American Eagle issues downbeat quarterly guidance as earnings miss expectations

American Eagle Outfitters reported quarterly earnings on Thursday that missed expectations, reflecting a $75 million write-down in spring and summer merchandise, following the retailer pulling its full-year guidance earlier this month due to macroeconomic uncertainty.

"The first quarter was a challenging period for our business," CEO Jay Schottenstein said in a release. "While we are disappointed with the results, we are taking actions to better position the company and drive stronger performance in the upcoming quarters. Our brands remain resilient. The team is executing with urgency as we look to strengthen both the topline and profit flow-through."

The Pittsburgh retailer's results do not come as a surprise for investors, considering it preannounced some of its results two weeks ago. At that time, it also announced it would withdraw its full-year guidance as it manages slow sales, steep discounting and a volatile macroeconomic environment.

Shares fell about 8% in extended trading.

Here's how the apparel company did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

Prior to the preannouncement, analysts had been expecting earnings per share to be an 11-cent profit.

The company, which makes fashion clothing targeted at teens and young adults, reported an operating loss for the three-month period that ended May 3 of $85.18 million compared with a net income of $77.84 million a year earlier. 

Excluding one-time charges related to restructuring and a supply chain optimization project, AEO posted an adjusted operating loss of $68.06 million. The loss also reflects "higher than planned" promotions and a write-off of $75 million in spring and summer merchandise.

Revenue dropped to $1.09 billion, in line with expectations but down slightly from $1.14 billion a year earlier.

Comparable sales were down 3% during the quarter, led by a 4% decline at the company's intimates and activewear line, Aerie. The namesake brand saw comparable sales down 2%.

AEO issued downbeat guidance for the second quarter, expecting revenue to be down 5% compared to an estimate of 4%, comparable sales down 3% and gross margin down year-over-year. Its operating income for the second quarter is expected to be between $40 million and $45 million.

Schottenstein said earlier this month that he was "disappointed" by the first-quarter results. He said the $75 million write-off is due to miscalculated merchandising strategies resulting in excess inventory and higher promotions.

"We have entered the second quarter in a better position, with inventory more aligned to sales trends. Additionally, we are actively evaluating our forward plans. Our teams continue to work with urgency to strengthen product performance, while improving our buying principles," he said at the time.

American Eagle is not the only retailer to withdraw or modify financial guidance this year based on President Donald Trump's ever-changing trade policy.

E.l.f. Beauty, Canada Goose, Ross and Mattel all pulled their full-year guidance recently due to trade uncertainty. Other brands, like Abercrombie & Fitch and Macy's have cut their profit outlooks.

During last quarter's call with investors, CFO Michael Mathias said the company sources just under 20% of its products from China and is working on reducing that number to below 10% by the end of the fiscal year. He said then that tariffs could result in a $5 million to $10 million hit and could affect gross margin, although at the time he said the company was not planning on passing costs onto the consumer.

According to AEO's website, the company works with the greatest number of factories in China (101), Vietnam (67) and India (39). It works with just 12 factories in the United States.

Before withdrawing its guidance, AEO warned back in March that shoppers are pulling back on spending.

The company added Thursday that it is on track to complete its $200 million accelerated share repurchase program in the second quarter.

As of Thursday's close, AEO stock has fallen roughly 33% year-to-date.