American Eagle bets on denim, lingerie with Aerie comps rising 20%

Dive Brief:

American Eagle on Wednesday reported that total third quarter net revenue rose 6% or $63 million to a record $1.07 billion from $1 billion last year.
Comparable sales rose 5%, "and were positive across both store and digital channels," according to a company press release. By brand, namesake American Eagle's comps rose 2% as lingerie brand Aerie comps rose 20%, its 20th straight quarter of double-digit sales growth.
Gross profit rose 2% to $407 million as the gross margin rate edged down to 38.2% from last year's 39.8%, mostly from markdowns, the company said. Operating income dropped to $103 million from $109 million last year, and, as a rate to revenue, fell to 9.7% from 10.8%. Net income declined to $80.8 million from $85.5 million a year ago.

Dive Insight:

The inventory issues that haunted American Eagle's third quarter, the result of both product misses in tops and some bad luck like uncooperative weather, have continued into the fourth quarter, the company said on a conference call with analysts Wednesday. Overall, though, the teen retailer has become a destination for denim, and its Aerie brand is doing particularly well.

The company invested in its denim despite rumblings a while back that the category was out of fashion, and that helped it get ahead, to the point where the brand is now a destination for jeans and a market leader, executives said.

Outside research backs them up, and indicates further that the company may be on the way to become a destination for lingerie as well. Both brands are gaining share despite a tough retail environment, according to GlobalData Retail. In lingerie, that's particularly a problem for segment stalwart Victoria's Secret, which is giving up both customers and market share to Aerie, according to a GlobalData note emailed to Retail Dive.

The success is not just thanks to an apparel offering that is mostly resonating with consumers. Stores are conducive to shopping and browsing, and the marketing, "which is natural and focused on real people – is also attuned to what customers want," according to GlobalData Retail Managing Director Neil Saunders. American Eagle brand president Chad Kessler said on the call that traffic to stores has been robust, notable at a time when so many retailers have seen it fall.

In the third quarter, the company opened six American Eagle stores, (ending with 945), including 170 Aerie side-by-side locations. The company opened 12 Aerie stand-alone stores and closed one, ending with 142 stand-alone locations. Internationally, the company ended the quarter with 241 licensed stores compared to 223 last year, and executives said plans are to expand globally.