American Eagle Outfitters (NYSE:AEO) reported strong performance for the third quarter of 2023, achieving record revenue of $1.3 billion, a 5% increase in comparable sales, and robust growth in its Aerie brand. The company also raised its full-year operating income guidance to the high end of the previous range.

Key takeaways from the earnings call include:

• Both American Eagle and Aerie brands saw strong brand momentum, with consolidated revenue increasing by 5% to $1.3 billion.
• The company reported its second-highest gross margin and operating income in over a decade, with American Eagle’s operating margin expanding to 21.5% and Aerie’s reaching an all-time high of 19.3%.
• The digital channel grew by 10%, and the company also reported positive results from new store designs.
• The company plans to open 25 new Aerie stores and close 25 net American Eagle stores in 2023.
• American Eagle Outfitters expects continued gross margin expansion, leverage on SG&A and depreciation, and healthy earnings growth next year.
• The company plans to host an investor meeting in spring 2024 to share their go-forward strategy and long-term financial targets.

In the earnings call, the company discussed the impact of changing their clearance strategy, which improved profitability by avoiding unprofitable sell-off revenue. This change is expected to result in a $50 million annualized benefit over a 12-month period. The company also expressed satisfaction with the results of their Gateway store remodel and plans to remodel around 50 more locations next year.

The company highlighted the success of their new store designs and the growth in their direct channel. They also noted positive trends in their international business in the Middle East. In terms of future performance, American Eagle Outfitters expects gross margin expansion in the first half of next year due to tailwinds in initial markup and the annualization of expense and gross margin benefits.

American Eagle Outfitters also discussed plans for store expansion and growth in the coming year, stating that it still has opportunities to expand its store base and increase its customer file, especially within its brands that have a sizable addressable market. The company reported an increase in average unit retail (AUR) in the quarter and aims to hold onto the growth achieved during the pandemic.

American Eagle Executive Creative Director Jen Foyle acknowledged that men’s sales were softer in Q3, but the company plans to focus on improving productivity in that area in Q4 and beyond. Jay Schottenstein, CEO of American Eagle, expressed satisfaction with the company’s third-quarter results and stated that their strategies are working. He emphasized the focus on building enduring brands and driving consistent profit growth.