How Did American Eagle Manage To Improve Its Gross Margins In The Second Quarter?

-33.67%
Downside
25.79
Market
17.11
Trefis
AEO: American Eagle Outfitters logo
AEO
American Eagle Outfitters

The gross profit of American Eagle Outfitters (NYSE:AEO) increased 8% in the second quarter, to $307.1 million, as compared to $285 million in the corresponding quarter of last year. This increase was primarily a result of improved comparable sales growth of 3% during the period. By brand, American Eagle Outfitters brand comps were up 1%, or $9.2 million, while that of Aerie brand increased 24%, or $13.4 million.

AEO- Q2 Comps

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In relation to total net revenue, the gross profit leveraged 160 basis points to 37.3%. 190 basis points of this leverage was a result of lower costs and higher realized selling prices. This was partially offset by 30 basis points of buying, occupancy, and warehousing costs, due to higher delivery costs related to growth in the direct business.

AEO- Gross Profit

Favorable occupancy and product costs, and more controlled and targeted promotional events by the company, have aided in the improvement of margins. Further, the company expects the margins to continue rising in the near future, despite a competitive environment. This is expected to be achieved through favorable product costs and sourcing efficiencies, and maintaining tight inventories through more strategic and targeted promotions.

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Notes:

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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Eagle Outfitters
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