American Eagle Outfitters, Inc. (NYSE: AEO), a specialty retailer known for its apparel brands such as American Eagle and Aerie, reported financial results for the first quarter of fiscal 2025, showing a decline in performance. The total net revenue for the quarter was $1.1 billion, a decrease of 5% compared to the same period last year. Furthermore, comparable sales declined by 3%, with American Eagle posting a 2% decrease and Aerie experiencing a 4% drop.

The company’s gross profit stood at $322 million, resulting in a gross margin of 29.6%, a significant reduction from 40.6% a year ago. Merchandise margins decreased by 960 basis points, largely driven by a $75 million inventory write-down on spring and summer goods, combined with increased markdowns due to high product costs. In addition, buying, occupancy, and warehousing expenses accounted for a deleverage of 140 basis points due to the decline in comparable sales.

Selling, general and administrative expenses (SG&A) rose by 2% to $339 million and decreased 190 basis points as a percentage of sales, affected by increased advertising expenses despite reductions in compensation and incentive costs. The operational results reflected an adjusted operating loss of $68 million for the quarter. The diluted loss per share was reported at $0.36, while the adjusted diluted loss per share was $0.29.

Inventory levels at the end of the quarter were reported at $645 million, down 5% from the previous year, aligning better with sales trajectories following the write-down. The company noted that traffic was up across brands and channels, but challenges in average unit retail (AUR) and conversion rates contributed to the negative comparable sales.

For the second quarter of fiscal 2025, American Eagle forecasted total revenue to decrease by 5% and comparable sales to decline by approximately 3%. The expected operating income range is set between $40 million and $45 million. Gross margin is anticipated to drop year over year, largely from higher markdowns and cost deleveraging. SG&A expenses for the second quarter are projected to remain flat compared to the first quarter, with depreciation and amortization expected to be around $54 million.

The capital expenditures for the first quarter totaled $62 million, with the overall expectation for 2025 now adjusted to approximately $275 million, down from earlier guidance of around $300 million. American Eagle is on track to complete a $200 million accelerated share repurchase program in the second quarter.