Image source: Worldlink Integration Group
The economic situation in the United States is difficult for businesses from all walks of life, and American Eagle is no exception.
Last week, the clothing and accessories retailer joined the list of those reporting dismal earnings.
Industry players are currently scrambling to figure out what people will be looking for after the pandemic is over.
Businesses are also facing reduced demand as inflation strains 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.”
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On Wednesday, American Eagle announced it would suspend its dividend. The decision comes after comparable sales fell 6% last quarter compared to a year earlier.
Chief operating officer Mike Mathias noted that the macroeconomic environment has led to “slowdown in demand.”
Meanwhile, chief marketing officer Jen Foyle said American Eagle’s 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. shares for the quarter ended July 30 missed analysts’ estimates of 13 cents a share.
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 several minutes to get back to normal. In August, the department store operator reported strong second-quarter sales.
However, the report lowered its economic forecast for the year, citing abundant inventories and weak demand later in the quarter.
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Macy’s, one of the retailer’s rivals, also cut its 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 Wal-Mart 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.
CFO Michael Fiddelke said there was a “softness” in clothing, among other choice categories.
Walmart, meanwhile, has turned its attention to its inflation-sensitive consumers.
As a result, they used correspondingly lower prices to remove clothing from stores, significantly reducing revenue estimates.
Gap and Kohl’s try to avoid some of the price cuts by implementing certain product packaging and holding policies that allow them to hold excess inventory until demand picks up.
Analyst Tarlow said retailers could adjust to demand more quickly next year as supply chains normalize.
Tarlowe said the company is currently working on refining 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