AEO Shares Fall About 11% as Flat-Margin Forecast Highlights American Eagle Weakness

Key Facts

American Eagle Outfitters shares, traded under the ticker AEO, fell about 11% after the second-quarter report as the company forecast third-quarter gross margin would be flat from a year earlier.

Second-quarter revenue reached $1.38 billion, up 8% year over year, while total comparable sales increased 6%. Revenue narrowly exceeded analysts’ estimate of $1.37 billion.

The sales mix showed a clear divide between brands: Aerie comparable sales rose 19%, while American Eagle comparable sales fell 1%. Merchandise margins also declined 330 basis points, with improvement at Aerie offset by a decline at American Eagle.

Gross margin reached 48.7%, up 980 basis points, but a $179 million benefit from tariff refunds added 1,300 basis points to the margin. The refunds provided a net $161 million operating-income benefit, making it important to separate underlying performance from the exceptional effect when assessing the results.

The company expects third-quarter operating income of $110 million to $115 million and fiscal 2026 operating income of $540 million to $550 million. The annual outlook includes the tariff-refund benefit, while full-year comparable sales are projected to increase at a mid-single-digit rate.

Attention now turns to margins, inventory and the American Eagle brand. Inventory cost rose 14% and units increased 9% at quarter-end, and the company plans to keep rebalancing inventory across brands and categories; its success in clearing seasonal merchandise and improving the brand mix will therefore influence the profit trajectory.