Dive Brief:

• After building up merchandise that allowed it to back away from heavy discounting, American Eagle Outfitters was forced back into old habits during the competitive holiday season, the company said Wednesday.

• Still, the teen apparel retailer reported healthy Q4 results amid successful merchandising adjustments. Fourth quarter sales rose 3.2%, thanks in large part to sales at its Aerie lingerie brand that exceeded its expectations, and comp sales rose 4%. Overall Q4 digital sales grew 20%, and 20% of that growth was from ship-from-store fulfillment strategies, CEO Jay Schottenstein said.

• American Eagle's early Q1 results and guidance for the quarter are beating expectations. The company says earnings per share in Q1 will likely fall between 17 cents to 19 cents, above the 15 cents per share reported by the Pittsburgh Post-Gazette.

Dive Insight:

American Eagle doesn’t really seem stumped by its fourth quarter headwinds, and executives Wednesday said they believe that their merchandising changes will continue to make all the difference going forward.

Global brand president Chad Kessler told analysts that the retailer sees its Q4 stumble as “an anomaly.”

“When we look to Q4, we have been doing a lot of hindsight around what happened,” he said in an answer to a question. “I think that there were a lot of macro headwinds that impacted [and] as we said, I think weather was a big factor. We're really feeling that Q4 was an anomaly. [W]e’re really happy with the results in Q1 so far, it's still early days.”

The company's bright expectations mirror fellow teen retailer Abercrombie's healthier-than-expected Q4 same-store sales, hinting at a comeback in the teen apparel market. Both retailers were hit hard in recent years by increased competition from fast-fashion retailers like Forever 21 and H&M, which provided trendy pieces at low prices, usually cheaper than both retailers. Abercrombie has seen success in backing away from its highly sexualized, label-heavy promotional plan of past, with same-store sales rising 1% in the most recent quarter, its first increase in more than three years. 

American Eagle's turnaround has been one of the biggest success stories in this market, thanks in part to its highly successful Aerie brand that employs a marketing strategy that eschews photoshopping models. The retailer has also made a point to increase the quality of its jeans and focus on tightening up its inventory. 

Looking forward, Kessler said that the company, anticipating more pressure to discount next year, is already taking steps to improve its performance in Q4 this year.