• Q4 net profit slumps to $10.5m
  • Margins narrow to 29.4%
  • Sales fall 6.7%
American Eagle said business conditions remain “challenging” in Q1

American Eagle said business conditions remain “challenging” in Q1

Teen apparel retailer American Eagle Outfitters has reported a "highly disappointing" fourth-quarter after earnings slumped and margins narrowed.

In the three months ended 1 February, the company reported a net profit of US$10.5m. This compared to earnings of $94.8m a year earlier.

Interim CEO Jay Schottenstein said the results in 2013 were "highly disappointing" and that while tough macro conditions persisted in its retail sector, the firm's merchandise and overall customer experience fell short of expectations.

"We're taking steps to bring greater focus and excitement to our product offering and better engage our core customers," he said.

"Our brands remain incredibly strong and I'm confident in our ability to execute the strategic plan and resume long-term profitable growth."

Nonetheless, gross margin narrowed in the quarter to 29.4% from 41.2%, in part due to increased discounting. Sales also dropped, by 6.7% to $1.04bn.

For its first quarter outlook, the company said business conditions remain "challenging", with severe winter weather contributing to weak demand.

Based on a high single-digit decline in comparable sales, American Eagle said it expects first quarter EPS to be around break-even compared to adjusted EPS of $0.18 last year.

FBR & Co analyst, Susan Anderson, said: "While we like AEO's omnichannel/supply chain initiatives, we believe the business will be under pressure in the near term given the competitive and promotional teen environment.

"We remain on the sidelines until we see margin and SSS stabilization or a more attractive valuation. We believe that the stock will be under pressure from today's results."

In pre-market trading, shares were down 5% to $14.21 at 09:17 EDT.