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Teen apparel retailer tops Street

BY Marianne Wilson

Victoria's Secret loss is American Eagle Outfitters’ gain as the teen apparel retailer posted better-than-expected second quarter results, fueled by strong demand for its Aerie lingerie brand.

Net income fell to $21.2 million, or 12 cents per share, in the quarter ended July 29, from $41.6 million, or 23 cents per share, in the year-ago period. Excluding restructuring and related charges of $0.07 per diluted share, the company’s adjusted EPS was $0.19 for the quarter, above analysts' estimates.

Revenue rose 3%, to $845 million, topping analysts' forecast for sales of $824 million. Total same-store sales rose 2%, beating analysts' average estimate of a dip of 0.4%. Same-store sales were flat at American Eagle, but jumped 26% at American Eagle's lingerie brand, Aerie.

Anthony Riva, analyst at GlobalData Retail, noted that while the American Eagle brand is still struggling to generate growth.

Aerie continues to power ahead with robust sales uplifts.

"Aerie's fresh take on lingerie – especially in the sense of using ordinary women as models and its body-positive advertising – is still striking a chord with consumers and is allowing it to take custom from other players, including Victoria's Secret," Riva said. "New stores and effective marketing have also helped to drive sales."

American Eagle CEO Jay Schottenstein said that sales trends improved in the second quarter, with continued growth in jeans, bottoms, women’s apparel and Aerie.

"Our brands are strong and we have significant opportunity for further growth," he said. "I’m optimistic as we enter the second half of the year, and we remain focused on delivering product innovation, strengthening customer engagement and improving profit flow-through.”

In the second quarter, the retailer had charges totaling $21 million, approximately $0.07 per share, related to the previously announced initiative to explore the closure or conversion of company owned and operated stores in the United Kingdom, Hong Kong and China to licensed partnerships. Additionally, the company incurred charges related to the planned exit of a joint business venture.

American Eagle operates more than 1,000 stores in the United States, Canada, Mexico, China and Hong Kong, and ships to 82 countries worldwide through its websites.

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H&R Block taps former Target and Uber exec as CEO

BY Marianne Wilson

The man who resigned from the number two position at Uber after six months on the job has been named chief executive of the nation's largest tax preparer.

H&R Block named Jeffrey J. Jones II president and CEO, effective Oct. 9, 2017. He will succeed Tom Gerke, who will continue to serve as interim president and CEO until then. Gerke will remain general counsel and chief administrative officer.

Jones resigned as president of ride sharing at Uber in March. In a statement at the time, he commented that "the beliefs and approach to leadership that have guided my career are inconsistent with what I saw and experienced at Uber."

Prior to Uber, Jones was executive VP and chief marketing officer at Target Corporation from 2012 to 2016. He served as a key member of Target’s executive leadership team and helped lead the brand and business back from the 2013 data breach, launching a variety of major initiatives that drove traffic, brand affinity and loyalty.

Prior to Target, Jones held executive and leadership roles for The Gap, The Coca-Cola Company and Leo Burnett where he served General Motors, MillerCoors and Procter & Gamble, and founded Burnett’s subsidiary company, LB Works, which focused on technology solutions.

“One of our core corporate values is ‘We Do the Right Thing,’” said Robert A. Gerard, chairman, H&R Block. “There are few people who embody this more than Jeff. He is a transformational leader, one who deeply understands today's consumer and knows how to drive results in large-scale operations. Given his proven record of success in innovation and change management, the board is confident Jeff is the right person to evolve and grow our business in the years ahead.”

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Analysis: DSW on sound footing for better growth

Overall, this is a solid set of results from DSW which shows the company is moving in the right direction. The 0.6% rise in comparable sales may not be spectacular, but given it is the first time in over two years that the measure has been positive, we see it as an encouraging sign.

Despite the anemic same-store number, overall growth continues to trend higher. The Ebuys business, which DSW is in the process of integrating, partly helped to inflate the figures. As much as Ebuys is valuable for growth, we also see the division playing a strategic role in being a channel through which DSW can clear down excess inventory. Ultimately this should help margins in other parts of the business.

The main DSW brand has shown some encouraging signs of life this quarter as the company corrects some recent errors. That said, it is still too early to declare that the brand has been revived, especially as the 0.6% same-store increase remains soft. The addition of 30 more stores over the past year helped inflate the same store number to 4% growth on a total basis.

A particular area of success for the DSW brand is online. In our view, the recent redesign and relaunch of the website and mobile apps are helping to improve conversion and average transaction values. Over time we expect the improvements to pay further dividends.

As much as the digital changes are encouraging, we still believe that most DSW physical stores do not deliver a good enough experience. In our view, the store-based footwear proposition lacks excitement, is too focused on replacement purchases of more formal footwear, and is cluttered and hard to shop.

We are encouraged by the testing of a new warehouse format that places much more emphasis on visual merchandising and storytelling. This makes the DSW concept more 'shoppable' and allows space to be used more efficiently. Combined with some exciting new product launches – including exclusives with brands and some new own-label collections like the "Made in Italy" assortment – these steps should help to drive up both traffic and conversion.

The initiatives DSW is taking are important, not least as we see continued softness in the mainstream footwear market for at least the remainder of this year. Among the demographics DSW serves, finances remain a concern and shoes are often deprioritized in terms of the things people intend to buy. In some ways, one of DSW's jobs is to make footwear a more compelling and important purchase. Better marketing efforts, especially in digital, will be vital in supporting this.

Away from DSW, the ABG part of the business – which operates footwear concessions in other retailers – remains in substantial decline. This is mostly the result of withdrawal from some chains, including the bankrupt Gordmans. Fortunately, underlying comparatives are more stable, and there are future opportunities with businesses like Stein Mart.

Overall, we believe that DSW is headed in the right direction. While near-term results may remain soft, the company has put itself on a sound footing for better growth over the medium-term.

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