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AE

AMERICAN EAGLE OUTFITTERS INC (AEO)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 was materially below expectations: revenue $1.09B down 5% YoY, gross margin 29.6% vs 40.6% last year, GAAP diluted EPS $(0.36), driven by a ~$75M inventory write-down, higher promotions, and product cost/freight pressure .
  • Management withdrew FY2025 guidance; Q2 outlook calls for revenue down ~5%, comps down ~3%, gross margin down YoY, SG&A dollars flat, D&A ~$54M, operating income $40–$45M, tax ~25%, and ~175M shares on average .
  • CapEx cut to ~$275M for FY2025 (from ~$300M previously), preserving cash amid tariff uncertainty and business recadencing .
  • Strategic actions underway: tighter buying rigor, supply chain network optimization (closure of two fulfillment centers), tariff mitigation (China sourcing to single digits by back half), and marketing investment focused on back-to-school .
  • S&P Global consensus estimates were unavailable at query time; thus, estimate comparisons could not be included at this time [GetEstimates error: Daily Request Limit Exceeded].

What Went Well and What Went Wrong

What Went Well

  • OFFLINE by Aerie continued positive growth; management highlighted share gains in leggings and active as key brand strengths .
  • AE women’s showed comp growth in several categories and delivered “best quarter ever in fleece,” with improvement once core denim stocks were refilled .
  • Inventory now “better aligned” following the write-down; China exposure targeted to single digits in back half; ASR underway to reduce share count toward ~175M .

Quotes:

  • “OFFLINE by Aerie demonstrated positive growth… gaining market share, expanding customer awareness, and building a community around our truly unique take on activewear.”
  • “We are better positioned entering the second quarter… our teams are laser-focused on execution.”

What Went Wrong

  • Merchandise misses and colder spring weather drove higher promotions and a ~$75M inventory write-down, compressing margins by 960 bps in merchandise margin .
  • Aerie soft apparel underperformed; pricing did not cover higher design/transport costs; shorts weakness across brands; conversion and AUR declines despite higher traffic .
  • FY2025 outlook withdrawn; Q2 gross margin still expected down YoY; tariff/currency headwinds remain near-term headwinds .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,143.9 $1,604.6 $1,089.6
Gross Profit ($USD Millions)$464.2 $599.2 $322.4
Gross Margin %40.6% 37.3% 29.6%
SG&A ($USD Millions)$333.5 $401.6 $338.8
SG&A as % of Revenue29.2% 25.0% 31.1%
Operating Income ($USD Millions)$77.8 $142.5 $(85.2)
Operating Margin %6.8% 8.9% (7.8%)
Diluted EPS ($USD)$0.34 $0.54 $(0.36)
Adjusted Diluted EPS ($USD)N/AN/A$(0.29)

Segment revenue

SegmentQ1 2024Q1 2025
American Eagle ($USD Thousands)$724,744 $693,865
Aerie ($USD Thousands)$372,652 $359,788
Other ($USD Thousands)$54,984 $43,970
Intersegment Elimination ($USD Thousands)$(8,513) $(8,024)
Total Net Revenue ($USD Thousands)$1,143,867 $1,089,599

KPIs and Operating details

KPIQ1 2024Q1 2025
Total Comparable SalesNot disclosedDown ~3% (AE -2%, Aerie -4%)
Merchandise Margin delta (bps)N/A(960) bps YoY
Inventory ($USD Millions)$681.1 $645.1 (down ~5%)
Cash & Equivalents ($USD Thousands)$300,518 $87,853
Stores (Total)1,172 1,176
Share count (weighted avg diluted)201.3M 179.5M
CapEx ($USD Millions)N/A$62 (Q1)

Estimate comparison

  • S&P Global consensus estimates for Q1 FY2025 EPS and revenue were unavailable at query time; comparison vs consensus cannot be provided at this time [GetEstimates error: Daily Request Limit Exceeded].

