American Eagle Outfitters (NYSE:AEO) shares plunged more than 16% premarket on the back of its latest quarterly earnings despite topping consensus estimates and raising its annual revenue forecast.
The clothing retailer reported Q3 EPS of $0.49, $0.01 better than the analyst estimate of $0.48. Revenue was a record for the quarter, coming in at $1.3 billion, up 5% YoY and above the consensus estimate of $1.28 billion.
AEO's gross margin rate of 41.8% rose by 310 basis points. The margin expansion was driven by strong demand, lower product and freight costs, and continued benefits from the company's profit improvement work, including lower markdowns and leverage on rent, distribution warehousing, and delivery.
The company noted that momentum has continued across the business into the fourth quarter, driven by strong holiday assortments, engaging marketing campaigns, and solid execution, which is supporting the company's improved outlook for the rest of the year.
"I am pleased with our third quarter results which demonstrated the strength of our brands and reflected continued progress on our growth and profit improvement initiatives," commented Jay Schottenstein, AEO’s Chief Executive Officer.
For fiscal 2023, AEO expects revenue to be up mid-single digits to last year, compared to its prior guidance for revenue up low single digits. In addition, 2023 operating income is expected to be between $340 to $350 million, at the high end of prior guidance of $325 to $350 million, reflecting strengthened demand and continued profit improvement.
For Q4, revenue is expected to be up high-single digits, with operating income in the range of $105 to $115 million.