American Eagle Outfitters forecast current-quarter profit below analysts’ estimates on Wednesday as the apparel maker spends more on advertising and new Aerie store openings.
The company’s shares fell 4 percent in after-hours trading.
American Eagle has rapidly increased marketing expenditure on its Aerie line of lingerie, using it as a sales driver while the company rolls back promotions and discounts.
Those investments in building Aerie’s brand image as a designer of bras, bralettes and lingerie for women of all body types has been responsible for its surge in demand as it strikes a chord with younger shoppers who have struggled to find the same products at rival brands like Victoria Secret’s Pink.
American Eagle, which had a total of 262 Aerie stores at the end of its fiscal year, said its expects to open 60 to 75 Aerie stores this year.
However, against the backdrop of higher advertising expenses and wages in the first quarter, the company does not expect an improvement in operating profit margins until the second quarter, Chief Financial Officer Robert Madore said on a conference call.
American Eagle forecast first-quarter adjusted earnings of 19 cents to 21 cents per share, below analysts’ expectations of 24 cents, according to IBES data from Refinitiv.
The outlook comes in contrast to rival Abercrombie & Fitch, which forecast better-than-expected annual sales earlier on Wednesday, betting on its remodeled stores and the popularity of its Hollister brand.
American Eagle said it was expecting “huge year” for its jeans business as it introduces new styles and take advantage of the woes of some its rivals.
“Gap’s recent announcement of closing over 200 stores … I’m excited by that, that’s a huge opportunity for us to continue to capture market share,” Madore said on the call with analysts.
Gap said last month it would separate its better-performing Old Navy brand and shut about 230 stores of its struggling namesake apparel business, in one of its biggest restructuring efforts to energize sales.
Pittsburgh-based American Eagle’s same-store sales rose 6 percent in the fourth quarter ended Feb. 2, in line with analysts’ estimates. However, its total net revenue rose just 1 percent to $1.24 billion, missing analysts’ estimates of $1.26 billion.
Excluding items, the company earned 43 cents per share, marginally beating analysts’ average estimate of 42 cents.