American Eagle Outfitters Inc. officials admitted Thursday that they "screwed up" their back-to-school inventory, which contributed to a 20 percent drop in second-quarter earnings.
The man responsible for selecting the merchandise that goes into the more than 700 American Eagle Outfitters stores has accepted blame for the company's 5.5 percent decline in same-store sales. He vowed to correct the problem in time for the holidays.
"I am accountable for our performance," said chief merchandising officer Roger Markfield during a conference call with securities analysts.
Markfield said his purchasing group introduced too many sweaters into the stores, while not including enough graphic T-shirts and women's hooded shirts. But the biggest blunder, he said, was taking the American Eagle brand logo off much of its merchandise.
"Shame, shame on us. We've built a $1.5 billion brand (and ran away from it). It's silly. It's nonsense. We shot ourselves in the foot," Markfield said. "We had data, we had feedback and a lot of collective instinct going into that decision. For all of that, it was the wrong move."
He said the company misfired by aiming at an older, over-20 demographic for back-to-school, when it should have been focused more on its younger, teen demographic.
"We needed more active, fun looks," Markfield said.
The Marshall-based clothier reported net income of $8.1 million, or 11 cents per diluted share, in the second quarter -- compared to net income of $10.1 million, or 14 cents per share, in the second quarter last year.
Total sales in the second quarter increased 5.6 percent to $337.1 million. On a positive note, sales at the company's Canadian Bluenotes division increased to $19.3 million, compared to $18.8 million in the same year-ago period.
American Eagle Outfitters warned that August began on a bad note, with sales in the first eight days declining 8 percent year-over-year at stores open at least a year. The company said the trend likely will continue through the remainder of the critical back-to-school shopping month.
A new assortment of merchandise will arrive in stores next week, and Markfield promised the "AE" logo will be restored on all items where it is appropriate.
"We are adjusting on the run. We must address our 20-year-old target customer, in such a way we still pull in customers on both sides of that demographic -- down into the teens and up into the 20s," he said.
Jennifer Black, an analyst for Wells Fargo Securities LLC, said American Eagle Outfitters is "struggling to find itself" and is being outperformed by other retailers catering to young adults -- such as Aeropostale, Pacific Sunwear and Hot Topic.
Steve Baumgarten, of Parker/Hunter Inc. in Pittsburgh, said such discount retailers as Wal-Mart and Target also are developing their own brands that are stealing value-oriented customers from American Eagle Outfitters.
"The company is having difficulty identifying what its core customer wants," he said.
