American Eagle Shares Plummet After Holiday Sales Forecast

American Eagle saw its share price drop roughly 17% on Tuesday, sparked by a holiday projection that failed to meet market expectations. A forecasted 20% rise in selling and general administrative costs contributed to this muted outlook, according to company executives. Despite the disappointing outlook, American Eagle performed well in the fiscal third quarter.

The clothing retailer expected a substantial single-digit boost in sales for its holiday quarter, surpassing the 3.4% growth analysts predicted, according to data from LSEG. However, the expected operating income, ranging from $105 million to $115 million, is mostly below the anticipated mark of $114 million.

In the three-month period ending Oct. 28, American Eagle reported a net income of $96.7 million, or 49 cents per share. This is an increase compared to the $81.3 million, or 42 cents per share, from the previous year. Sales grew to $1.3 billion, up from $1.24 billion reported during the same period last year. American Eagle slightly outperformed expectations in its fiscal third quarter, reporting earnings per share of 49 cents, just beating the anticipated 48 cents. The company also recorded revenue of $1.3 billion, slightly surpassing the predicted figure of $1.28 billion.

Despite a general downturn in the apparel industry, American Eagle managed to attain a 5% sales boost. However, this achievement still failed to charm Wall Street, with their gross margin for the quarter slipping to 41.8%, falling short of the 42.1% expectation.

Looking at the full-year projection, American Eagle predicts mid-single-digit growth in revenue, an improvement on the previous forecast of low-single-digit growth. Analysts had anticipated a full-year sales growth of approximately 2.6%, per LSEG data.

The company has narrowed its full-year operating income prediction, expecting it to fall between $340 and $350 million. This is a slight uptick from the previous guidance of $325 to $350 million, which was in line with analysts’ expectations.

Retailers are anxiously awaiting the pivotal holiday shopping season, apprehensive that demand might be lackluster. This unease is reflected in the cautious commentary from American Eagle and Abercrombie & Fitch, echoing sentiments from other retailers that recently announced earnings.

A comparable situation was noted at competitor Abercrombie & Fitch, which also reported earnings on Tuesday and a similarly uninspiring forecast against a backdrop of increasing sales growth. Additionally, both Best Buy and Lowe’s reduced their forecasts on Tuesday. These actions were primarily due to an uncertain consumer environment and a continued slowdown in big-ticket purchases.