American Eagle shares slide as flat margin outlook, weak core brand weigh

Revenue for the second quarter surpassed analysts' estimates, as growth at Aerie — the company's women's intimates and activewear brand — helped offset softness at the namesake brand.

The company expects current-quarter gross margin to be flat from a year earlier and forecasts mid-single digit growth in fiscal 2026 comparable sales.

"Earnings power is unlikely to improve and low valuation remains justified by several overhangs, including elevated inventory levels and Aerie's ability to sustain recent momentum," said analysts at Morgan Stanley.

The stock's forward price-to-earnings multiple, a common benchmark for valuing stocks, is 9.38, compared to peers Abercrombie's 11.47 and Gap's 8.91.

American Eagle, like several apparel peers, has turned to celebrity partnerships such as the "Great Jeans" campaign with actor Sydney Sweeney to capture spending from wealthier Gen Z consumers, even as inflation squeezes lower- and middle-income households.

American Eagle Outfitters' shares slumped over 11% in premarket trading on Thursday, following a flat quarterly gross-margin forecast as persistent softness at the company's core brands outweighed a second-quarter revenue beat.

Demand across the apparel sector has been uneven as consumers grappling with inflation prioritize essentials and wait for promotions — a backdrop contributing to a roughly 36% decline in the company's shares this year.

Executives said on Wednesday that the brand was still trying to clear older inventory through discounts after a sharp shift in fashion trends left some merchandise out of step with consumer demand.

Inventory costs climbed 14% from a year earlier in the quarter ended August 1, including costs related to incremental tariffs.