The US economic position has been tough on companies across all industries, and American Eagle is no exception.
Last week, the clothing and accessories retailer joined a list of others who reported sad earnings.
Industry players are currently scratching their heads trying to figure out what objects people want to look for after resisting the pandemic.
Businesses also face falling demand with inflation straining their budgets.
Retailers like Macy’s and Nordstrom have resorted to price cuts, slashing profits in an effort to get products off the shelves.
“The retail environment’s not pretty,” said Jeffries analyst Corey Tarlowe.
“Inventories have been elevated. There’s billions of dollars of excess apparel inventory that’s floating out around there right now, and that’s a problem.”
On Wednesday, American Eagle announced it would be suspending its dividend.
The decision comes after comparable sales in the last quarter, which fell 6% from a year ago.
A “slowdown in demand,” a result of the macroeconomic environment, was pointed out by Chief Operating Officer Mike Mathias.
Meanwhile, chief merchandising officer Jen Foyle said American Eagle is prioritizing “adjusting our assortments and rightsizing inventory.”
The need for write-downs to move inventory hurt profits.
American Eagle posted earnings of 4 cents per share for the quarter ended July 30, which was less than the 13 cents per share analysts had expected.
Speaking at the Goldman Sachs Global Retailing Conference last Thursday, Anne Bramman, Nordstrom’s chief financial officer, said the discounts were higher than expected.
Bramman also said that it may take a few quarters to recover properly.
In August, the department store operator posted stronger sales in the second quarter.
However, reports cut their financial forecast for the year, citing an abundance of inventory and sluggish demand later in the quarter.
Macy’s, one of the retailer’s competitors, also lowered its sales and profit forecasts last month.
Chief Financial Officer Adrian Mitchell noted “weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.”
At the Goldman conference, Mitchell said the company had made the necessary discounts to eliminate inventory.
Retailers like Gap, Kohl’s, Target, and Wal-Mart have had similar issues with bloated inventory.
Target reported a 90% drop in quarterly profits last month as it used steep discounts to eliminate excess inventory.
CFO Michael Fiddelke said there was a “softness” in clothing among other discretionary categories.
Meanwhile, Wal-Mart has also taken notice of its inflation-conscious consumer.
As a result, they used similar aggressive price cuts to pull clothes from stores, leading to a significant cut in earnings expectations.
Gap and Kohl’s are trying to avoid some price cuts by adopting a pack-and-hold strategy for some items, which allows them to reserve excess inventory until demand increases.
According to analyst Tarlowe, retailers may be able to adapt more quickly to demand next year as the supply chain normalizes.
Tarlowe says companies are currently struggling to adjust their offerings.
“All that product was initially ordered for soft and cozy trends is now coming in,” said Tarlowe.
“These retailers have been stuck with it. They’re forced to clear it out. It’s not in the right categories.”