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American Eagle Plans up to 250 Store Closures, Looks to Aerie for Growth

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Shares of American Eagle Outfitters (AEO) were up today following the retailer’s 2021 investor meeting, where the company outlined plans to close at least 200 largely mall-based American Eagle locations while at the same time expanding its Aerie brand.

The company plans to close 200 to 250 of the 880 current American Eagle locations in the U.S. and Canada over the next two to three years, said Michael Rempell, COO of AEO during the virtual investors meeting on Jan. 21. At the same time, the retailer will expand the footprint of its lingerie and activewear brand Aerie with 50 new storefronts opening in 2021, bringing the total to approximately 400 by year end. By 2023, the company aims to have 500 to 600 Aerie stores in operation and expects revenue from this brand to double to $2 billion.

With American Eagle revenue expected to remain roughly flat through 2023, Aerie will be the driver of growth for the organization over the next few years, said Mike Mathias, CFO of AEO.

That was reflected in AEO’s Q4 2020 update, which showed Aerie’s Q4 revenue projected to increase in the high 20% range, while American Eagle’s is expected to decline in the low double digits. The contrast is due primarily to American Eagle’s higher store penetration and the continued impact of pandemic-related store closures and weak mall traffic.

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The company’s online channels were a bright point in 2020, with double-digit growth expected across both brands in Q4 and total digital sales for the year expected to reach $1.7 billion, up more than $400 million from 2019.

The company will “remain aggressive adopters of both new tools and new technologies” in the digital arena moving forward, said Rempell, pointing to ongoing tests of same-day delivery and in-store customer self-checkout via the American Eagle app. He also said the company plans to begin testing livestreaming, with store associates engaging directly with customers through their mobile devices.

The company has set a revenue target of $5.5 billion for 2023, with operating margins expected to expand to 10% in the same timeframe. That would be a significant increase from FY 2019, when revenue was $4.3 billion. Final Q4 and fiscal year 2020 results are expected on March 3.

“I am more optimistic than ever about AEO’s future,” said Jay Schottenstein, Executive Chairman and CEO of AEO on the investors call. “The competitive landscape has been disrupted and there is profitable market share out there for the taking. Customer shifts played to our strengths including the migration to digital and omnichannel commerce. Our multi-year investments in these areas position us to deliver a best-in-class shopping experience along with strong profitability. Our AE and Aerie brands are well-suited to take advantage of growing demand for casual, comfortable apparel and activewear.”

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