By Juveria Tabassum
(Reuters) -American Eagle Outfitters cut its target for annual comparable sales growth on Wednesday, in signs that apparel demand could be erratic during the critical holiday season, sending its shares down 14% in extended trade.
Competition has heated up in the apparel space as companies vie for frugal, discerning shoppers with a focus on fresh styles and nifty marketing. Still, a holiday shopping season marked by high promotions has forced most retailers to be cautious about their expectations.
"Key selling periods have seen a positive customer response, yet we remain cognizant of potential choppiness during non-peak periods," said American Eagle (NYSE:AEO)'s CEO Jay Schottenstein.
Retailer Target (NYSE:TGT) also said it was seeing an increased response to promotions this year, with consumers largely holding back purchases between big discount events.
American Eagle now expects annual comparable sales growth of about 3%, down from its prior expectations for a roughly 4% rise, to reflect caution in the holiday quarter demand outlook.
The Aerie parent's targets come in contrast to some apparel companies, including Gap and Abercrombie & Fitch, who have benefited from demand for their casual wear styles.
"AEO brands have been fairly successful in getting Gen-Z's attention with seasonal campaigns and compelling promotions, but those same efforts are adding pressure to their margins that could prove unsustainable," said EMarketer analyst Sky Canaves.
Unusually warmer weather in the U.S. also hit apparel sales during the third quarter, while higher discounts weighed on margins for the company, which has tried to ramp up marketing in its activewear items.
American Eagle reported quarterly revenue of $1.29 billion, compared with estimates of $1.30 billion, as per data compiled by LSEG.
The company also recorded an $18 million impairment and restructuring charge as it looks to cut costs.
Excluding items, American Eagle earned a profit of 48 cents per share, ahead of the 46 cents per share expected by analysts.