American Eagle Outfitters Inc (NYSE:AEO) stock fell 3.31% (As on September 7, 11:26:47 AM UTC-4, Source: Google Finance) though the company beat expectations on profit in the second quarter.  Store revenue was up 4%. Digital revenue declined 7%. Aerie revenue of $380 million rose 2% versus second quarter 2022. Comp sales were flat. American Eagle revenue of $767 million declined 1% versus second quarter 2022. Comp sales declined 2%. Gross profit of $453 million increased approximately 22% compared to $370 million in the second quarter of 2022 and reflected a gross margin rate of 37.7% compared to 30.9% last year. Merchandise margin expansion was driven by lower markdowns reflecting inventory control and lower transportation and product costs. Gross profit also benefited from early profit improvement initiatives as well as lower delivery, distribution and warehousing costs.

AEO in the second quarter of FY 23 has reported the adjusted earnings per share of 25 cents, beating the analysts’ estimates for the adjusted earnings per share of 16 cents. The company had reported the adjusted revenue of $1.2 billion in the second quarter of FY 23, which is inline with the analysts’ estimates for revenue of $1.2 billion. Total ending inventory declined 7% to $637 million compared to $687 million last year, with units down 11%. Capital expenditures totaled $46 million in the second quarter. Operating income was $65 million, reflecting a 5.4% margin.

For 2023, management continues to expect capital expenditures to approximate $150 to $175 million.

AEO is now anticipating operating income ranging from $325m to $350m, which marks an upward revision from the earlier guidance of $250m to $270m. The company said this reflects better than expected business performance in the second quarter, in addition to strengthened demand and continued profit improvement in the back half of the year.

The company has adjusted its full-year revenue forecast to be up low single digits to last year, compared to prior guidance for revenue in the range of flat to down low single digits.

Meanwhile, this year, the company launched a comprehensive review of its cost structure, with near-term opportunities identified primarily within the gross margin, which represents approximately 70% of the company’s expense base. The profit improvement project is ongoing with initiatives being launched across the company’s expense base, which are expected to yield results over the next 12 to 24 months.