Those teens just can’t shake their troubles.
While American Eagle Outfitters Inc. saw increases in fourth-quarter profits and sales, its comparable sales remained flat. Competitor Abercrombie & Fitch saw profits plummet by almost a third and sales slip 13.8 percent. Both companies continue to seek chief executive officers — and neither had news on that front on Wednesday. Jay Schottenstein has served in that capacity at AEO on an interim basis since the dismissal of Robert Hanson from the post in January 2014, and A&F has operated without a ceo since Michael Jeffries’ departure in December.
If further proof were needed that the sector continues to face turmoil, Quiksilver — which caters to teens in the surf, skate and swim category — said it was delaying the reporting of first-quarter results, originally scheduled for today, to give its audit committee more time to investigate what it termed a “revenue cut-off issue” that the company said isn’t expected to have a material impact on previous financial reports, the first-quarter results or its current guidance. Quiksilver said it would take up the revenue cut-off issue at its March 16 board meeting and reschedule its first-quarter earnings report for later in the month.
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Investors issued their own report card on the trio. Despite the lack of growth in its stores, American Eagle shares jumped 7.7 percent to $15.96 after they hit a 52-week high of $16.36 in midday trading, while A&F’s stock closed at $20.27, down 15.5 percent, after hitting a 52-week low of $20.13. Quiksilver’s shares were down 4.5 percent to $1.90.
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AEO at least is showing some flickers of improvement, seeing not only higher top- and bottom-line results but a strong departure from its earlier promotional posture. Gross margin jumped a full 570 basis points, to 35.1 percent of sales, with merchandise margins up 400 basis points.
“More compelling merchandise combined with more relevant brand marketing enabled us to successfully reduce storewide promotions,” said Roger Markfield, executive creative director, adding on a morning conference call that 35 days of promotions from the prior year weren’t repeated.
In the three months ended Jan. 31, the Pittsburgh-based operator of the American Eagle and Aerie brands generated net income of $61.6 million, or 32 cents a diluted share, nearly six times the $10.5 million, or 5 cents, reported for the comparable period in 2013. Stripping out charges, adjusted EPS was 36 cents, ahead of the 34-cent consensus estimate of analysts as well as the 32- to 34-cent range provided by the company in updated guidance on Jan. 8.
Revenues advanced 2.9 percent to $1.07 billion from $1.04 billion in the fourth quarter of 2013. The flat comps consisted of a 13 percent increase at the Aerie intimates brand, offsetting a 1 percent decline at the dominant American Eagle brand.
While headlining his report on American Eagle “The Top Dog in Teens,” Wells Fargo Securities analyst Paul Lejuez said he and his team “remain concerned that AEO has too many stores and the competitive landscape remains extremely challenging.”
But Schottenstein suggested a rigorous review of the company’s U.S. store portfolio is being pursued as the leases of nearly 350 American Eagle stores expire in the next two years and the company shifts its search for new stores overseas. AEO ended the quarter with 1,056 stores overall.
Schottenstein put the accent online. The company will launch a redesigned Web site this year and open a U.K. site, with other European markets to follow.
“This year, we will add reserve-online and work to maximize our existing tools including buy-online, ship-from-store, and store-to-door,” the ceo said. “Our goals are to drive better inventory utilization and customer satisfaction. This year we will roll out the new point-of-sale system across the U.S., enabling mobile checkout and enhanced customer security….”
The company said it expected earnings of between 9 and 12 cents in the first quarter, above the consensus estimate among analysts for 7 cents.
At New Albany, Ohio-based A&F, net income fell 32.9 percent to $44.4 million, or 63 cents a diluted share, from $66.1 million, or 85 cents, a year ago. Adjusted EPS matched analysts consensus estimates at $1.15 a diluted share.
Net sales slipped 13.8 percent to $1.12 billion from $1.30 billion. By brand, comparable-store sales were down 9 percent for A&F, 6 percent for abercrombie kids and 11 percent for Hollister.
Arthur Martinez, A&F’s executive chairman, said that the efforts began last year “may take some time to show meaningful results,” adding that declines in the logo business continued at a reduced rate and are expected to neutralize in the second half.
Jonathan Ramsden, chief operating officer, said the firm’s most “critical objective” was to arrest the comp declines both in the U.S. and abroad. Others include evolving merchandise assortments and growing its U.S. outlet store business, an area Ramsden said had comps “up around 20 percent.”
Christos Emilios Angelides, president of A&F brands, spoke about new product introductions expected to occur in time for the back-to-school selling season, including sweater dresses, a Seventies trend now back in fashion, with updated styling. Perhaps more intriguing is an item that might have been unheard of during the Jeffries era — zipped jeans to supplement what had been an exclusively button-front assortment.
In a sign that the Jeffries era is truly over at A&F, the retailer reported it had put up for sale the company jet used by the former ceo, resulting in an impairment charge of $11 million. It also listed $5 million in costs related to his departure and the pursuit of a new ceo.