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American Eagle Outfitters Wants to Be a $6 Billion Business

Updated 4:10 p.m. ET Mar. 7

The momentum is picking back up at American Eagle Outfitters Inc. — and the retailer said it has a clear path to profitably add more than $700 million in sales over the next three years.

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It’s a big moment for AEO, which has been working hard to refocus, rationalizing at American Eagle while also revving up Aerie and operating more efficiently.

The company found a good springboard for its three-year plan in the fourth quarter, when adjusted earnings came in stronger than expected and sales grew by 12 percent, with some help from an extra week.

All told, revenues tallied $5.26 billion last year and the company is now looking to push that up to $5.7 billion or $6 billion in the next three years, with an operating margin rate of about 10 percent.

Shares spiked as much as 12.8 percent on Thursday, but settled back as the day wore on. Shares ended the day down 1.8 percent to $23.04 as the market weighed the companies growth prospects against its valuation.

“We’re laying out a path to consistent 3 to 5 percent revenue growth,” said Mike Mathias, chief financial officer, in an interview ahead of the company’s meeting with Wall Street on Thursday.

Mathias said AEO has been engaged in a lot of “self-help” initiatives around improving profits, cutting costs and investing in capabilities to support its brands — becoming savvier on marketing and media spend and on inventory.

“We spent several years on inventory optimization and efficiencies that have taken hold,” the CFO said. “We’ve really structured ourselves and put a governance process in place around cost management, expense management. All the pieces that are in place now, that on this 3 to 5 percent revenue growth, we’re structured now to deliver value from that growth in a different way than we’ve been able to in previous years.”

In the fourth quarter, AEO’s revenues rose to $1.68 billion from $1.5 billion a year earlier — an increase helped along by $57 million in sales during an extra week in the most recent period.

American Eagle’s sales rose 11 percent to $1.1 billion, with a 6 percent gain in comparable sales. Aerie was up 16 percent to $538 million, with a 13 percent comp.

The adjusted gross margin rate of 37.3 percent represented a 340-basis-point improvement, driven by a combination of stronger consumer demand, lower product and transportation costs, lower markdowns and more.

The bottom line, though, was hit hard by a $131 million, mostly non-cash impairment and restructuring charge that covered the refocusing of the Quiet Platforms logistics business and efforts to streamline.

Accordingly, net income for the quarter fell to $6.3 million from $54.6 million a year ago.

But adjusted earnings per share came in at 61 cents, 11 cents ahead of the 50 cents analysts projected, according to FactSet.

Jay Schottenstein, executive chairman and chief executive officer, told analysts on a conference call: “We are at an inflection point in our journey, having undergone a huge cultural transformation over the past year to align our strategy and priorities towards delivering consistent, profitable growth. From here, we are focused on execution, and we know we are set up for success.”

The CEO said the company is focused on amplifying its brands, exercising financial discipline and optimizing operations.

“This strategy plan is a direct result of our profit improvement project started last year. We reviewed every area of our business to set AEO up for profitable growth moving forward,” he said. “The early stages of this project helped fuel a significant turnaround in revenue and profit during the second half of 2023. Yet we are just getting started.”

Some of the company’s earlier bets are starting to pay off as well.

Asked on the call about the company’s 2015 acquisition, Todd Snyder, Schottenstein pulled the curtain back on some significant growth and said the brand had expanded its sales from $2 million to over $100 million annually.

“We see a big opportunity with it,” Schottenstein said. “This year, I think we’re setting up six to seven additional stores. And we think once it’s all done, it could be a $500 million, $600 million brand in the next couple of years.

Todd Snyder’s business was right around breakeven last year and is expected to start contributing to profits.

But much of the company’s momentum is being driven by elements controlled by Jennifer Foyle, president and executive creative director of American Eagle and Aerie.

After a period of significant change — American Eagle closed some 130 stores over the past three years as Aerie evolved into a growth machine — Foyle said both businesses are ready to charge into the future.

While Foyle said the American Eagle’s women’s business logged “great results” in the fourth quarter and that the business planned to lean in on the category, there is a lot more going on.

“We have new brands that we’re launching or categories that we think will give us age expansion within American Eagle,” she said. “We have men’s AE 24/7, which is ageless. We have our new 77 brand, which is a little bit more premier denim, and we’re seeing early nice results there. And then just leaning into ‘social casual,’ is what we’re calling it. That’s our core day-in and day-out business in AE.”

denim jacket jeans American Eagle group photo
American Eagle is at its core a denim business.

The American Eagle stores are also being remodeled with what Foyle described as its “Lived In concept,” which welcomes shoppers with expansive storefronts and big fitting rooms.

All of this marks a significant evolution for the American Eagle business, which fell out of step for a little while.

“We were chasing comp with a lot of inventory,” Foyle said. “We really just had the team focus on what we do best, our core categories, while then adding on as we sort of walked away from that over assortment. We have focused on profitability while rationalizing, and we did a nice job with that.”

Meanwhile, Aerie is still in the steep part of its growth curve.

“We’re still not in all markets, so there’s still tons of opportunity to introduce our brand into new markets, particularly on the West Coast,” Foyle said.

The brands’ active offshoot Offline is also being well received and is clearly getting a spotlight at the company.

“Over assortment is not what we’re up to,” Foyle said. “We’re focused on delivering comp product year-over-year. Our top 10 items to our top 25 items, we look at every detail.”

That has Aerie pushing the core while also leaving a little left to chase trends as well.

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