Image source: Worldlink Integration Group
The economic climate in the United States is challenging for businesses of all stripes, and American Eagle is no exception.
Last week, the clothing and accessories retailer joined the list of those reporting dismal results.
Industry players are currently figuring out what people will be looking for when the pandemic is over.
Businesses are also facing reduced demand as inflation puts a strain on their budgets.
Retailers like Macy’s and Nordstrom have slashed prices and slashed profits to pull products off shelves.
“The retail environment’s not pretty,” said Jeffries analyst Corey Tarlowe.
“Inventories have been elevated. There’s billions of dollars of excess apparel inventory that’s floating out around there right now, and that’s a problem.”
On Wednesday, American Eagle announced it would suspend its dividend.
The decision comes after comparable sales fell 6% in the previous quarter compared to the same period last year.
Mike Mathias, the chief operating officer, noted that the macroeconomic environment had led to a “slowdown in demand.”
Meanwhile, chief marketing officer Jen Foyle said American Eagle’s top priority is “adjusting our assortments and rightsizing inventory.”
The need for write-downs to move inventory hurt profits. American Eagle reported earnings of 4 cents per share.
The stock missed analysts’ estimates of 13 cents a share for the quarter ended July 30.
Speaking at the Goldman Sachs Global Retail Conference last Thursday, Nordstrom CFO Anne Braman said the discount was bigger than expected.
Brahman also said it could take a few minutes to get back to normal. In August, the department store operator reported strong second-quarter sales.
However, the report lowered its economic outlook for the year, citing abundant inventories and weaker demand later in the quarter.
One of the retailer’s rivals, Macy’s, also cut sales and profit forecasts last month.
CFO Adrian Mitchell noted “weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.”
At the Goldman meeting, Mitchell said the company had made the necessary discounts to eliminate inventory. Retailers such as Gap, Kohl’s, Target, and Walmart have had similar problems with inventory inflation.
Target last month reported a 90% drop in quarterly profit as it used deep discounting to eliminate excess inventory.
Chief financial officer Michael Fiddelke said there was a “softness” for apparel among other individual categories.
Walmart, meanwhile, has been targeting inflation-sensitive consumers.
As a result, they used correspondingly lower prices to pull clothing off store shelves, significantly reducing revenue expectations.
Gap and Kohl’s try to avoid some of the price cuts by implementing specific product packaging and maintaining policies that allow them to hold excess inventory until demand increases.
Analyst Tarlowe said retailers are likely to adjust to demand more quickly next year as supply chains normalize.
Tarlowe said the company is currently working to improve its product.
“All that product was initially ordered for soft and cozy trends is now coming in,” said Tarlowe.
“These retailers have been stuck with it. They’re forced to clear it out. It’s not in the right categories.”
American Eagle joins list of clothing retailers reporting bleak earnings