Dec 11, 2018
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American Eagle's spending on marketing, employees to hit holiday-quarter profit

Dec 11, 2018

American Eagle Outfitters Inc forecast holiday-quarter earnings below Wall Street expectations on Tuesday, as it spends more on advertising and employee incentives to drive sales during the busiest shopping season.

Instagram: @americaneagle

Shares of the company fell 6.4 percent to $17.81 in extended trading after the apparel retailer also reported lower-than-expected same store sales.

The Pittsburgh-based company has ramped up expenditure on advertising this year, focusing on its Aerie line of lingerie.

The brand, known for bras, bralettes and lingerie for women of all body types, has steered away from using skinny models in its #AerieReal marketing campaign, opting instead to feature women of all sizes in its advertisements.

Analysts say the campaign has struck a chord with younger women who struggle to find similar products at rival brands like Victoria Secret’s Pink.

American Eagle said it would spend an additional $10 million on advertising during the fourth quarter over the previous three-month period.

“Advertising has become retailers’ favorite new drug. As they weaned customers off promotions over the past few years, marketing became the new sales driver,” Nomura Instinet analyst Simeon Siegel said.

“However, like promotions, marketing is perpetual. You can not pull back on (the) thing driving sales.”

American Eagle will also pay more incentives to its in-store employees during the holiday season as it aims to boost sales.

Chief Executive Officer Jay Schottenstein said higher minimum wages might pressure earnings next year.

The company has 40,700 employees in the United States, Canada, Mexico, Hong Kong and China. Of this, at least 80 percent are part-time or seasonal hourly workers, the company’s latest regulatory filing showed.

The company forecast profit of 40 cents to 42 cents per share for the fourth quarter, well below analysts’ estimate of 46 cents per share, according to IBES data from Refinitiv. It said sales are expected to be in low-single digits.

American Eagle’s third-quarter same-store sales rose 8 percent, falling short of an 8.5 percent increase estimated by analysts due to lower demand for its flagship line of apparel.

Net income rose to $85.5 million, or 48 cents per share, in the third quarter ended Nov. 3 from $63.73 million, or 36 cents per share, a year earlier.
Net revenue rose 4.5 percent to $1 billion.

Analysts had forecast a profit of 48 cents per share on revenue of $1.02 billion.

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