an extraordinary Spring season, combined with continued freight pressures, we are forecasting an earnings decline in the first half, followed by a recovery in the second half as we lap elevated air freight due to factory closures and inventory flow challenges last year,” the company said.
For the year, net income was $419.6 million, or $2.03 a diluted share, against a net loss of $209.3 million, or $1.26, in 2020.
CEO’s Take: “We entered 2022 a stronger company, supported by our powerful brands, a proven strategy, improved discipline and strategically advantaged operations. While the macro environment remains challenging and we are taking this into account in our plans for the year, we expect our results to still reflect meaningful progress versus prior years, setting a new base-line for profitability,” Schottenstein said.