American Eagle has change into the loudest voice within the denim wars. The model’s high-profile campaigns with Sydney Sweeney and Travis Kelce have drawn 40 billion impressions, offered out merchandise and introduced in slightly below 800,000 new clients since late July. However as provide chain prices surge and pricing strain builds, buyers are asking whether or not American Eagle’s deal with cultural warmth is coming at the price of sustainable development.
“In Q2, we had been the No. 1 model for 15‑ to 25‑yr‑olds and the No. 2 denims model for 15‑ to 29‑yr‑olds,” mentioned Jennifer Foyle, president and govt artistic director of American Eagle and Aerie, in the course of the firm’s September 3 earnings name. “We skilled a constructive response in denim and had been chasing again into key matches, like Dreamy Drape and Athletic.”
However not all classes are hitting. “We noticed softness in shorts, sweaters and core fundamentals — classes that we all know are necessary, however didn’t fairly land,” she added. To course-correct, she confirmed that Aerie “employed a brand new lead service provider to higher align our assortments and drive pace and relevance.”
The numbers paint a blended image. Internet income for Q2 fell 1% year-over-year to $1.28 billion. Comparable gross sales had been down 1%, with AE model comps down 3%. Aerie grew 3%, bolstered by continued power in intimates, which Foyle confirmed nonetheless make up “roughly 40% of the assortment.” Whereas earnings per share rose 15% to $0.45, this was largely pushed by $231 million in share buybacks. Common unit retail dropped 5%, and stock rose 8%.
CMO Craig Brommers led the decision with advertising wins. “Sydney Sweeney sells nice denims. She is a winner,” he mentioned. “We noticed The Sydney Jacket promote out in sooner or later, and her Dreamy Drape Jean offered out in every week. That’s why we’re restocking it this fall.”
Nonetheless, some analysts questioned whether or not that engagement was translating into operational power.
In an interview with Shiny, Brommers was fast to deflect criticism of the marketing campaign’s reception. “It’s fully false to say the marketing campaign was overwhelmed by destructive sentiment,” he mentioned. “This marketing campaign has reduce by means of the noise at a time when there’s uncertainty within the retail setting.”
That uncertainty consists of commerce coverage. American Eagle expects $20 million in tariff prices in Q3 and as much as $50 million in This autumn, even after early mitigation. “We had been $180 million in influence, and thru early strikes in sourcing and logistics, we had been in a position to carry that quantity manner down,” mentioned CFO Mike Mathias. “We’ve taken decisive motion.”
American Eagle has shifted manufacturing away from China to international locations together with Vietnam, Indonesia, India, Bangladesh, Cambodia and Central America. “Whereas we have now launched selective value will increase, particularly in denim, we don’t count on broad-based pricing actions,” Mathias mentioned. “That’s not our technique.”
However these prices are nonetheless anticipated to compress margins, particularly in the course of the vacation season.
In the meantime, AE confirmed it could improve advertising spend in Q3, with extra campaigns deliberate for each Kelce and Sweeney within the months forward.
“He’s actually a accomplice, and we’re simply getting began,” Brommers mentioned of Kelce.
Against this, opponents are enjoying a quieter — and leaner — sport. Abercrombie & Fitch posted file Q2 gross sales of $1.2 billion, up 7%, pushed by 19% development at Hollister. “We delivered our eleventh consecutive quarter of development whereas additionally exceeding our high and backside line expectations,” CEO Fran Horowitz-Bonadies mentioned.
“We’re working on this new tariff panorama from a place of power, when it comes to our model well being, our steadiness sheet and money move,” she added. CFO Robert Ball underscored the model’s monitor file navigating financial shocks, together with “tariffs 1.0, the pandemic, inflation, cotton spikes, freight fee spikes, you identify it.”
Notably, Abercrombie just isn’t counting on broad pricing will increase. “We don’t anticipate broad-based ticket value will increase this yr,” Ball mentioned. “And we’ve not assumed significant AUR mitigation in our outlook.”
Hole Inc. echoed that stance. “We’re not spending extra in shops or in advertising. In actual fact, we’re getting rather more environment friendly and efficient,” mentioned CEO Richard Dickson in the course of the firm’s August 28 name. Hole reported flat income at $3.55 billion, with 1% comp development throughout its manufacturers.
“Our advertising is working,” Dickson added. “That’s a mirrored image of the playbook. … We’ve been spending much less and driving more practical outcomes.” Referring to the success of the current buzzy marketing campaign that includes the woman group Katseye, he credited “vastly improved” artistic and smarter media placement. “Our media combine mannequin has been altering over time to be extra reflective of the place our shoppers are.”
Within the brief time period, American Eagle is successful consideration. However analysts are watching intently to see whether or not that consciousness will convert into earnings. With This autumn tariff prices mounting and Q3 pricing strain already in play, the model’s reliance on buzz could must shift towards a system of extra operational self-discipline.
