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By
Reuters
Published
May 19, 2016
Reading time
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American Eagle's Aerie makes a splash as Victoria's Secret falters

By
Reuters
Published
May 19, 2016

American Eagle Outfitters Inc's lingerie and swimwear brand Aerie is the toast of the season as it quietly takes away the spotlight from runway favorite Victoria's Secret.


Aerie


A 32 percent jump in first-quarter sales at Aerie stores established for at least 12 months helped American Eagle post a higher-than-expected rise in quarterly sales in a retail environment best described as grim.

American Eagle shares surged as much as 18.3 percent to $15.84 on Thursday, their biggest percentage gain in four years.

Unlike L Brands Inc's Victoria's Secret, Aerie is not high-fashion.

But its colorful and flirty intimate apparel has become a hit with millennials, more so after the Aerie Real marketing campaign in 2014 that featured models whose images where not air-brushed.

The upshot?

Strong sales at Aerie have helped to speed up the company's turnaround, which largely centered around a recovery in the core American Eagle brand.

"Aerie has a long runway ahead and I believe it is one of the most exciting emerging brands in retail today," American Eagle CEO Jay Schottenstein said on a post-earnings call on Wednesday.

Analysts said Aerie and other brands have been taking share from market leader Victoria's Secret.

Sales at established Aerie stores have grown in double-digit percentage in the last six quarters, while those of Victoria's Secret have gradually slowed in the last three quarters.

Aerie remains a small business within American Eagle - which reported revenue of $749.4 million in the April quarter - and has a long way to go before it takes the tiara from Victoria's Secret.

Also, there are other large brands such as Fruit of the Loom Inc, Hanes and Jockey that are vying for more market share.

Victoria's Secret, which accounted for two thirds of L Brands' revenue in the latest quarter, reported sales of $1.74 billion in the first quarter.

American Eagle doesn't break out sales for Aerie.

SWIMWEAR ROUND

Another reason Aerie is expected to keep doing well is the fact that L Brands will no longer sell swimwear under the Victoria's Secret brand from the end of the year.

This creates an opportunity for brands such as Aerie, which has been expanding its swimwear collection.

"We believe Aerie is in a strong position to continue gaining share across all its product categories," Nomura analyst Simeon Siegel told Reuters.

"The strength is coming at the same time that Victoria's Secret has been slowing - a fact we don't see as coincidental."

Analysts polled by research firm Consensus Metrix expect Aerie same-store sales to further strengthen this year, ending up about 8 percent on average compared with last year.

Victoria's Secret same-store sales, on the other hand, are expected to fall in the next three quarters, to cumulatively end the fiscal year down 2 percent, according to Baird Equity Research analyst Mark Altschwager.

 

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