American Eagle's stock price drops 13% due to poor holiday sales forecast

• American Eagle lowered its full-year sales forecast and its holiday sales guidance did not meet expectations.
• Despite strong demand during back-to-school, the apparel retailer noted that consumers are pulling back between key moments.
• In the year-ago period, American Eagle's Aerie brand experienced a 12% increase in comparable sales, and this growth continued with another 5% increase in the most recent period.

On Wednesday, the company issued weak holiday guidance and reduced its full-year forecast due to value-conscious consumers who only spend during key shopping times.

Wall Street's expectations on the top line were not met by the apparel retailer, but they exceeded on the bottom line.

Based on a survey of analysts by LSEG, how did American Eagle perform during its third fiscal quarter compared to Wall Street's expectations?

• Earnings per share: 48 cents adjusted vs. 46 cents expected
• Revenue: $1.29 billion vs. $1.30 billion expected

American Eagle's net income for the three-month period ending November 2 was $80 million, or 41 cents per share, compared to $96.7 million, or 49 cents per share, in the same period a year ago. However, when excluding one-time charges related to restructuring and impairment costs, the company's adjusted profit per share was 48 cents.

A year ago, sales were $1.3 billion, but they decreased by 1% to $1.29 billion.

American Eagle has not met Wall Street's sales targets in the third quarter in a row, despite the narrow miss on Wednesday.

Shares dropped about 13% in extended trading.

Jay Schottenstein, CEO, stated that the back-to-school shopping season was strong but demand fluctuated between major shopping events.

""Our leading brands are offering high-quality merchandise, great gifts, and an outstanding shopping experience across channels during the holiday season. While key selling periods have seen a positive customer response, we remain aware of potential choppiness during non-peak periods," Schottenstein said."

The retail industry has consistently observed a pattern of consumers intensely focusing on key shopping moments, followed by a sudden decline in their interest. This trend was also mentioned in earnings reports by both companies on Wednesday.

American Eagle anticipates a 1% increase in comparable sales for its holiday quarter, despite a 4% decline in total sales due to factors such as one less selling week and a delayed start to the holiday shopping season. This falls below the 2.2% comparable sales growth predicted by StreetAccount and the 1% sales decline forecasted by LSEG.

American Eagle has revised its sales growth forecast for the full year to 1%, down from its previous guidance of between 2% and 3%, and below LSEG's expectations of 2.5% growth. The company is now expecting comparable sales to grow by only 3%, down from its prior guidance of 4% growth and below StreetAccount's estimate of 4.1%.

Unlike its competitors, American Eagle has maintained a cautious tone throughout the second half of the year, considering the uncertainties surrounding the 2024 election and the broader macroeconomic climate.

Earlier this month, both companies that had previously issued cautious outlooks reversed their previous mood when reporting earnings.

Although American Eagle's sales missed expectations and its outlook was lackluster, its Aerie brand experienced strong demand. In the third quarter, Aerie's revenue reached a new high for the company, with comparable sales growing by 5%, on top of the 12% growth from the previous year.