In a move to improve its logistics capabilities, apparel retailer American Eagle Outfitters Inc. (No. 52 in the  2021 Digital Commerce 360 Next 1000) acquired startup AirTerra in August.

AirTerra, which launched in the spring of 2020, offers shipping and other fulfillment-related services. It is led by Brent Beabout, the former chief supply chain officer at Nordstrom Inc. (No. 20). Earlier in his career, Beabout was senior vice president, ecommerce supply chain at Walmart Inc. (No. 2).

American Eagle is a specialty retailer of clothing, accessories and personal care products under its American Eagle and Aerie brands.

The acquisition is an effort to bolster American Eagle’s logistics operation and help it get products to consumers more quickly, Shekar Natarajan, chief supply chain officer at American Eagle, told Digital Commerce 360 in an emailed statement.

“AEO Inc.’s business scale, coinciding with today’s ever-evolving customer convenience preferences and expectations, has reinforced the need to make supply chain transformation one of our key priorities,” Natarajan said.

AirTerra will continue operating independently, providing services to other retailers while supporting American Eagle’s supply chain operations. The terms of the deal were not disclosed.

In a Sept. 2 conference call to discuss American Eagle’s fiscal second-quarter earnings, Michael Rempell, chief operating officer for American Eagle, called the AirTerra acquisition “a relatively small purchase that has huge potential for us.”

Because AirTerra focused on “middle mile” delivery—which refers to moving goods from a distant warehouse to a store or fulfillment center—the startup offers benefits to small shippers that previously were available only “to the largest shippers, to the Amazon’s or Target’s or Walmart,” Rempell said according to a Seeking Alpha transcript. He added that AirTerra fits the retailer’s overall strategy of leveraging scale and innovation to manage costs and improve customer service.

On its science website, Amazon.com Inc (No. 1) touts the prowess of its middle-mile operation, which uses machine learning, other kinds of technology, and complex math to make routing decisions across the retailer’s transportation network.

In a note to investors, Oliver Chen, a retail analyst at Cowen Inc., an investment firm, said the AirTerra acquisition is indicative of American Eagle’s “growing investment for more agile and faster operations.”

“We believe [American Eagle] is in early innings of modernizing and optimizing its distribution and fulfillment systems, but improvements are already reflected through gross margin expansion on digital delivery expense leverage in the quarter and speeding up supply chain lead time by 1.5 weeks,” Chen wrote.

Digital revenue drops from 2020 levels but up 66% over 2019

American Eagle also announced Thursday that its Q2 digital revenue fell 5% year over year, reflecting improved store traffic across the U.S. However, digital revenue increased 66% compared to the pre-pandemic Q2 of 2019, while store revenue increased 4% compared with Q2 2019.

The retailer did not break out dollar amounts for digital revenue. During the conference call, Rempell said consolidated second-quarter digital revenue grew about $150 million compared to 2019.

Total net revenue increased 35.1% to $1.19 billion, compared to $883.5 million in the second quarter of 2020. The retailer also reported a gross profit of $502.4 million, up 89.4% from $265.2 million in the second quarter of 2020. Net income for the quarter was $121.5 million, compared with a net loss of $13.75 million in Q2 2020.

For the 13 weeks ended July 31, 2021, American Eagle Outfitters reported:

• Digital sales decreased 5% compared with its fiscal Q2 2020. But, compared with the pre-pandemic Q2 2019, digital sales increased 66%.
• Total revenue increased 35.1% to $1.19 billion, compared to $883.5 million in the second quarter of 2020.
• Total revenue increased 34% to reach $335.8 million. That’s on top of 32% growth for the comparable period last year, compared with Q2 2019.
•  American Eagle brand revenue reached $845.9 million, up 35% compared to second-quarter 2020, following a 26% decline last year’s comparable period.
• Net income of $121.5 million, compared with a net loss of $13.8 million a year earlier.
• Gross profit of $502 million up 89% from $265 million in the second quarter of 2020.
• Operating income of $168 million compared to an operating loss of $12 million in the second quarter of 2020.
• The Aerie brand posted operating income of $71 million, up 132% from $30 million in the second quarter of 2020.
• American Eagle’s operating income increased 234% to reach $199 million from $60 million in the second quarter of 2020.
• Gross margin of 42.1%, up from 30% in the second quarter of 2020. The increase from 2020 results from revenue and merchandise margin expansion, primarily driven by strong demand, less discounting and inventory optimization initiatives.

For the 26 weeks ended July 31, 2021, American Eagle Outfitters reported:

• Total net revenue of $2.23 billion, up 54.9% from $1.44 billion for the same period in 2020.
• Net income of $217.0 million, compared with a net loss of $270.9 million for the year-ago period.
• Gross profit of $938.6 million, up 219.8% from $293.5 million for the comparable 26 weeks in 2020.
• Operating income of $301.4 million, compared with an operating loss of $370.5 million a year earlier.

Percentage changes may not align exactly with dollar figures due to rounding.