(Filed Under wholesale Lingerie News). Aerie comparable sales jumped 26% in the quarter ended July 29. The lingerie division of American Eagle Outfitters (AEO) has now “achieved double-digit sales growth in 14 consecutive quarters,” according to Jen Foyle the global brand president.
The Aerie executive added, speaking in the conference call to discuss results, that the latest success builds “on a 24% increase last year” in the same quarter. Moreover, for the first six months of 2017 comp sales for the brand are up a combined 26%.
American Eagle, which also sells a wide range of men’s and women’s apparel, reported net income of $21.2 million on sales of $844.6 million in the second quarter, compared to income of $41.6 million on sales of $822.6 million in the three months ended July 30, 2016.
Aerie is a relatively small division of AEO, according to Foyle, “not even fully [a] $500 million business” for the parent company (which itself recorded $3.6 billion in total sales in its latest fiscal year). Moreover, of the total 1057 AEO stores, there are just 109 stand alone Aerie locations. (However, Aerie product is also available in 103 additional so-called “Aerie side by side” shops located within larger American Eagle stores).
Jay Schottenstein, the AEO CEO, is expecting still more dramatic future growth in lingerie. “The Aerie brand is emerging as one of the most exciting new concepts, with the customers incredibly passionate about what Aerie stands for. We will continue to fuel the momentum and look forward to realizing Aerie as a billion dollar brand over the next few years.”
Referring to the store expansion for Aerie, Foyle stated: “The number that we are getting to — we want to get towards — is about 300 stores in total and that includes side by side. And we prefer the side by side opportunity.”
Despite the huge and consistent increases in store comps for Aerie, Foyle did admit some challenges. “Regarding bras, we did see a little softness in bras, for sure. Really from the push up category. Our lightly lined category still has been working for us. And we continue to innovate around that category,” she continued. “Bralettes were definitely saturated out there in the marketplace. But, the good thing there, and I said this before, as bralettes continue to be in our top-three departments and there still be demand for them.”
Why, when so many other retailers are chopping store numbers, is Aerie adding locations? The answer is fascinating. “As we expand our footprint in markets with new brick and mortar stores, we are gaining new customers and have seen the online penetration rise dramatically in those markets,” explained Foyle. “Customer acquisition is strong and we saw double-digit increase in our customer database.”
CFO Bob Madore expanded on the connection between physical stores in an area and the online sales achieved from that same area. “Just on Jen’s point, as far as store and market focus, Jen and the team are very focused on expanding within markets really leveraging the existing presence we have with one-off, two-off stores and digital there. I think I pointed out this statistics last quarter where 70% of Aerie’s digital revenues came from the markets where they had a brick and mortar presence. So just to exemplify Jen’s point, where we have a brick and mortar presence, digital pops and shows up in a big way.”
Thus, even though “40% of our sales are being realized through our digital channel,” according to Foyle, brick and mortar is a necessary part of the growth equation.
Since the end of January AEO has opened 11 new Aerie shops, with plans to open another four by the end of its fiscal year. Presumably, many of the future openings will be in the central and western parts of the country. “We are only really concentrated on the East Coast,” explained Foyle. “So there is a definite correlation on when we open up a four-wall store and what happens to the direct business, it literally ignites and opens up that market for us. So, we continue to look at market opportunities that we’re not currently in.” Seven of the nine stores opened in the last quarter were “in new markets” according to the company.
An article posted on the Aerie website noted many of the newest stores feature an updated design and are “located next to or inside AEO stores to create an easier experience while shopping between brands.”
“The design made its debut in our Israel store this past spring. Girls can also shop the new store design in Ontario, Quebec, China, Mexico, Columbia, and soon, the UK.”
While competitor Victoria’s Secret has moved out of certain apparel categories as well as all of swim, Aerie has been moving in the opposite direction. Said Foyle, “In the second quarter, we saw strength across most product categories. It was especially gratifying that the new areas of expansion such as swim [and] apparel including Chill. Play. Move exceed our expectations. We are pleased to see so much enthusiasm around our emerging new categories. The team did a great job identifying new trends and differentiating our collections with updated styles, silhouettes and fabric innovation. Our categories extension are natural product adjacencies that complete the Aerie lifestyle. For example our soft knit tops, leggings and fleece, fit perfectly within the brands.”
Even with the new additions, Foyle emphasized that at Aerie “The center of our business is still in intimate and represents over 50% of our business at this stage.” But the new products help to balance declines at the core. Referring to fleece, she noted, “we really were able to get on that trend early and accelerate that trend and it really offsets a little bit of softness in bras. But, we are still loving what we are seeing in bras and we have innovation there.” — NM
The complete call transcript can be found here: https://seekingalpha.com/article/4101407-american-eagle-outfitters-aeo-ceo-jay-schottenstein-q2-2017-results-earnings-call-transcript?page=1
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