August 29, 2018 / 12:17 PM / a month ago

Lingerie brand Aerie's expansion to hit American Eagle profit

(Reuters) - American Eagle Outfitters Inc (AEO.N) forecast third-quarter profit below expectations on Wednesday, as the retailer spends more on wages and advertising to support the expansion of its popular Aerie line of lingerie.

FILE PHOTO: Jeans are seen for sale in an American Eagle Outfitters retail store in Manhattan, New York, U.S., May 13, 2016. REUTERS/Mike Segar/File Photo

Shares of the company fell as much as 13.3 percent in early trading, with quarterly same-store sales at Aerie missing Wall Street estimates for the first time in at least two years.

Same-store sales at Aerie rose 27 percent in the second quarter. Analysts had expected the brand’s appeal among younger women to drive an average of a 30 percent increase in sales.

The collapse in sales for Victoria Secret’s (LB.N) Pink over the last three months had led analysts to raise their same-sales forecast by an average of 3 percent since the start of August.

Jane Hali & Associates analyst Jessica Ramirez said it was too early to see Aerie gain the market share lost by Pink in the face of several other smaller brands vying for the space.

American Eagle has been expanding the Aerie business as the brand surges in popularity, given its wide collection of bras, bralettes and lingerie for women of all body types.

The company raised wages in the second quarter and said it would continue to train and incentivize staff as it looks to open 50 to 80 Aerie stores next year.

“Our core products of jeans and bras within Aerie really require an enhanced selling effort and we actually think it’s a competitive differentiator for us,” Chief Financial Officer Robert Madore said on a conference call with analysts.

The additional investment in Aerie is likely to impact the company’s third-quarter earnings, which is expected to be between 45 cents and 47 cents per share. This came in below analysts’ expectation of 49 cents per share, according to Thomson Reuters I/B/E/S

However, the company’s comparable sales beat estimates in the second quarter, thanks to a strong 7 percent rise in sales by its flagship American Eagle apparel line in the back-to-school season.

Net income nearly tripled to $60.3 million, or 34 cents per share and net revenue rose more than 14 percent to $964.9 million in the quarter ended Aug. 4. Both profit and revenue beat Wall Street estimates.

The company’s shares, which have gained 45 percent in value this year, were down 11 percent at $24.35 in morning trade, marking its worst day in over a year.

Reporting by Uday Sampath in Bengaluru; Editing by Arun Koyyur

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