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    American Eagle profit soars, but sales grow slower than expected

    American Eagle is making gains in improving profit and saw its fiscal first-quarter net income nearly quadruple compared to the year-earlier period.
    Still, it has a cautious outlook for the second half of the year as it plans to lap tougher comparisons and contend with “noise” around the upcoming election, finance chief Mike Mathias told CNBC.
    American Eagle President Jennifer Foyle said the company is revamping its product assortment and reducing the number of items it sells.

    An American Eagle Outfitters store in New York, US, on Monday, May 27, 2024. American Eagle Outfitters Inc. is scheduled to release earnings figures on May 29. 
    Stephanie Keith | Bloomberg | Getty Images

    American Eagle on Wednesday said it’s making gains in boosting profitability as it works to improve its product assortment and tweak operations. Still, its fiscal first-quarter sales came in weaker than Wall Street expected. 
    Nevertheless, revenue gained 6% year over year and marked a record for the first quarter, the company said in a news release. 

    Shares fell about 5% in extended trading on Wednesday.
    Here’s how the apparel company did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: 34 cents vs. 28 cents expected
    Revenue: $1.14 billion vs. $1.15 billion expected

    The company’s reported net income for the three-month period that ended May 4 nearly quadrupled compared to the year-ago period. American Eagle posted net income of $67.8 million, or 34 cents per share, compared with $18.5 million, or 9 cents per share, a year earlier. 
    Sales rose to $1.14 billion from $1.08 billion a year earlier.
    American Eagle said it’s continuing to expect operating income in the range of $445 million to $465 million, reflecting revenue growth of up 2% to 4% compared to the prior year. That’s slightly below estimates of up 3.4%, according to LSEG.

    Finance Chief Mike Mathias told CNBC that American Eagle is maintaining a “cautious” view for the back half of the year as it prepares to lap some tougher comparisons, awaits interest rate decisions from the Federal Reserve and prepares for “noise” around the upcoming presidential election. 
    He added the company is waiting to see how the back-to-school shopping season goes to get a better idea on how the rest of the year plays out. 
    For the current quarter, American Eagle expects operating income in the range of $95 million to $100 million, reflecting revenue growth of high single digits, which is in line with the 7.4% uptick that analysts had expected, according to LSEG. 
    The apparel company, which runs its namesake banner and intimates brand Aerie, is in the midst of a new strategy to boost growth. It’s looking to grow sales by 3% to 5% each year over the next three years and get its operating margin to about 10%.
    Some of its efforts are beginning to bear fruit. During the fiscal first quarter, American Eagle grew its gross margin by 2.4 percentage points. Mathias said that’s the company’s second highest rate since 2008 in the company’s earning call. The gains were driven by better inventory management, lower product and transportation costs and leverage on expenses including rent, delivery and distribution and warehousing. 
    “Key drivers of growth included women’s overall, especially in tops which as I reviewed is a major priority for us. I’ll also highlight strength in dresses, skirts and jeans, in these areas we are seeing a positive customer response as we look to capture the social casual dressing occasion and a wider age demo. Both of these are key growth opportunities within our long term plan,” American Eagle’s president and executive creative director Jennifer Foyle added in the earnings call.
    American Eagle’s strategy has also focused on revamping its product assortment, removing items that weren’t working for its customers and drilling down on the categories that are resonating. 
    Foyle told CNBC that the company was just “over-skued” — meaning it had too many different individual products, often referred to in the industry as SKUs, for consumers to choose from. 
    “We knew we could do more with less,” said Foyle. “So deeper investments in our bottoms but less SKUs so that we are servicing our customer on the fits that they’re demanding from us.” 
    “We’ve really taken that category back, we’re winning,” Foyle said of the company’s denim business. “Definitely in women’s, some early earnings in men’s, as I mentioned you will see more of that earnings in Q3. We remain very nimble in that category but we’re definitely more balanced than we had been in the past.”
    The company has also been working to revamp its stores and introduce new formats. It recently implemented a new store design for American Eagle, which is “outpacing the balance of the chain,” said Foyle. 
    “We’re excited about remodeling our stores with a new feeling for the brand that I think expresses exactly what we’ve been up to,” she said. “The customer, obviously is loving what they see in that store design based on the results.”

