American Eagle Outfitters Beats Q2 Earnings Estimates

American Eagle Outfitters Inc (NYSE:AEO) beat its Q2 revenue and earnings estimates. However, it missed its -0.9% SSS estimate with a -2.0% SSS result. Still, the retailer raised its annual outlook and said that “trends through the back-to-school shopping period have been strong with AE positive and Aerie delivering a double-digit comp quarter-to-date.” (Source: AEO Q2 Earnings Call, 9/7/2023)

As the second quarter earnings season comes to a close, a few consumer behavior themes emerged:

Consumers are value driven. Strong discounts continue to attract shoppers.

Middle-class and high-end consumers continue to trade down and gravitate toward discounters.

Consumers are starting to expand their shopping, purchasing discretionary items.

Beauty continues to be strong.

Back-to-school sales look healthy.

Inflation continues to worry consumers and retailers.

Moreover, this Q2 earnings season has seen more retailers missing revenue estimates (37%) compared to the previous four quarters’ average (34.8%). Still, as the pandemic and supply chain woes have faded, they are dealing with better management of cost controls and lower freight and shipping expenses. As a result, more retailers are beating earnings estimates (78%) than the previous four quarters’ average (70.6%).

Exhibit 1: Earnings and Revenue Scorecard – Q2 2023

Source: LSEG I/B/E/S

Here are the Q2 2023 earnings and same store sales estimates for the companies reporting this week:

Exhibit 2: Same Store Sales and Earnings Estimates–Q2 2023

Source: LSEG I/B/E/S

Discount Levels - U.S. Online Retailers

The discount penetration (how much of the assortment is on sale) rose to its highest level this year. LSEG discovered this in a collaboration with Centric Pricing, formerly StyleSage, which analyzes retailers, brands, online trends and products across the globe. For Labor Day weekend, the discount penetration was 38%, above the 2023 average of 32%, as retailers face a more price-cautious consumer.

Meanwhile, the average percent discount in September has declined to 36.2%. This means that retailers are ramping up the amount of merchandise on sale. However, the average discount is lower than last year’s 38.3% average, suggesting that retailers are luring shoppers with more merchandise on sale, but are being more cautious with margins.

Exhibit 3: Discount Penetration and Average Discount: U.S. Online Retailers

Source: Centric Pricing formerly StyleSage Co.

Below is the latest Q2 2023 Retail Earnings Dashboard:

EARNINGS: The Q2 blended earnings growth estimate is 20.3%
- Of the companies in the index that have reported earnings to date for Q2 2023:
- 78%have reported earnings above analyst expectations
- 5%have reported earnings matching analyst expectations
- 17%reported earnings below analyst expectations.

REVENUE:The Q2 blended revenue growth estimate is 3.3%
- 63%reported revenue above analyst expectations
- 37%reported revenue below analyst expectations