Teen apparel retailer American Eagle Outfitters Inc forecast current-quarter profit above the average analyst estimate, as fewer discounts drive margins and sales at its namesake brand return to growth after two years.
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Shares of the company, which also reported better-than-expected quarterly profit and sales, rose 8 percent in premarket trading on Wednesday.
Unlike other apparel retailers, American Eagle has focused on offering fewer discounts and controlling inventories to help boost margins. A change to less logo-centric merchandise has also helped the company attract teen shoppers.
American Eagle has also improved its fashion offerings by identifying and capitalizing on popular trends such as festival and bohemian-inspired dresses and tops, shirt dresses, and denim pencil skirts.
The shift in focus helped the company's flagship American Eagle brand post its first comparable sales growth after two years of decline.
Comparable sales at the American Eagle brand rose 7 percent in the first quarter ended May 2, while those at the aerie division, under which the company sells lingerie, rose 12 percent.
Overall, same-store sales rose 7 percent, compared with the 5.4 percent rise analysts on average expected, according to research firm Consensus Metrix.
American Eagle forecast a second-quarter profit of 11 to 14 cents per share, largely above the average analyst estimate of 11 cents.
First-quarter gross margins rose to 37.5 percent from 34.9 percent, driven by fewer discounts being offered, the company said.
American Eagle's net income rose 651 percent to $29.1 million, or 15 cents per share, from $3.9 million, or 2 cents per share, a year earlier.
Analysts on average had expected a profit of 12 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 8.3 percent to $699.5 million, above the average estimate of $692.3 million. (Reporting by Ramkumar Iyer in Bengaluru; Editing by Simon Jennings)