American Eagle inventory slides on continued model strain

American Eagle Outfitters Inc. (NYSE:AEO) shares fell almost 16% Thursday after blended second-quarter outcomes, with proceeds modestly above consensus at the same time as reported earnings acquired a big enhance from tariff refunds.

Consolidated gross sales rose 8% to $1.38 billion, with comparable gross sales up 6%, led by Aerie and enhancing traits on the core American Eagle model.

Jefferies stated the quarter got here in on the excessive finish of expectations, with administration guiding for third-quarter comps within the mid-to-high single digits.

Aerie remained the standout, with proceeds up 25% and comps up 19%, supported by broad-based power throughout attire, activewear, intimates, and digital and retailer channels. Jefferies pointed to continued buyer acquisition and market share features in intimates, with model consciousness nonetheless solely round 59%, leaving room for additional development.

The American Eagle model advised a unique story, with comps down 1%. Jefferies famous sequential enchancment from the primary quarter, with males’s posting a fourth straight quarter of optimistic comps and new denim suits gaining traction forward of back-to-school, although weak spot in components of the ladies’s industry weighed on outcomes.

Merchandise margin deleveraged 330 foundation factors as features at Aerie have been greater than offset by markdowns at American Eagle. Jefferies expects additional markdown exercise within the third quarter as the corporate works by elevated stock, which rose 14% year-over-year in greenback phrases on extra seasonal items and older denim kinds.

Management guided for consolidated gross margin to be roughly flat year-over-year within the third quarter, modestly increased within the fourth quarter, and up for the total fiscal yr. Full-year working earnings steering of $540 million to $550 million features a $161 million web tariff-refund profit booked within the second quarter.

Jefferies raised its fiscal 2027 EPS estimate by 29%, now 26% above consensus, and reiterated its Hold score, saying higher execution at Aerie is being balanced by continued strain at American Eagle.