Sometimes good news isn't quite good enough. American Eagle Outfitters Inc. (AEO) delivered a pleasant Monday surprise by raising its fiscal fourth-quarter operating income outlook, pointing to strong holiday sales and better margins. Yet the stock slid over 5% anyway, because markets are funny like that.
The Numbers Look Pretty Good
The retailer reported comparable sales growth in the high single digits through January 3, with momentum across both brands and channels. American Eagle itself posted low single-digit comparable growth, while its Aerie brand absolutely crushed it with comps up in the low 20s.
Management bumped up fourth-quarter operating income guidance to a range of $167 million to $170 million, comfortably above the prior forecast of $155 million to $160 million. The company now expects consolidated comparable sales growth of 8% to 9%, backed by what they call disciplined margin execution.
CEO Jay Schottenstein was enthusiastic about the results, crediting record December performance to strong demand for new collections, smart marketing, and continued momentum after the holidays. He highlighted Aerie and Offline as the growth stars, while American Eagle showed sequential improvement.
"Momentum continued in the fourth quarter with record December sales fueled by the power of our brands, with particularly strong growth at Aerie and Offline and sequential growth at American Eagle," Schottenstein said.
The Tariff Shadow
Here's the catch: even with the improved outlook, the forecast still includes approximately $50 million in pressure from tariffs. That's consistent with what the company disclosed earlier, but it's a real number that doesn't go away just because holiday sweaters sold well.
The stock recently hit 52-week highs on positive sentiment heading into the quarter, but investors seem to be taking profits and reassessing what comes next.
How It Stacks Up
Investors watching the apparel space often compare American Eagle's performance with peers like Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS). Broader retail exposure can be tracked through funds like the SPDR S&P Retail ETF (XRT) and the Consumer Discretionary Select Sector SPDR Fund (XLY).
Price Action: AEO shares traded down 5.22% to $25.42 on Monday.