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

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.

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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.

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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Have more questions about American Eagle Outfitters? See the links below:

• Growth In Aerie Helps American Eagle Beat Estimates
• How Will American Eagle Perform In The Second Quarter Of Its FY 2016?
• How Has The Merchandise Mix Of American Eagle Changed Over The Last Three Years?
• Why Will American Eagle’s Aerie Brand Be A Key Growth Driver In The Future?
• Why Are We Bullish On American Eagle?
• What Can Move American Eagle’s Stock Down In The Next Couple Of Years?
• What Is American Eagle Outfitters’ Revenue & Net Income Breakdown In Terms Of Different Operating Segments?
• How Has American Eagle Outfitters’ Revenue Composition Changed In The Last Five Years?
• What’s American Eagle Outfitters’ Fundamental Value Based On Expected 2016 Results?
• Where Will American Eagle Outfitters’ Revenues Come From In The Next Five Years?

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