American Eagle stock falls 11% despite Q2 beat

American Eagle Outfitters’ shares dropped about 11% in premarket trading after the retailer reported second-quarter earnings of $0.79 per share and $1.38 billion in revenue. Revenue rose 8% year over year and gross profit was $672 million, with gross margin at 48.7%.

The quarter included federal tariff refunds that materially affected results. The company recorded a $179 million tariff-refund benefit in gross profit and reported a roughly $161 million net benefit to operating income. Total federal tariff refunds received during the quarter were about $196 million. Operating profit increased to $211 million.

Analysts and investors assessed the underlying merchandise performance as weaker after stripping out the refund benefit. Merchandise margin declined 330 basis points as the retailer increased discounting to clear older inventory. Management reported inventory remained elevated and noted the potential for further markdowns on out-of-season stock.

Comparable-sales results showed a split across banners. Aerie and OFFLINE revenue rose 25%, with Aerie comparable sales up 19%. The American Eagle banner’s comparable sales fell 1%. Overall comparable sales increased 6%, short of the 6.7% analysts had expected. Management expects mid-to-high-single-digit comparable-sales growth in the third quarter.

American Eagle raised its full-year operating-income guidance to a range of $540 million to $550 million from $390 million to $410 million; the company’s updated outlook includes the tariff-refund effect. The company also forecasts third-quarter gross margin to be roughly flat year over year.

BMO Capital Markets initiated coverage with a Market Perform rating and an $18 price target, pointing to the contrast between the faster-growing, higher-margin Aerie business and the weaker American Eagle banner. Traders and analysts cited the one-time tariff refunds, the brand divergence in sales, and ongoing margin pressure from markdowns as factors behind the stock decline.