By Angela Chen And Chelsey Dulaney
American Eagle Outfitters Inc. on Wednesday reported its first
quarter of revenue growth in two years, as the company's new line
of one-size-fits-all clothes helped to separate the apparel
retailer in the competitive teen market.
In comparison, rival Abercrombie & Fitch Co. posted a 14%
drop in sales in its holiday quarter and said it expects challenges
to persist throughout the first half of the year. The company has
been dealing with its own sales slump and is searching for a new
top executive.
Longtime retailers of teen apparel have struggled in recent
quarters as their key demographic increasingly began to favor
cheaper, unmarked clothes, such as those sold at fast-fashion
stores like Hennes & Mauritz AB and Forever 21 Inc.
American Eagle on Wednesday credited the company's "Don't Ask
Why" collection in part for its 3% increase in revenue. The
retailer called the collection a cost-effective "testing lab" that
helps the retailer spot trends and increase demand.
By experimenting with new fabrics, washes and styles in the
one-size-fits-all collection, it can gauge which styles are gaining
favor and then add these styles to the regular collection. American
Eagle said this process was a key part of turning around the
company's tops business, which was one of the best-performing
segments in the past quarter.
In general, American Eagle has seen sales grow on demand for
such items such as blanket scarves and knit tops. The company's
"improved merchandise" also allowed it to scale back
promotions.
American Eagle has been working to revamp its business after
losing market share. The company in May unveiled plans to shutter
150 North American stores over the next three years and is
evaluating another 300 stores that have leases expiring over the
period.
Shares of American Eagle surged as much as 10% Wednesday and set
a new 52-week high of $16.36.
Abercrombie, meanwhile, is phasing out its logos in the U.S.--as
logo-branded fashion falls out of fashion with teens--while adding
more patterns and items like sequined tops for women.
The company said Wednesday that it expects the logo phaseout to
weigh on first-half results and currency headwinds to hurt the
company all year. Abercrombie didn't provide specific sales or
earnings guidance, citing a lack of visibility.
In December, the company announced that controversial Chief
Executive Mike Jeffries was leaving the company after more than 20
years. Mr. Jeffries crafted Abercrombie's sex-tinged image and
built it into a powerhouse.
Wednesday, the company said the search for a new leader
continues and that the company is considering internal and external
candidates.
Abercrombie also highlighted the depth of the changes the
retailer is considering to revive its flagging image. The company
put its corporate jet on the market last quarter, is retraining its
employees and is considering changes to make its notoriously
dim-lit, music-blasting stores more friendly.
"We're changing the content of the music. We're looking at
different levels of music," said Christos Angelides, president of
the Abercrombie brand. "We're looking at the darkness. We're
looking at the way we lay the product out, whether it should be
hanging or flat-folded so we're leaving no stone unturned."
Shares of Abercrombie fell as much as 15% Wednesday and hit a
six-year low of $20.37.
Abercrombie reported a profit for its January quarter of $44.4
million, or 63 cents a share, down from a profit of $66.1 million,
or 85 cents a share, a year earlier. Revenue fell to $1.12
billion.
American Eagle, meanwhile, said it earnings rose to $61.6
million, or 32 cents a share, from $10.5 million, or 5 cents a
share, a year earlier. Revenue increased to $1.07 billion.
For the current quarter, American Eagle guided for per-share
earnings between nine cents and 12 cents in the current quarter,
above the seven cents that analysts had forecast. The retailer's
estimate includes a negative impact of 2 cents a share from
continued shipping delays at West Coast ports, which the company
expects to be resolved this summer.
American Eagle also said there was no update on its search for a
permanent chief executive, and that Jay Schottenstein would
continue leading the company in the interim. Former CEO Robert
Hanson departed in January 2014.
Write to Angela Chen at angela.chen@dowjones.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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