(Filed Under wholesale Lingerie News). While it has become fashionable for many brands and retailers to complain about how tough the intimate apparel business is today, one company is making it seem way to easy.
Aerie announced its combined comparable store and direct sales were up 24% in the second quarter, that it now plans to add even more stores (approximately 65 new locations over the next 18 months) and that it is about to launch a new “sports and yoga line.”
Aerie’s results helped boost parent company American Eagle Outfitters’ (AEO) total net revenue by 3% to $823 million, up from $797 million in the same quarter last year. AEO operates more than 1,000 stores in the U.S., Canada, Mexico, China, Hong Kong and the UK and sells merchandise in more than 150 additional international stores operated by licensees.
As reported earlier in BODY, Aerie’s plan to open 65 new stores represents a dramatic reversal. Between the end of 2011, when it had 158 stores, and the end of 2015, the company closed 61 stores. But in a conference call with analysts in early December, 2015, Aerie global brand president Jen Foyle unexpectedly revealed “We know that 90% of our customers are acquired through brick and mortar stores.” She added at the time that she planned “open approximately 10 standalone formats in 2016 and hope[ed] to expand beyond that based on this success.” Since then experiments with smaller, redesigned formats have proved successful, and in recent months Aerie has gradually increased the number of stores it plans to open.
During the most recent call Foyle said, “Aerie’s strong momentum has continued with the second quarter marking the fifth consecutive quarter of 20% or better comps and record profitability. In fact, second quarter margin was the highest to date. With a comp gain of 24%, we experienced strength across all channels, and we continue to attract new customers to Aerie, growing our active customer base in the mid-teens.”
She added “Sales metrics were strong across the board, and we saw increased transactions and higher basket size. We experience good strength in most categories including intimate, swim, accessories, and apparel. Customers are excited by the newness in our business, which combines traditional intimates with fun new novelty items and comfortable lounge wear.”
Asked by an analyst about fashion trends in the market and the exit of swimwear by a competitor (most likely referring to Victoria’s Secret), Foyle replied, “we were definitely on to the broader trend fairly early, and that was a huge build for us in the business going in to the second half and we continue to build on that category. But I wanted to note, it wasn’t just about bralettes, every category is trending for us right now, which is really exciting.”
Explaining why swimwear is doing so well for her brand, the executive added, “We we have younger customer. For her that business is almost like buying a prom dress every year or buying a new dress. She has to purchase that new swimsuit to go away every year and she does, and we’re going to really expand on that category. We love the swim business, our girl really responded. I don’t think we saw the downtick like some of our competitors did last year. So as I mentioned, margins were up for Aerie and while we did have to liquidate a little swim on the back half, it was highly profitable.”
Some Aerie stores are placed next to American Eagle apparel stores; some are stand-alone. Expansion is planned for both. “We’re definitely growing side by side. We’ll have 90 by the end of 2017, which is a nice growth. We love that operating mode, it’s great for the Aerie business, and I would say it opens up new doors for new customers for us. So the AE girl naturally moves over to Aerie and learns about our business and loves what she’s seeing. So side-by-side it’s definitely part of our strategy.”
“Thinking about the standalone business,” she continued, “we’re going to be highly strategic on where we open up new stores. We have a game plan in place; we have density models that we’re looking at to make sure that we don’t overdo it.”
Discussing Aerie’s direct business and the geographic spread of the brand’s brick and mortar stores, she explained “there was a nice leverage on the direct business, where we have locations. So as a reminder, we’re only in 11 states right now. We’re only in 11 states, so we have lots of expansion opportunity. But the growth in direct has been dynamic. We’ve had a huge direct growth and it’s been explosive as we mentioned. We see 60% of the growth in direct coming from those 11 states. So, that’s what I really think the opportunity is for Aerie.” — NM
A complete transcript of the American Eagle conference call on the second quarter can be found here: http://seekingalpha.com/article/4000360-american-eagle-outfitters-aeo-ceo-jay-schottenstein-q2-2016-results-earnings-call-transcript?page=1
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