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    American shares tumble 13% after sales strategy backfires; carrier cuts growth

    American Airlines will slash its capacity growth in the second half of the year and consider a host of other changes to its operations, CEO Robert Isom said.
    The carrier cut its revenue and profit forecast and is parting ways with Chief Commercial Officer Vasu Raja.
    Pressure has been mounting on American’s leadership team after more upbeat results from rivals Delta and United.

    An American Airlines’ Embraer E175LR (front), an American Airlines’ Boeing 737 (C) and an American Airlines’ Boeing 737 are seen parked at LaGuardia Airport in Queens, New York on May 24, 2024. 
    Charly Triballeau | AFP | Getty Images

    American Airlines will slash its capacity growth in the second half of the year and consider a host of other changes to a sales strategy that backfired, CEO Robert Isom said Wednesday. The comments come a day after the carrier cut its revenue and profit forecast and said it is parting ways with its chief commercial officer, Vasu Raja.
    American will grow capacity about 3.5% in the second half of the year compared with the year earlier, down from roughly 8% year-over-year growth in the first six months of 2024.

    The company’s shares tumbled more than 13% on Wednesday as investors weighed the airline’s missteps as the peak travel season gets underway, with some analysts questioning how American can capitalize on what rivals expect to be a record summer. It was the stock’s biggest percentage drop in nearly four years, during the travel plunge early in the Covid-19 pandemic.
    United Airlines shares rose more than 2% and Delta’s fell less than 1%.
    Isom said American is weighing changes to a plan Raja led to drive direct bookings at the airline in lieu of third-party sites and travel agencies, a strategy that included gutting the airline’s sales department.
    The changes angered travel agencies who weren’t able to access some of the carrier’s fares as before, making it harder for them to sell tickets on American flights.
    The chief commercial officer will leave the company next month.

    Stock chart icon

    An American Airlines stock chart shows how the company’s shares have tumbled in the past year.

    “We’ve used a lot of sticks. We’ve got to put some more carrots in place and make sure that our product is available wherever customers want to buy it,” Isom said at the Bernstein Strategic Decisions conference on Wednesday.
    American in February said it would limit some travel agency bookings from being eligible to earn AAdvantage frequent flyer miles. Isom said Wednesday that the airline would reverse that decision.
    “That’s off,” Isom said. “We’re not doing that because it would create confusion and disruption for our end customer.”
    Isom called Raja, who has been at American for 20 years “an innovator, a disruptor,” adding that “sometimes we need a reset.” Raja didn’t immediately comment.

    Corporate travel troubles

    Raja said last month American’s corporate booking growth was coming in behind big rivals Delta and United.
    Corporate bookings are particularly lucrative for airlines especially when those travelers book at the last minute when fares are at their highest — so called close-in bookings. Airlines had struggled during the pandemic and shortly afterward when business travel was slow to return, but carriers have seen improvement lately.
    “The weakness that you’ve seen in American is, I do believe, something that speaks to close-in bookings, the highest premium customers that, unfortunately, we haven’t made ourselves as available and easy to work with as we can,” Isom said.
    On an earnings call last month, Raja said American’s corporate bookings were up mid-to-high single-digit percentage points in the first quarter compared with increases of around 14% touted by Delta and United.
    “A significant miss driven in part by close in bookings puts AAL’s ability to reap the full value of a robust summer flying season in greater doubt,” Bernstein airline analyst David Vernon said in a note.

    Revenue shortfalls

    After the market closed Tuesday, American said its unit revenues could fall as much as 6% in the second quarter from a year earlier, down from its forecast last month of a no-more-than-3% decline. Airlines make the bulk of their money during the second and third quarters, but some areas have fared better than others.
    Isom admitted Wednesday that the company has logged softer bookings than it expected and noted a supply and demand “imbalance” that has prompted carriers to discount tickets. He said industry capacity should come down in the second half of the year, while it slows its own growth.
    United, minutes after American’s forecast adjustment Tuesday, reiterated its second-quarter earnings estimates, though it didn’t provide a revenue outlook.
    “American’s diminished guide speaks far more to its flawed initial forecast than any broad-based shift in passenger demand,” JPMorgan airline analyst Jamie Baker said in a note Wednesday, adding that United’s reiterated forecast was an encouraging sign for Delta.
    American has also been prioritizing Sun Belt cities and its large hubs in Texas and North Carolina over coastal markets.
    The Transportation Security Administration screened the most people ever over Memorial Day weekend, and executives from United and Delta have predicted a record summer, with very strong trans-Atlantic bookings.

