As the company looks to mitigate rising costs and deal with a slowdown in consumer demand, it plans to freeze hiring, lower its capital sending, and cut back on non-critical expenses, CEO Jay Schottenstein said on the earnings call.
With these actions, the company now expects $100 million in annualized expense reductions from its original plan, higher than the $60 million it targeted last quarter.
The company’s gross margins in Q2 declined due to higher freight costs, discounting, and increased promotional activity as it looked to clear out its excess inventory from spring and summer. Overall, the company’s inventory cost rose to $687 million, up from $504 million the year before.
Heading into the third quarter, the company’s inventory levels are at more optimal levels with fall merchandise and fresh back-to-school supplies in its stock, Reuters reported.
Aerie, the company’s activewear division, saw an 11% increase in revenue in Q2, whereas the namesake American Eagle division reported a 8% decline.
The company reported net revenue of $1.20 billion, which was in line with analysts’ expectations. However, excluding expenses, the company generated 4 cents per share, well below analysts’ expectations of 13 cents per share.
The company’s earnings report sent its shares down by 14% in after-hours trading.
Photo credit: American Eagle