Key facts
- American Eagle Outfitters shares fell over 11% in premarket trading.
- The company expects current-quarter gross margin to be flat from a year earlier.
- Softness at the namesake American Eagle brand offset strong demand for the Aerie brand.
- Inventory costs climbed 14% in the quarter ended August 1.
- American Eagle Outfitters received $196 million in tariff refunds.
American Eagle Outfitters' shares fell more than 11% in premarket trading on Thursday after the apparel retailer issued a flat gross-margin forecast for the current quarter. Persistent softness at its core brands outweighed a second-quarter revenue beat, which was driven by strong demand for its Aerie intimates and activewear line.
Executives cited uneven demand across the apparel sector as consumers grapple with inflation and prioritize essentials, contributing to a roughly 36% decline in the company's shares this year. The brand is still working to clear older inventory through discounts after a shift in fashion trends left some merchandise out of step with consumer demand. Inventory costs climbed 14% from a year earlier in the quarter ended August 1, including costs related to incremental tariffs.
Analysts at Morgan Stanley noted that earnings power is unlikely to improve and low valuation remains justified by several overhangs, including elevated inventory levels and Aerie's ability to sustain recent momentum. The company expects current-quarter gross margin to be flat from a year earlier and forecasts mid-single digit growth in fiscal 2026 comparable sales. American Eagle, like several apparel peers, has turned to celebrity partnerships such as the "Great Jeans" campaign with actor Sydney Sweeney to capture spending from wealthier Gen Z consumers.