American Eagle Outfitters, Inc. (NYSE:AEO) has reaffirmed its outlook for fiscal 2026, keeping its forecast for mid-single-digit comparable sales growth. The market, however, reacted negatively: Reuters reported that the company’s shares fell about 9-10% in extended trading after the September 9 update.
Quarterly revenue came in at $1.38 billion, slightly ahead of the $1.37 billion analyst estimate. At the same time, the retailer raised its full-year operating income target after receiving $196 million in tariff refunds during the second quarter. For the current quarter, though, American Eagle guided for flat gross margin.
Management says demand remains weak in some seasonal apparel categories. Executive Creative Director Jennifer Foyle acknowledged pressure in seasonal products and said the company is continuing to right-size inventory as it enters the third quarter. American Eagle plans to rebalance inventory across brands and categories in an effort to reduce excess merchandise.
A supportive factor for the company is that it has now maintained its comparable-sales outlook for the second time this year despite an uncertain consumer backdrop. That suggests management still believes stronger areas of the business can offset softness in weaker seasonal categories.
Why investors remain cautious
The muted market response reflects several concerns. First, weak sales in seasonal categories, particularly shorts, threaten the company’s core sales momentum. Inflation and economic uncertainty are also pushing shoppers to prioritize essentials such as gas and groceries, while delaying apparel purchases until promotions appear.
A second concern is the quality of earnings. The higher full-year operating income target is partly supported by the $196 million tariff refund received in the second quarter, and that benefit is not recurring. In future periods, the company will need to generate stronger underlying sales and margins without a similar one-off lift.
Margins could also come under pressure from higher inventory and increased promotional activity. Inventory costs rose 14% year over year as tariffs added to expenses. American Eagle expects promotions in the third quarter to help clear excess seasonal stock, but deeper discounting could limit gross margin.
Hedge fund positioning
According to Insider Monkey’s database, hedge fund interest in American Eagle Outfitters, Inc. (NYSE:AEO) weakened in the second quarter. The number of funds holding the stock fell to 36 from 43 in the first quarter, although the value of those positions increased to $577.1 million from $504.3 million.
A similar pattern was seen at direct competitor Abercrombie & Fitch. The number of hedge fund holders there declined to 36 from 39, while the value of positions dropped to $609.9 million from $766.6 million.
Overall, American Eagle’s latest quarter suggests the company can still deliver revenue and earnings growth in a cautious consumer environment. Even so, investors are watching closely to see whether it can manage inventory effectively, avoid overly aggressive discounting, and sustain its mid-single-digit comparable sales target.
