American Eagle Outfitters(NYSE: AEO) is a fashion basics retailer geared toward teens. Its two biggest brands, American Eagle Outfitters and Aerie, are shopping mall staples throughout the world. However, the two brands are not on equal footing, and that has been a problem for the company. Only that problem may be about to turn an important corner.
American Eagle goes splat
In 2022, American Eagle's total company sales were roughly flat compared to 2021. However, there was a dichotomy between the apparel company's two biggest brands. Aerie witnessed sales growth of 9%, while American Eagle's sales fell 8%. That said, there was a bit of choppiness in there because of the lingering impact of the coronavirus pandemic in 2020. A comparison to 2019 is a little more telling, with Aerie's sales up 88% versus that year while the American Eagle brand's sales were down 6%.
Image source: Getty Images.
You get the idea; the American Eagle brand has been something of a laggard here. The retailer has been leaning into its strength, opening new Aerie stores and working on extending the brand into new areas. That's exactly what you would expect management to be doing. Still, even after that strong growth, Aerie's $1.5 billion 2022 revenue was still less than half of what the $3.3 billion American Eagle Brand produced.
That is why the company has been working so hard to get American Eagle back on track. A key part of that, however, has been closing stores. That's not good for the top line, as you might imagine. In 2019, the American Eagle brand had 940 stores, and by the third quarter of 2023, that number had dropped to 873. But something important changed in the third quarter.
American Eagle gets back up again
While it was no surprise to see Aerie report revenue growth in the third quarter of 2023, American Eagle also managed to do the same thing. There was still a big difference between the two brands, with Aerie reporting 12% year-over-year sales growth (with same-store sales up the same amount) in the quarter and American Eagle just 2% growth (with an equal improvement in same-store sales). But it was the direction of the trend that really mattered with the American Eagle brand.
The American Eagle nameplate has seen sales trending lower for more than a year. So, the year-over-year upturn could be a notable inflection point. That said, the figure was still lower than what the company achieved in the third quarter of 2019, but it had many more stores at that point than it does today.
Basically, it isn't quite time to suggest that American Eagle is soaring high. But it does appear that the worst may be over. In fact, during the company's third-quarter 2023 earnings conference call, management pointed out that the rate of store closures is going to flatten out. That's a clear indication that the management team thinks it has finally managed to right-size the American Eagle brand's store footprint. If that's the case, financial results for the brand could look much better in the quarters to come.
Time to put this teen retailer on your radar again
American Eagle's stock is down nearly 50% from its 2021 highs. But it is starting to look like the company will finally have both of its big brands swimming in the same, positive direction. If you have this retailer on your watch list, you may want to take a second look. The future is likely to be increasingly bright.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.
