Discussion of Apparel Retailers’ Margin Performances



American Eagle Outfitters

In the first half of fiscal 2018, American Eagle Outfitters’ (AEO) gross margin expanded 130 basis points to 36.8% due to the leverage it achieved in rent expenses.

The company’s SG&A (selling, general, and administrative) expense rate improved by ten basis points to 24.9%. Its operating margin expanded 240 basis points to 7.1%. Its management hasn’t provided any outlook for fiscal 2018.

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Abercrombie & Fitch

Due to increases in its sales, Abercrombie & Fitch’s (ANF) gross margin for the first half of fiscal 2018 expanded 60 basis points to 60.3%. Its marketing, general, and administrative expense rate increased 60 basis points to 15.8%. However, higher sales and a higher gross profit lowered its operating loss to ~$42.0 million from the $91.3 million loss it reported in the first half of fiscal 2017.

For fiscal 2018, Abercrombie & Fitch expects a marginal expansion from the gross margin of 59.7% it delivered in fiscal 2017. Higher average unit costs are expected to partially offset the benefits of higher average unit retail. The company expects its operating expenses to rise 2.5%.

Urban Outfitters

Urban Outfitters’ (URBN) gross margin expanded 150 basis points to 34.4% in the first half of fiscal 2019. The company’s improved margin was due to lower markdowns and leverage achieved in store occupancy costs. Its SG&A expense rate improved 180 basis points to 25.2% due to sales growth and savings from its store portfolio streamlining. For the first half, the company’s operating margin was 9.2%, up from 5.9% in the first half of fiscal 2018.

For fiscal 2019, Urban Outfitters’ SG&A expenses could increase 6% as the company accelerates its investments.

What’s ailing L Brands?

L Brands’ (LB) margin performance was dismal in the first half of fiscal 2018. Its gross margin contracted 150 basis points to 35.7% due to Victoria’s Secret’s lower merchandise margin. The company achieved leverage in buying and occupancy costs at Bath & Body Works. Its general, administrative, and store operating expenses were up 14% to $1.62 billion, while the corresponding expense rate increased 150 basis points to 28.9%.

Its higher expenses were driven by incremental wages and expansion in the Greater China area. Consequently, its operating margin contracted 300 basis points to 6.8%.


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