Aerie, the lingerie brand owned by American Eagle Outfitters, Inc. (AEO), played a crucial role in driving the company’s sales growth in the fourth quarter of 2019. Despite this success, AEO’s profits took a hit due to increased expenses and markdowns.

In the quarter that ended on February 1, 2020, AEO reported net sales of $1.31 billion, a 6% increase compared to the previous year. This was a record-breaking achievement for the company. Comparable sales also experienced a 2% rise, although it was lower than the 6% growth seen in the fourth quarter of 2018.

Aerie proved to be the standout performer, with a remarkable 26% increase in comparable sales. This marked the 21st consecutive quarter of double-digit growth for the brand. American Eagle, however, faced a decline in comparable sales by 3%, although it did witness growth in its jeans and bottoms categories.

The surge in expenses and markdowns had a significant impact on AEO’s net income, which plummeted from $76.17 million to $4.76 million in the fourth quarter. Additionally, the gross margin rate fell from 34.6% to 31.0%. Impairment and restructuring charges further contributed to the profit decline.

Despite these challenges, AEO achieved record sales of $4.3 billion for the full fiscal year of 2019, experiencing a 7% increase compared to the previous year. Comparable sales also rose by 3%. Aerie continued to excel, boasting a 20% increase in comparable sales. The American Eagle brand also saw a slight increase. However, net income for the year decreased from $261.90 million to $191.3 million.

Jay Schottenstein, AEO’s chairman and CEO, acknowledged the obstacles faced in 2019 but emphasized the company’s progress on its strategic growth pillars and record revenues. He stressed the importance of addressing areas of underperformance and strengthening profit margins in the future. AEO plans to focus on product improvements, inventory management, and gaining efficiencies.

For the first quarter of fiscal 2020, AEO predicts a low single-digit increase in comparable sales and estimates earnings per share to be in the range of $0.20 to $0.22. Throughout fiscal 2019, the company opened 27 American Eagle stores and 37 standalone Aerie locations while closing 25 stores across both banners. Currently, AEO operates a total of 1,095 company-owned brick-and-mortar stores and has 217 licensed global stores. The news of Aerie’s impressive performance led to a surge in the company’s shares, rising by over 6% in after-hours trading.

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