American Eagle forecasts holiday-quarter profit below estimates

American Eagle Outfitters has forecast a much lower-than-expected Q4 profit, joining rivals Abercrombie & Fitch Co and Gap Inc in flagging a tough climate for retailers in the crucial holiday shopping season.
The teen apparel retailer’s shares sank 15.1% to $16.06 in morning trading on Wednesday.

American Eagle also forecast comparable sales to be flat or to increase in the low single digits in the fourth quarter compared with a 4% rise in the year-earlier period.

“The retail climate, particularly in malls, is tough and the pace of traffic is choppy. We’re therefore taking a cautious view,” CFO Bob Madore said on a conference call.

The company forecast Q4 adjusted profit of 37-39 cents per share, well below analysts’ average estimate of 45 cents, according to Thomson Reuters.

The American Eagle brand ran earlier and deeper promotions during Black Friday and Cyber Monday, Wolfe Research analyst Adrienne Yih wrote in a note. “We believe AEO will continue to run elevated promotions throughout 4Q16 to drive traffic but will result in lower quality sales.”

Abercrombie said last week it expected holiday-quarter sales to be challenging, while Gap forecast a further drop in traffic during the period, raising concerns that apparel retailers were in for another tough holiday season as fewer shoppers visit malls and continue to spend less on clothes.

Comparable sales of American Eagle’s Aerie brand, which sells intimate apparel and personal care products for women, rose 21% in the third quarter ended October 29, beating the average analyst estimate of a 17.4% rise, according to research firm Consensus Metrix. But it is a much smaller brand than American Eagle.

American Eagle reported a smaller-than-expected 2% rise in quarterly comparable sales amid a “tough retail climate.” Analysts on average expected a 2.9% rise. Net revenue rose 2.34% to $940.6m, in line with the average analyst estimate.

American Eagle’s net profit rose to $75.76m, or 41 cents per share, from $74.11m, or 38 cents per share, a year earlier.

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