Online sales were a bright spot for American Eagle Outfitters Inc. in its fiscal first quarter 2020 ended May 2, as its profit decreased more than 90%. The retailer reported total online sales for the brand increased 33% year over year, with online sales from its undergarments brand Aerie increasing 75% year over year, and from its namesake American Eagle Outfitters apparel site AE.com increasing 15% year over year. Online sales accelerate as the quarter continued, with April as the strongest month, chief operations officer and executive vice president Michael Rempell told investors on an earnings call transcribed by Seeking Alpha.
“This momentum has continued into May, even in markets where we have re-opened stores,” Rempell said. American Eagle Outfitters is No. 49 in the 2020 Digital Commerce 360 Top 1000.
Online growth for Aerie
Ecommerce performance metrics for both brands, such as online traffic, conversion and transaction, all rose significantly compared with last year, he said without providing figures.
“Aerie’s performance was nothing short of spectacular,” said CEO Jay Schottenstein. “In fact, Aerie’s total demand increased at a double-digit rate in the quarter, you heard that correctly. Despite having stores closed for almost seven weeks, Aerie’s experienced a double-digit demand increase for their total business.”
Aerie also increased its total new customer acquisition at a double-digit rate while stores were closed, Rempell said.
Fulfillment struggling to keep up with online sales
However, with such strong increased sales, the retailer reported delays in fulfilling online orders because of higher-than-normal distribution center backlogs. American Eagle shipped online orders from its 250 stores, and “accelerated strategic supply chain initiatives, including opening up third-party logistics hubs in Boston and Atlanta,” Rempell said. What’s more, as stores reopen, it is offering buy online pick up in store and curbside pickup.
Total sales for its fiscal first quarter, however, decreased 37.8% to $551.7 million from $886.3 million in the year-ago period. American Eagle’s gross profit was $28.3 million, a 91.3% decrease compared with $324.9 million in the year-ago period. Profit decreased because of fewer in-store sales, which typically have a higher profit margin than ecommerce sales, and because it marked down its American Eagle spring and summer clothing to clear through the inventory, the brand reported.
“When the pandemic started, we obviously went right into liquidation mode,” Schottenstein said.
It took a net loss of $257.2 million in the quarter compared with a net income of $40.8 million in Q1 2019. American Eagle still plans to “clear through” its spring and summer merchandise “to position both brands for new back-to-school collections in late July,” the retailer reported.
Some of its COVID-19 initiatives include temporarily furloughing employees in April, while still continuing to pay health insurance for all furloughed employees. It borrowed $330 million and issued $415 million convertible notes due in 2025. It ended the quarter with almost $900 million in liquidity.
Maintaining a positive outlook
Still, American Eagle remains positive about its future outlook. “On average, reopened stores are achieving 95% of last year’s sales productivity as we think we are getting more than our fair share of pent-up demand,” Rempell said.
While several apparel merchants have filed for bankruptcy during the pandemic, including J. Crew Group Inc. (No. 47) and Neiman Marcus (No. 41) American Eagle is hoping to use that as an opportunity.
“This event has clearly accelerated the disruption that has been underway in the retail industry,” Schottenstein said. “Bankruptcies and some store closures will continue, which we see as an opportunity to gain share. We will use this event as an inflection point and chart a new and more profitable course for the company.”
In other earnings news:
- Online sales grew nearly 110% for the first quarter ended May 2 at Dick’s Sporting Goods (No. 44), but exact figure were witheld. That increase includes sales through the retailer’s contactless curbside pickup service, which Dick’s ecommerce and technology teams launched in response to the coronavirus pandemic. Dick’s says ecommerce sales increased 210% after it temporarily closed its stores on March 18 through the end of the first quarter. Online and curbside pickup accounted for 39% of total net sales of $1.33 billion in Q1, meaning online sales totaled $518.7 million. That’s up from $249.6 million in Q1 2019, when online sales represented 13% of total net sales of $1.92 billion. Through the first four weeks of the second quarter, online sales have increased over 250%, according to Dick’s earnings release. “We continue to leverage our store network to ship from store and curbside pickup, while also fulfilling orders via our ecommerce fulfillment centers and distribution centers, as well as directly from our vendors,” Dick’s president Lauren Hobart said, according to an earnings call transcribed by Seeking Alpha.Additionally, curbside sales increased 1,000% since it launched through the end of the quarter when compared with buy online pick up in store sales a year earlier. And, curbside accounted for over 40% of total ecommerce sales during that time period. Since curbside pickup eliminates the shipping and packaging expense involved with other ecommerce orders, if the service continues to be popular, it could help increase the profitability of its ecommerce business, Dick’s CEO Ed Stack said in a call with investors.
- Outdoor apparel retailer Canada Goose (No. 145) reported a smaller-than-expected revenue drop last quarter. Even so, the luxury parka maker sees “negligible” sales this quarter as consumers prioritize staples and food over discretionary merchandise. Overall sales for the fourth quarter ended March 29 dropped 9.8% to $140.9 million from $156.2 million during the same time last year. Full-year sales grew 15.4% to $958.1 million from $830.5 million the prior year. Exact ecommerce results were not disclosed, but the offseason is usually slow for online sales, the retailer said in its earnings release. Direct-to-consumer sales, which include sales from stores, rose 6.7% for the quarter. With most stores closed, that growth came from higher sales online, while wholesale revenue shrank as buyers halted new shipments amid the COVID-19 unease.
Katie Evans and James Risley contributed to this report.