Fourth quarter sales for apparel marketer American Eagle fell from $995.4 million a year ago to $905.7 million during fourth-quarter 2008. The company recorded net income of $32.7 million for the quarter, down from $140.5 million a year ago. The quarter ended Jan. 31.
How bad were the most recent results? Despite the falloff in sales, the company’s fourth-quarter cost of sales jumped from $540.1 million a year ago – 54% of the net sales for the quarter – to $594.1 million, or nearly 66% of sales for the quarter just ended. Operating income nosedived from 21% of sales to just under 6%.
“The fourth quarter proved to be a disappointing conclusion to an extremely challenging year,” said CEO Jim O’Donnell in a statement. “In response to sharply lower demand in the fourth quarter, we increased unplanned promotions, enabling us to successfully clear through inventory.”
O’Donnell continued, “Looking ahead, we cannot accept this kind of performance, recession or not. We know that our customer responds when we have the right fashion at the right price. As such, we are vigorously pursuing major improvements within all of our brands, while maintaining a conservative approach toward inventory investments, capital spending and operating expense.”
For the year, sales dropped from $3.06 billion in 2007 to $2.99 billion in 2008. Net income for 2008 was $179.1 million, compared with $400 million a year earlier.
In its financial statement, the company referred to its direct business, which includes ae.com; aerie.com; 77kids.com; and martinandosa.com, as “an important area of growth.” During fiscal 2008, direct sales increased to $307 million from $243.5 million.
The Opportunist’s Take: American Eagle isn’t the only apparel vendor of late to take a bottom-line hit by cutting prices on unsold seasonal merchandise. I’d love to see a forum for apparel marketers in which they hash out the value of selling overstock at deep discounts and taking a loss on one’s quarterly financials – thereby scaring shareholders – versus holding the merchandise in a warehouse and trying to sell it through slowly, but at less-steep discounts, through either special mailings or Web sites dedicated to out-of-season merchandise. In fact, a scaled-down mailing piece featuring lightly discounted out-of-season apparel might make an interesting DM customer reactivation test – or perhaps a way of stimulating use of the $42.3 million in unredeemed gift cards American Eagle reported at the end of its fourth quarter.
