American Eagle Outfitters shares fell more than 11% in pre‑market trading on Thursday after the retailer issued a flat quarterly gross‑margin forecast that eclipsed a second‑quarter revenue beat. The decline was driven by persistent weakness in the company’s core brand, a year after it launched the controversial “Great Jeans” campaign featuring Sydney Sweeney.
Demand in the apparel sector has become erratic, pushing price‑conscious shoppers to prioritize essentials and wait for promotional sales. This shift has contributed to an approximate 36% drop in the retailer’s shares this year. Executives said that ongoing markdowns are needed to clear older stock, as rapid changes in fashion trends have left portions of inventory mismatched with consumer preferences.
To capture spending from wealthier Gen Z consumers, American Eagle has turned to high‑profile celebrity marketing. The “Great Jeans” campaign, starring Sweeney, faced social media backlash over perceived racial undertones but reportedly delivered “unprecedented new customer acquisition,” according to Chief Marketing Officer Craig Brommers. The company also partnered with NFL star Travis Kelce’s Tru Kolors brand, expanding its appeal among young shoppers.
For the quarter ended August 1, customer numbers grew by more than 700,000 around the Sweeney and Kelce launches, generating 40 billion impressions. Brand expenses rose 14% year‑on‑year, partly due to additional tariffs. Morgan Stanley analysts cautioned that earnings power is unlikely to improve, citing elevated inventory levels and Aerie’s ability to sustain recent momentum. Second‑quarter sales topped Wall Street expectations, with Aerie’s strong performance cushioning softer demand for the core label. Gross margins are projected to remain flat from a year earlier, and comparable sales growth for fiscal 2026 is forecasted to be mid‑single‑digit. The stock trades at a forward price‑to‑earnings multiple of 9.38, compared with Abercrombie at 11.47 and Gap at 8.91.
