Dive Brief:

• American Eagle Outfitters on Thursday reported fourth quarter total revenue rose 12% year over year to $1.23 billion, including $43 million from an extra week of trading. Same-store sales in the quarter rose 8%, up from the "slight increase" a year ago. Q4 marked the strongest sales performance since the third quarter of fiscal 2015, with unit prices and average sales increasing, Chief Financial Officer Bob Madore told analysts, according to a transcript from Seeking Alpha.

• By brand, Q4 American Eagle same-store sales rose 5% and Aerie same-store sales rose 34%, the company said. Digital penetration increased 340 basis points, expanding to just under 31% of revenue in Q4 compared to 27% a year ago, Madore said. He added that traffic and transactions increased, with store traffic posting a positive comp and outperforming the mall for both brands.

• The retailer relied on price cuts over the holidays, which, along with increased shipping costs and higher wages, hit margins, the company said. Gross profit in the quarter rose to $425 million from $389 million. But the gross margin rate fell 80 basis points to 34.6% of revenue. Consensus Metrix​ noted 16 analysts or more had expected gross margins of 35.08% percent for the quarter, according to Reuters.

Dive Insight:

Like many retailers, American Eagle is stoking sales through its online channel, but the bottom line is suffering as a result. 

That consequence of more robust digital sales is increasingly a concern on the part of investors, according to Retail Metrics President Ken Perkins. "The question has become 'can retailers maintain margins?' The answer in 2017 was generally 'no,'" Perkins said in comments emailed to Retail Dive.

It didn't help that the teen apparel retailer leaned on promotions over the holidays. "And look, we decided to get aggressive," CEO Jay Schottenstein told analysts Thursday. "We decided we want to gain share and we believe that in doing so, we could feel momentum that would carry into spring and we’re seeing that so far. So I think we had the right strategy."

The company's Aerie line continues to resonate with customers, and executives said last week that they are gaining sales from younger shoppers as well as their moms, giving the brand its 15th straight quarter with same-store sales growth. Executives said the brand offers the flagship American Eagle arm an opportunity to gain new customers as well, especially now that Aerie stores are increasingly located next to flagship stores, with a doorway between them.

"In 2017, we generated over 8.5 billion median impressions and a 28% increase in social media followers. And we consistently expanded our customer base at a double-digit pace throughout the year," Aerie Global Brand President​ Jen Foyle told analysts. "​Today, only 50% of women who shop our [American Eagle] brand shop Aerie. This represents a tremendous opportunity to introduce new customers to the Aerie brand."

The retailer last year shrunk its total gross square footage slightly as it continues to close underperforming stores, shuttering 25 American Eagle stores and eight old-format Aerie stores.