Shares of American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) have jumped more than 24% in after-hours trading yesterday, after it reported solid second-quarter fiscal 2025 results and reinstated guidance for fiscal 2025. The company delivered top and bottom-line beats in the fiscal second quarter, with the latter also increasing year over year.

AEO posted earnings of 45 cents per share in the fiscal second quarter, surpassing the Zacks Consensus Estimate of 20 cents. Also, the bottom line increased 15% from the year-earlier quarter.

Shares of the Zacks Rank #3 (Hold) company have surged 65.7% in the past three months compared with the industry’s growth of 5.9%.

An Insight Into AEO’s Q2 Revenues

Total net revenues of $1.28 billion fell 1% year over year but came above the Zacks Consensus Estimate of $1.23 billion. Consolidated comparable sales (comps) fell 1% in the quarter. A lower average unit price was largely offset by higher transaction volumes, which benefited from positive traffic within the selling channels. The company witnessed demand pick up as the quarter progressed. July was the best month of the reported quarter as AEO introduced the initial back-to-school product collections. Our model predicted negative comps of 3% for the fiscal second quarter.

American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise

American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote

Brand-wise, revenues declined 3.3% year over year to $800.4 million at the American Eagle brand. Also, comps for the brand fell 3%.

Revenues jumped 3.2% year over year to $429.1 million for the Aerie brand. Comps for the Aerie brand rose 3%. We expected a sales decline of 4.9% year over year at the American Eagle brand and 4.7% at Aerie in the reported quarter.

An Insight Into AEO’s Margins & Expenses

Gross profit inched up 0.2% year over year to $500 million. The gross margin of 38.9% expanded 30 basis points (bps) from the year-ago quarter, owing to a 50-bps rise in merchandise margins, backed by lower markdowns. Additionally, buying, occupancy and warehousing expenses were flat year over year, deleveraging 20 bps due to lower sales.

Selling, general and administrative (SG&A) expenses dipped 1% year over year to $342.2 million. As a percentage of sales, SG&A expenses were flat year over year. While the company benefited from lower compensation costs, this was partly offset by higher advertising spending.

American Eagle reported an adjusted operating income of $103.1 million, up 2% from the prior-year quarter.

AEO’s Financial Health Snapshot

American Eagle ended the fiscal second quarter with cash and cash equivalents of $126.8 million, with a net long-term debt of $203 million. Total shareholders’ equity was $1.54 billion as of Aug. 2, 2025. The company had a total liquidity of roughly $400 million. It drew down $200 million from its revolver to aid the buyback program and seasonal cash needs. By year-end, it projects repaying the majority of outstanding debt and starting to rebuild cash. Inventory increased 8% year over year to $718.3 million at the end of the reported quarter.

Capital expenditures were $71 million in the fiscal second quarter, with a year-to-date spend of $133 million. The company anticipates incurring capital expenditures of $275 million for fiscal 2025.

In the fiscal second quarter, American Eagle completed its $200-million accelerated share repurchase agreement (ASR), which represents an aggregate repurchase of nearly 18 million shares. Year-to-date, it has repurchased $231 million, reducing the number of shares by 20 million, which is approximately 10% of the outstanding diluted shares. AEO also paid $21 million as quarterly cash dividends, bringing year-to-date dividends of $43 million.

What to Expect From AEO Ahead?

For the third quarter of fiscal 2025, the company expects comps to rise in the low single digits. The gross margin is projected to be down year over year, while SG&A dollars are expected to rise in the high single digits. Depreciation and amortization are estimated at $54 million, and operating income is anticipated to be $95-$100 million, including nearly $20 million of higher tariff costs. The effective tax rate is expected to be around 25% and the weighted average share count is projected at 172 million shares. Buying, occupancy and warehousing costs are likely to increase due to store growth for Aerie, both offline and online, and higher digital penetration, leading to slight deleverage. SG&A is forecast to rise in the high single digits, thanks to investments in advertising.

For the fourth quarter of fiscal 2025, the company expects comps to rise in the low single digits. The gross margin is projected to be down year over year, while SG&A dollars are forecast to remain flat to down slightly year over year. Depreciation and amortization are anticipated at $56 million, and operating income is anticipated to be $125-$130 million, including approximately $40-$50 million of tariff impact in the fiscal fourth quarter. SG&A is likely to drop slightly in the quarter. The effective tax rate is expected to be around 25% and the weighted average share count is projected at 172 million shares.

The company is prioritizing investments across its digital channel, with foundational improvements to the shopping experience. It is focused on optimizing its store fleet to ensure the best locations, offering a seamless customer experience and tapping additional growth opportunities. This year, the company is on track to open roughly 30 Aerie and offline locations and remodel 40-50 AE stores for a modern design. It anticipates shutting down 35-40 American Eagle locations by the end of the year.

Management is impressed by the progress made in the reported quarter. The company is focused on building upon its sales momentum, managing costs and making continued improvements to deliver profitability. The outlook reflects projected tariffs based on the latest trade policies. For fiscal 2025, AEO expects comps to stay flat year over year. The gross margin is projected to be down year over year, while SG&A dollars are forecast to be up year over year. Depreciation and amortization are anticipated at $217 million and adjusted operating income is anticipated to be $255-$265 million. The effective tax rate is expected to be around 25%, and the weighted average share count is projected at 174 million shares.

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