American Eagle Outfitters (AEO) , which owns clothing brands American Eagle and Aerie, is struggling with a dip in consumer demand, just like many other retailers across the country. However, the company’s CEO is flagging the source of the problem.
In American Eagle Outfitters’ fourth-quarter earnings report for 2024, it revealed that during the holiday season last year, its total comparable sales increased by 3% year-over-year. Specifically, comparable sales for Aerie increased by 4% and American Eagle’s grew by only 1%.
Amid minor sales growth, the company’s net revenue declined by 4%, compared to the same time period in 2023.
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American Eagle CEO flags concerning consumer trend
In the earnings report, American Eagle Outfitters CEO Jay Schottenstein said that despite seeing positive momentum from consumers in 2024, the company is starting to see a startling shift in customer behavior.
“Entering 2025, the first quarter is off to a slower start than expected, reflecting less robust demand and colder weather,” said Schottenstein in the report.
During an earnings call on March 13, the company flagged that its stores that are located in warmer climates are performing better than those in colder regions.
A worker folds jeans inside an American Eagle Outfitters store in New York, US, on Wednesday, March 6, 2024.
Schottenstein also said that consumers across the country are starting to become fearful about the current macroeconomic environment.
“They have the fear of the unknown,” said Schottenstein. “Not just tariffs, not just inflation. You see the government cutting people off. They don’t know how that’s going to affect them. They see programs being cut. They don’t know how that’s going to affect them. They just don’t know how it’s going to affect it. And when people don’t know what they don’t know, they get very conservative.”
There have indeed been major changes implemented by the federal government that have been making consumers anxious.
The Trump administration has been on a mission to shrink the federal government in an effort to “enhance accountability, reduce waste, and promote innovation,” according to a recent executive order.
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According to data from Layoffs.fyi, this effort has so far resulted in over 36,900 government employees being laid off and over 113,300 total federal departures, which has heightened concerns about current and future government programs.
On March 4, President Donald Trump also increased his previous 10% tariff on all goods imported from China to 20%. He also imposed 25% tariffs on all goods imported from Mexico and Canada.
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Tariffs are taxes companies pay to import goods from overseas, and the extra cost is often passed down to consumers in the form of price hikes.
According to a recent Market Pulse survey from InMoment, 56% of consumers expect prices for goods and services to increase as a result of Trump’s tariffs. In response to these expected price hikes, 60% consumers said they are contemplating changing their shopping behavior, with more expecting to shop less as opposed to shopping more.
“There’s so much news on the TV, it makes everyone a little nervous,” said Schottenstein during the call.
American Eagle unveils grim prediction about future profits
In the meantime, American Eagle Outfitters will be decreasing its production in China to help dodge the high prices associated with tariffs.
The company is also predicting that its revenue during the first quarter of 2025 will face a mid-single digit decline. For the entire year, it is expecting a low-single digit decrease in revenue.
“For the year, ongoing consumer uncertainty and changes in the operating landscape, including tariffs and strength in U.S. dollar, are also creating factors for us to navigate,” said Schottenstein. “Against this backdrop, we currently expect full-year revenue and operating income to be down relative to last year.”
The prediction from American Eagle Outfitters comes after retail sales across the country in February took a steeper dip than expected.
According to recent data from the U.S. Census Bureau, retail sales increased by only 0.2% last month, which is below the Dow Jones estimate of a 0.6% increase.
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