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UPDATE 2-American Eagle forecasts dismal Q2 amid stiff competition
May 17, 2017 / 12:47 PM / 6 months ago

UPDATE 2-American Eagle forecasts dismal Q2 amid stiff competition

(Adds details, background, CFO quote)

May 17 (Reuters) - American Eagle Outfitters Inc forecast second-quarter profit below estimates as intense competition in the industry pushes the apparel chain to offer deep discounts and bear excess shipping costs on online orders.

Shares of the teen apparel maker fell as much as 9.2 percent to touch a two-year session low of $11.77 in morning trading on Wednesday.

The company forecast second-quarter adjusted profit in the range of 15 to 17 cents per share, far below analysts’ average estimate of 23 cents per share, according to Thomson Reuters I/B/E/S.

The retailer’s dull forecast comes at a time when the industry is struggling to cope against the increasing reach of online shopping and a general decline in spending on clothes.

Several retailers, including American Eagle’s rival Abercrombie & Fitch Co, have been struggling to turn around sales while some have filed for bankruptcy. Apparel retailers such as Aeropostale Inc, Wet Seal and BCBG Max Azria Group LLC have filed for bankruptcy over the last two years and industry experts say many more may follow suit.

American Eagle’s gross margins in the first quarter ended April 29 declined by 2.7 percent to 36.5 percent, while its inventory at cost increased 9 percent to $364 million.

“We anticipate gross margin pressure in the second quarter pretty consistent with what we experienced in Q1,” Chief Financial Officer Robert Madore said.

The company also warned its current-quarter comparable sales could decline, after it reported a surprise 2 percent rise in the first quarter on Wednesday.

Analysts had forecast a 0.7 percent decline in same-store sales, according to research firm Consensus Metrix.

Net income fell to $25.24 million, or 14 cents per share, in the quarter, from $40.48 million, or 22 cents per share, a year earlier.

The company said it incurred $5.4 million pre-tax restructuring charges for severance and related charges in the quarter.

Excluding certain items, the company earned 16 cents per share in the quarter, missing analysts’ average estimate by a cent, according to Thomson Reuters I/B/E/S.

Net revenue rose 1.66 percent to $761.83 million, beating analysts’ average estimate of $741.7 million. (Reporting by Gayathree Ganesan in Bengaluru; Editing by Arun Koyyur)

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