August 17, 2016 / 12:11 PM / 3 years ago

Aerie lifts American Eagle's sales above estimates

(Reuters) - Teen apparel retailer American Eagle Outfitters Inc (AEO.N) reported a bigger-than-expected rise in quarterly comparable sales, largely due to strong demand for its Aerie line of lingerie and personal care products.

Shoppers are seen in an American Eagle Outfitters retail store in Manhattan, New York, U.S., May 13, 2016. REUTERS/Mike Segar - RTX2E88V

The company’s shares, however, fell as much as 7.4 percent as the second-quarter results disappointed some investors, particularly after a strong showing in the previous quarter.

The stock had risen nearly 42 percent since the company reported strong first-quarter results in May.

“We credit the stock decline this morning as a result of high expectations, and see it as a good buying opportunity,” Jefferies analyst Randal Konik wrote in a note.

Comparable sales of the Aerie brand jumped 24 percent in the second quarter ended July 30, handily beating the 13.70 percent rise expected by analysts polled by Consensus Metrix.

Aerie’s colorful and flirty intimate apparel has become a hit with millennials, more so after the Aerie Real marketing campaign in 2014 that featured plus-sized models.

The brand was also early to tap into the popularity of bralettes - bras without padding and underrwires.

“Aerie’s square footage is expected to grow 32 percent by the end of fiscal 2017,” said Jennifer Foyle, global brand president of Aerie said on a conference call.

American Eagle has also responded faster to changing fashion trends in an attempt to win back customers who are increasingly shopping at fast-fashion companies such as Inditex’s (ITX.MC) Zara, H&M (HMb.ST) and Forever 21.

“I think it was a good report,” Nomura analyst Simeon Siegel said. “In this environment, sentiment and setup is playing a larger role than actual fundamentals,” Siegel added, referring to the pullback in shares.

Sales at American Eagle’s stores open for at least a year rose 3 percent in the quarter, helped by denim, shorts, dresses, knit and woven tops. Analysts on average had expected 2.7 percent rise.

American Eagle’s net income rose to $41.6 million, or 23 cents per share, in the quarter from $33.3 million, or 17 cents per share, a year earlier. Net revenue rose 3.2 percent to $822.6 million.

Analysts on average had expected a profit of 21 cents per share revenue of $820.2 million, according to Thomson Reuters I/B/E/S.

The company also forecast third-quarter profit of 40-41 cents per share and a low single-digit rise in comparable store sales.

Analysts on average had expected a profit of 40 cents per share.

Shares of the Pittsburgh-based company were trading down 6.5 percent at $17.73 on Wednesday.

Reporting by Subrat Patnaik in Bengaluru; Editing by Anil D'Silva and Saumyadeb Chakrabarty

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