American Eagle Blames the Economy for Bleak Earnings

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Upscale clothing store American Eagle reported dismal earnings today, citing the poor state of the US economy as the main culprit. Stocks in the company fell 5% upon release of its quarterly results, and they kept falling after CEO Jay Smith held an earnings call to discuss what went wrong and what can be done to turn things around. Sales have been sluggish, he said on the call, and I’m not sure why customers are staying away from our stores like this…I don’t know if it’s because of the recession or what.

Eagle American
last week added its name to the list of clothes shops that reported dismal profitability as the market tries to determine the kinds of products people would desire following the epidemic and deals with sluggish demand as inflation squeezes finances.
Retailers like Macy’s and Nordstrom have resorted to markdowns that are reducing profitability in order to move inventory in the meantime.
The retail industry is not in a good place, according to Jeffries analyst Corey Tarlowe on CNBC. Inventory levels have increased. There are already billions of dollars’ worth of unsold clothing inventory floating around, which is a concern.

Following a 6% decrease in comparable sales from a year earlier in the most recent quarter, American Eagle announced on Wednesday that it was suspending its dividend. Mike Mathias, the chief operating officer, cited a “slowdown in demand” brought on by the macroeconomic situation. The company’s chief merchandiser, Jen Foyle, stated that “rightsizing inventory and adjusting our assortments” are American Eagle’s top priorities.

American Eagle reported profits of 4 cents per share for the three months that ended on July 30 due to the necessity for markdowns to move inventory, which affected the company’s bottom line. That fell short of the experts’ projected 13 cents per share.
It might “take a couple quarters” to fully recalibrate, added Nordstrom CFO Anne Bramman on Thursday at the Goldman Sachs Global Retailing Conference. Discounts have been “a lot deeper” than the business had anticipated. The operator of the department store chain reported higher sales for the second quarter in August, but cut its financial estimate for the year due to a surplus of inventory and declining demand in the latter half of the year.

The year’s revenue and profitability outlook for rival Macy’s was also drastically reduced last month. Chief Financial Officer Adrian Mitchell noted “weakening clothes sales during the quarter as the customer faces increasing expenses on necessary products, notably food. Mitchell stated at the Goldman conference on Thursday that the business “took the markdowns required” to assist move inventory.

other merchants, like Wal-Mart,Target, Gapboth Kohl’s have similar issues with excessive stockpiles. When Target announced a 90% drop in quarterly earnings in August, it highlighted its aggressive deep discounting to get rid of surplus inventory. Clothing and other discretionary categories have “softness,” according to chief financial officer Michael Fiddelke.

Wal-Mart used a similar inflation-wary strategy after noticing its customers.

Wal-Mart used equally extreme markdowns to get things like apparel out of shops due to consumer awareness of inflation, which resulted in a considerable reduction in expected profits.

With a “pack-and-hold” strategy for select goods, Gap and Kohl’s want to delay some markdowns by reserving extra stock until demand increases.

Retailers could be able to respond to demand more swiftly by 2023 as the supply chain normalises, according to expert Tarlowe. He claimed that businesses are now having trouble changing their product offers.

“Everything that was originally planned for comfortable and soft trends is now arriving. These retailers are saddled with the consequences. They are compelled to purge it. The classifications are incorrect, according to Tarlowe.

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