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MARKETS LIVE BLOG:

STOCKS SHED GAINS, TESLA SURGES DAY AFTER EARNINGS

Tesla shares jump after EV maker vows to speed up launch of more affordable models

American Eagle shares tumble after apparel retailer cuts annual revenue forecast

Anne Florentyna Gnanaraja Sekar and Ananya Mariam Rajesh
Updated ·2 min read

Reuters) - American Eagle Outfitters Inc cut its full-year revenue forecast on Wednesday, as demand for non-essentials, including apparel, slows down due to still-high inflation, sending shares of the company tumbling 19% pre-market.

Rising rent and product prices in the U.S. have compelled consumers to curb spending on higher-margin items and focus on shelling out their dollars on essentials such as groceries.

The environment for discretionary spending remains volatile, said CFO Michael Mathias in a post-earnings call. "Over the last several weeks, business has slowed from the first quarter."

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The company expects annual revenue to be flat to down low-single digits, compared with its prior forecast of flat to up low-single digits.

It also expects second-quarter revenue to drop in low-single digits, compared with analysts' average estimate of a 1.6% rise, according to Refinitiv data.

This is in contrast with peer Abercrombie & Fitch Co, which lifted full-year sales forecast, banking on steady demand from affluent shoppers and on its efforts to fill shelves with in-demand goods.

American Eagle, however, saw revenue for Aerie, a division that makes activewear, swimsuits and bralettes, jump 12% in the first quarter, while its namesake division posted a 2% fall.

"There has definitely been a shift in consumer taste toward athleisure and away from jeans in recent years which doesn't seem to be changing anytime soon," said CFRA Research analyst Zachary Warring.

In this July 30, 2010 photo, youngsters pass an American Eagle Outfitters clothing store, in New York. Retail sales managed a modest increase in July after two consecutive declines, but the strength was concentrated in higher sales of autos and gasoline. Most other retailers saw their sales fall. (AP Photo/Mark Lennihan)
An American Eagle Outfitters clothing store, in New York. (AP Photo/Mark Lennihan) (ASSOCIATED PRESS)

American Eagle posted quarterly gross margin rate of 38.2%, compared with 36.8% a year earlier, benefiting from lower compensation, transportation and delivery costs.

Promotions and discounts offered by the company helped it to clear excess stock. Its inventory levels declined 8% compared with a 46% rise in the year earlier.

The company's first-quarter revenue of $1.08 billion beat analysts' estimate of $1.07 billion. Its adjusted earnings of 17 cents per share met expectations.

(Reporting by Anne Florentyna Gnanaraja Sekar and Ananya Mariam Rajesh in Bengaluru; Editing by Shilpi Majumdar)