American Eagle holiday-quarter forecast below estimates on higher markdowns

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© Reuters. An Omani man passes in front of an American fashion brand, American Eagle Outfitters in City Center Mall in Muscat© Reuters. An Omani man passes in front of an American fashion brand, American Eagle Outfitters in City Center Mall in Muscat

(Reuters) – American Eagle Outfitters Inc (N:) forecast holiday-quarter profit and comparable sales below market estimates on Wednesday, as weaker demand pressures the retailer into offering higher discounts on its flagship AE brand, sending its shares down about 10%.

The company has been heavily discounting its merchandise to entice shoppers during the all-important holiday season, a key period for retailers, amid intense competition from rival retailers and off-price outlets.

“Softer demand in certain AE apparel categories led to higher markdowns and has persisted into the fourth quarter,” Chief Executive Officer Jay Schottenstein said.

Retailers will also take a hit from fewer days in the holiday shopping season this year, as the gap between Thanksgiving and Christmas is shorter by six days than last year.

American Eagle expects to earn between 34 cents and 36 cents per share in the fourth quarter, well below analysts’ expectation of 46 cents, according to IBES data from Refinitiv.

It also said it expects comparable sales to be about flat, much lower than the 4.34% growth analysts had projected.

For the third quarter ended Nov 2., the Pittsburgh-based retailer earned 48 cents per share, meeting market expectations.

Gross margin took a hit, falling to 38.2% from 39.8% a year earlier, as a result of higher markdowns.

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