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2025Low-single digit decline Withdrawn Withdrawn
Operating IncomeFY2025$360–$375M Withdrawn Withdrawn
SG&A (dollars)FY2025Low-single digit decline Down for full year; Q2 flat Maintained framework; added color
CapExFY2025~$300M ~$275M Lowered
Operating IncomeQ1 2025$20–$25M Actual GAAP OI $(85)M; Adjusted $(68)M Missed materially
RevenueQ2 2025N/ADown ~5% New
Comparable SalesQ2 2025N/ADown ~3% New
Gross MarginQ2 2025N/ADown YoY New
SG&A (dollars)Q2 2025N/AFlat YoY New
D&AQ2 2025N/A~$54M New
Operating IncomeQ2 2025N/A$40–$45M New
Tax RateQ2 2025N/A~25% New
Weighted Avg Share CountQ2 2025N/A~175M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2024 and Q4 FY2024)Current Period (Q1 FY2025)Trend
Tariffs/MacroQ4: Currency headwind in Q4; FY2025 tariffs $5–$10M initially; cautious consumer Tariff mitigation ongoing; China penetration to single digits by back half; Vietnam exposure also being mitigated; macro uncertainty cited Worsening near term; mitigation improving
Supply ChainQ3: Hong Kong conversion to licensed model; Q4: efficiency, delivery cost controls Closed two fulfillment centers; supply chain network optimization; expected ~$5M annualized savings Improving structurally
Product PerformanceQ3: AE +3% comps; Aerie +5% comps; adjusted OI strong Misses in soft apparel, shorts; AE women’s wins (fleece, tops, denim once restocked); OFFLINE strong Mixed
Channels (Digital vs Stores)Q4: Digital ahead of stores; remodel benefits; loyalty 75% Digital “stronger than stores” in Q1; traffic up but conversion/AUR down Mixed
Marketing & LoyaltyQ4: Advertising up; back-to-school campaign planned; loyalty ~75% Marketing weighted to back-to-school; advertising up in 1H; campaigns start July Increasing investment
Regional/WeatherQ4: Warmer markets better; seasonal product variability Cool spring hurt seasonal categories; warmer markets better Persistent headwind

Management Commentary

  • Strategic message: “We are taking actions to better position the company and drive stronger performance… executing with urgency as we look to strengthen both the topline and profit flow-through.” — Jay Schottenstein .
  • Merchandising reflection: “We had misses… promotional activity was up… we also took an inventory write-down, altogether driving significant margin pressure.” — Jen Foyle .
  • Operational action: “We accelerated planned actions to further strengthen our supply chain network, which included closing two of our edge fulfillment centers… expected to generate annualized savings of approximately $5 million.” — Jay Schottenstein .
  • Outlook posture: “We are better positioned entering the second quarter… operating income is expected to be in the range of $40–$45 million.” — Mike Mathias .

Q&A Highlights

  • Promotions and margins: Management expects continued promotions in Q2 to clear inventory; gross margin down YoY with BOW deleverage; tighter in Q2 vs Q1 as currency laps .
  • Inventory strategy: ~30% open-to-buy in back half to maintain flexibility; inventory aligned with sales trends post write-down .
  • Tariff mitigation: China sourcing already in high teens, targeting single digits by back half; Vietnam mitigation via vendor partnerships; no consumer pass-through assumed .
  • Channel performance: Digital stronger than stores; traffic up but conversion/AUR down; advertising spend up in 1H to drive top line .
  • Category outlook: AE women’s denim strong across fits; OFFLINE is fastest-growing with low awareness runway; Aerie to balance basics/fashion and lean into sleep/soft apparel .

Estimates Context

  • S&P Global Wall Street consensus for Q1 FY2025 revenue and EPS was not retrievable at query time due to a platform rate limit. As a result, this recap cannot include definitive comparisons vs consensus for Q1 [GetEstimates error: Daily Request Limit Exceeded].
  • Given the magnitude of margin pressure and the withdrawal of FY2025 guidance, sell-side estimates are likely to move down near term, with particular focus on gross margin trajectory, SG&A leverage, and Q2 OI delivery .

Key Takeaways for Investors

  • The quarter reflects execution and seasonal product misreads compounded by macro and tariff uncertainty, leading to significant gross margin compression and an adjusted operating loss; focus now shifts to Q2 stabilization and back-to-school execution .
  • Inventory reset and supply chain optimization should reduce near-term risk and support back-half flexibility; monitor open-to-buy agility and tariff mitigation outcomes (China/Vietnam) .
  • OFFLINE and AE women’s denim remain core traffic and share drivers; sustained marketing spend into July should be a catalyst for back-to-school, but promotional cadence will determine margin recovery .
  • CapEx cut to $275M and ASR completion in Q2 lower the share count (~175M), supporting per-share metrics if operations stabilize; watch Q2 OI ($40–$45M) delivery and gross margin slope .
  • Near-term trading set-up: expectations reset lower after Q1 miss and FY25 withdrawal; stock reaction likely to hinge on Q2 comp/margin trajectory and confidence in merchandising fixes ahead of peak season .
  • Medium-term thesis: if tariff/currency pressures abate and merchandising/marketing strategies re-accelerate, AEO’s brand assets and cost discipline can re-establish positive operating leverage; monitor SG&A control and loyalty-driven cross-brand spend .
  • Risk watch: tariff scope/implementation, consumer demand variability, promotional intensity, and freight/cost dynamics; management’s flexibility posture and vendor partnerships are key mitigants .