Current Market Conditions

American Eagle Outfitters has issued a warning to investors regarding a slowdown in consumer spending, indicating a less favorable start to 2025 than anticipated. CEO Jay Schottenstein highlighted in a recent news release that the business is experiencing a dip in demand, partly attributed to colder weather patterns. He noted, “Entering 2025, the first quarter is off to a slower start than expected, reflecting less robust demand and colder weather.”

Despite expectations for gradual improvement as spring approaches, the company is implementing strategies focused on enhancing top-line growth, managing inventory effectively, and reducing operational costs.

Impact on Share Value and Guidance

As a reflection of these challenges, shares of American Eagle declined by approximately 5% in after-hours trading. The company’s cautious outlook, coupled with modest expectations for earnings growth and overall sales performance, emphasizes the current complexities in the retail environment. Other retailers have echoed similar sentiments, suggesting a possible trend of weakened consumer confidence amidst persistent inflation and ongoing tariff concerns.

Quarterly Performance Overview

In its fiscal fourth quarter report, American Eagle exhibited mixed results. While the company’s earnings per share reached 54 cents, surpassing analyst expectations of 50 cents, overall revenue remained flat at $1.60 billion, aligning with forecasts. Compared to the same period last year, revenue dropped from $1.68 billion, affected by one less selling week that had benefitted the prior year’s figures.

Nevertheless, comparable sales—a metric that excludes the impact of the selling week—showed a 3% increase, outperforming analysts’ expectations of 2.1%. The Aerie brand, known for intimate and activewear, demonstrated growth with a 6% rise in comparable sales, while the American Eagle brand itself recorded a modest 1% increase.

Future Expectations and Challenges

Looking into the current quarter, American Eagle anticipates a decline in sales by a mid-single-digit percentage, contrasting sharply with analysts’ projections of a 1.3% revenue increase. For the entire fiscal year, the company expects low single-digit sales declines, while market expectations had been for a 3% growth.

Michael Mathias, the CFO, indicated that while Aerie’s performance is expected to remain strong, it might be overshadowed by a more significant downturn in the American Eagle brand’s sales. The company’s exposure to tariffs, particularly a $5 million to $10 million impact from new duties as less than 20% of products are currently sourced from China, is also expected to influence gross margins. American Eagle is striving to reduce its product sourcing from China to under 10% by the fiscal year-end.

Operational Adjustments and Market Trends

American Eagle has observed a slowdown in foot traffic at its mall-based locations, with online sales predicted to perform better than in-store sales during the first quarter. In response to declining shopping mall traffic, the company is remodeling its existing stores, with plans to upgrade between 90 to 100 locations as part of a $300 million capital expenditure initiative.

In light of recent economic data highlighting a significant drop in consumer confidence, tempered job growth, and a slight uptick in unemployment, Schottenstein emphasized the rising consumer uncertainty, suggesting that external factors such as tariff impacts and government policy changes could lead shoppers to adopt more conservative spending habits.