(Filed Under wholesale Lingerie News). Even though Aerie, the intimates division of American Eagle Outfitters (AEO), has been outperforming recently, its parent plans to close an additional 20 lingerie shops in 2015, continuing a process that, by the end of the year, will have cut the total number by about half since the end of 2011. At the end of that year there were 158 Aerie stores; by the end of 2015 there will be about 81.
Sales at Aerie rose 13% in its fiscal fourth quarter, as well as 6% for the full year ended January 31, 2015. Meanwhile the parent company reported only a 2.6% rise in annual income to $88.787 million on lower sales of $3.283 billion compared to income of $82.983 million on sales of $3.306 billion for the year ended February 1, 2014.
“Aerie had an outstanding quarter completing a breakout year,” explained Roger Markfield, executive creative director at AEO. “While we saw a good strength across the business, some of the best categories were intimates, PJ’s and soft bottoms.” In another part of the conference call to discuss the most recent results, Markfield added, “Aerie has tremendous runway ahead, as a truly different and real intimates brand. I would like to end by thanking the entire team of AEO. Everyone came together to end 2014 on a very positive note. We will all continue to work hard to see that momentum carry into the future.”
Despite the strong performance of its intimates, compared to its women’s and men’s apparel, AEO noted in its 2014 annual report that Aerie represents a declining portion of the company’s overall business, only approximately 8% as of January 31, 2015, down from about 9% as of February 2, 2013. The company also confirmed it plans to close, in fiscal 2015, about 20 Aerie stores, dropping the total from 101 at the end of January, to about 81 by the end of this year. At the end of fiscal 2011 the company operated 158 Aerie stores, but closed 7 in 2012, 29 in 2013 and 21 in fiscal 2014.
AEO sells its Aerie products on line and in some of its apparel stores in addition to its lingerie specialty shops. And the company seems focused on generating profits from the lingerie by opening shop in shops and smaller side by side shops, even while decreasing the overall square footage devoted to Aerie.
Simon Nankervis, EVP, global commercial business, said in the conference call, “We doubled our side by side fleet last year. We doubled the square footage. We actually reduced the total square footage in Aerie.” But he added, “we were able to retain over 80% of the revenue on incremental profitability. So, we see the strategy being very, very profitable for the company and its something that we’re focused on expanding over the next two years.”
According to a chart provided to investors, the total amount of store selling space devoted to Aerie peaked at the end of 2011 at 623,862 square feet, but has since dropped to 396,291 square feet as of the end of January.
Despite the continued pace of Aerie store closings this year, Mary Boland, chief administrative officer and CFO said, in the conference call, that the company is “really excited about the opportunity” it has with the brand, explaining, “There is certainly wide space for this customer that we see, we think that there is certainly opportunity leveraging the box, leveraging AE, they are big brands, they have a huge customer base and we speak to the same girl. So certainly by doing so, opening up the side by side stores, the shop within shop opportunities, we are seeing nice leverage on the square foot base there, reducing obviously the square foot where we had some bigger standalone stores.”
Boland continued, “We launched several product categories this year and one being that has been a huge success in bras, the Sunnie bra. That bra is winning over so many customers and we are thrilled and we are going to leverage that going forward. And then undies, those two categories are just amazing for us and certainly the roots of the business. But I think what we have seen going forward is there is opportunity in other categories. For instance in holiday, we leverage PJs and sleep, and also the gifting category.”
A full transcript of the conference call can be found here: http://seekingalpha.com/article/2974146-american-eagle-outfitters-aeo-ceo-jay-schottenstein-on-q4-2014-results-earnings-call-transcript
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