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American Eagle Outfitters (AEO -7%) is under pressure today following Q1 (Apr) guidance last night, which was roughly in-line. And while it did not guide for EPS, it did say it expects a Q1 adjusted operating loss of approximately $(68) mln whereas analysts were looking for a profitable quarter. Even more troubling was AEO withdrawing prior guidance for FY25 due to macro uncertainty.

• AEO said its operating guidance reflects higher than planned promotional activity in Q1 and an inventory charge of roughly $75 mln related to a write-down of spring and summer merchandise. We can assume that the higher promotional activity pressured margins. So while revenue was generally in-line, actually slight upside, some of those sales were at reduced prices just to move merchandise, which takes some of the shine off the top line result.
• Q1 same store comps were down approximately -3% (American Eagle -2%, Aerie -4%). This was a noticeable step down from Q4 (Jan) comps of +3% (American Eagle comps +1%; Aerie comps +6%). It also follows a solid FY24 comp of +4%. The Aerie comp decline in Q1 is particularly disappointing because it followed robust +6% comps in Q4 and +5% in Q3 (Oct).
• AEO said it was clearly disappointed with its execution in Q1. Merchandising strategies did not drive the results it had anticipated, leading to higher promotions and excess inventory. As a result, it took the inventory write down on spring and summer goods. The silver lining is that AEO says it's entering Q2 (Jul) in a better position, with inventory more aligned to sales trends.
• Withdrawing guidance is particularly unnerving for investors and seems to be the main reason for the big decline today. It is one thing to guide lower, it is quite another to just withdraw guidance altogether. It signals to investors that the company is really navigating a difficult period and is not sure what to expect.

We are wrapping up Q1 earnings season this week, but we are just getting started on the retailers, which typically have an April 30 quarter end. In terms of that this means for other mall-based retailers, it definitely makes us more cautious as they start to report earnings in the next 2-3 weeks.

In fairness, AEO is known for perhaps not always being the best operator and not being on trend. Briefing.com has covered AEO for years and write downs are not entirely unusual for them. Also, AEO is not that large. As such, we do not want to read too much into in terms of what it means for other mall apparel retailers. However, it does make us more nervous, especially its decision to withdraw guidance for the rest of the year.