In a Nutshell: Ongoing customer engagement at both brands helped fuel digital demand during the quarter when stores remain temporarily closed due to the coronavirus outbreak that began in mid-March. The company’s digital business grew 33 percent, with Aerie up 75 percent and American Eagle rising 15 percent. AEO said its overall digital revenue rose 9 percent in the quarter.
The company has started the reopening process after closing down for about seven weeks, with reopened stores exceeding expectations.
“This allowed us to be less promotional than planned in moving inventory,” Jay Schottenstein, chairman and CEO, said in a conference call to Wall Street analysts.
As AEO prepares for the future, COVID-19 has “accelerated the disruption that has bene underway in the retail sector,” Schottenstein said. Bankruptcies will allow the company to gain market share, he added, noting that there are many expansion opportunities ahead, including “solidifying AE in the jeans market.”
The company launched curbside delivery earlier in the year, with plans to roll that out to all locations. It also will offer buy online pickup in store as an option. So far, however, half of its stores remain closed.
The company hired a medical consultant in March to advise on health and safety as the company planned for its reopening strategy, Schottenstein said. As a result, AEO now provides masks and gloves for employees, users thermal temperature scanners to monitor for signs of fevers, staggers schedules and implements social distancing protocols to minimize store density, and has nurses on site at all distribution facilities, the company said.
Separately, on the sourcing front, executive vice president and chief operating officer Michael Rempell told analysts that the company has diversified its sourcing exposure away from China, enabling the company to “position [its] chase capacity for the back half.” The company has paid its vendor base and has secured what Rempell called “smooth flow of product” for the year, with “nice product-cost benefits in the back half from lower input costs.” Rempell also said stores that have reopened “remain strong.”
In general, executives on the call concluded that pent-up demand and stimulus checks have helped prop up consumer spending, and the company’s decision to pay its vendor base has also made American Eagle the “customer of choice.” In addition, the lower input costs in the back half are expected to help with margin markup for the period.
Looking ahead, Aerie brand president Jennifer M. Foyle hinted at a new small-store concept that could be unveiled in July, but declined to provide any details.
Net Sales: For the three months ended May 2, net sales fell 37.8 percent to $551.7 million from $886.3 million.
By brand, American Eagle revenue fell 45 percent, while its intimates concepts Aerie saw revenue fall 2 percent. Digital sales helped to offset the loss of revenue from coronavirus store closures.
The company said it has adjusted inventory receipts to align with lower demand due to the closures. It plans to clear spring and summer merchandise to position both brands for new back-to-school collections in late July. Inventory optimization initiatives are being implemented to help streamline assortments, provide greater alignment of inventory to sales plans and better utilize supply chain strengths to chase product demand, the company said.
Earnings: The company posted a net loss of $257.2 million, or $1.54 a diluted share, against net income of $40.8 million, or 23 cents, a year ago.
CEO’s Take: “I’m very pleased to see stores reopening strong, supported by industry-leading health and sanitization measures to ensure safe and secure stores for our associates and customers. American Eagle and Aerie will be well-positioned for the back-to-school and fall seasons,” Schottenstein said.