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    McDonald’s exec says average menu item costs 40% more than in 2019

    A top McDonald’s executive is weighing in on claims that the company has jacked up its prices by more than 100%.
    Joe Erlinger, president of McDonald’s USA, said in an open letter the average price of a Big Mac meal today is up 27% from 2019. The price for a 10-piece McNuggets meal is up 28% over the same period, and the price of medium french fries increased 44%.
    McDonald’s has not been immune to long-awaited consumer pullbacks at restaurants.
    The fast-food giant will soon offer a $5 value meal for about a month.

    A sign is posted in front of a McDonald’s restaurant in San Leandro, California, Feb. 6, 2024.
    Justin Sullivan | Getty Images

    A top McDonald’s executive is weighing in on claims that the company has jacked up its prices.
    Joe Erlinger, president of McDonald’s USA, said in an open letter Wednesday that the average price of McDonald’s menu items is up around 40% since 2019. The breakdown comes in response to claims on social media from House Republicans, among others, that the fast-food company upped prices by more than 100%. 

    “Americans across the country are making tough calls about where to spend their hard-earned money,” Erlinger said. “And while we’ve been working hard to make sure our fans have great reasons to visit us, it’s clear that we — together with our franchisees — must remain laser-focused on value and affordability.”
    Erlinger said the average price of a Big Mac meal today is $9.29, up 27% from $7.29 in 2019. The price for a 10-piece McNuggets meal is up 28% over the same period, and the price of medium french fries increased 44%.
    Erlinger added the cost increases are tied to similar increases in input costs such as crew salaries and cost of goods.
    “For a brand that proudly serves nearly 90% of the U.S. population every year, we feel a responsibility to make sure the real facts are available,” Erlinger said.

    Consumer prices have increased 3.4% over the past year, according to the latest data from the Bureau of Labor Statistics. In response to persistently steeper costs, some consumers are pulling back across the restaurant industry, a trend that has not spared the fast-food giant.

    McDonald’s recently reported same-store sales below expectations in its first-quarter earnings report. The company will also soon offer a $5 value meal for roughly a month, beginning June 25.
    That offering will include a McChicken or McDouble, four-piece chicken nuggets, fries and a drink, CNBC previously reported.
    Analysts at BTIG characterized the promotion as being more about value perception than a profit driver.
    “In our view, this new deal is more about value perception, seeking to change the media narrative around McDonald’s recent price hikes to refocus around a deep(er) value offering. We believe the new one-month meal deal could actually hurt sales (check decline) and margins, but help reinstate McDonald’s as a value leader in the industry,” the analysts said in an investor note.
    An independent advocacy group of McDonald’s franchisees is pushing to make the discounted offering sustainable for operators, saying it will require greater investment from the company if it sticks around menus beyond the initial monthlong run.
    “There simply is not enough profit to discount 30% for this model to be sustainable. It necessitates a financial contribution by McDonalds,” the board of the National Owners Association wrote in a letter to membership that was viewed by CNBC.
    — CNBC’s Kate Rogers contributed to this report.

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    ExxonMobil rediscovers its swagger

    FOR YEARS ExxonMobil was the top dog among the world’s private-sector oil companies. It was the biggest of the Western majors, and the best-managed. It regularly posted higher returns on capital than its peers and enjoyed superior stockmarket valuations. This led to an arrogance among its chief executives that infuriated not just greens but even other oilmen. In 2003 Lee Raymond, a former boss with a ferocious temper, bragged that “everyone at this company works for the general good—and I’m the general of that general good.”More recently ExxonMobil appeared to have lost some of this braggadocio. Between 2016 and 2020, together with the rest of the industry, it eked out meagre returns as oil prices languished. At the same time it was hounded by climate activists and asset managers concerned about environmental, social and governance (ESG) issues. The lowest point came three years ago when it suffered an unprecedented defeat at the hands of Engine No.1, an obscure activist fund that managed to get three climate-minded directors elected to its board. More

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    Stellantis CEO says $25,000 Jeep EV coming to the U.S. ‘very soon’

    Stellantis plans to offer a $25,000 all-electric Jeep vehicle in the U.S. “very soon” to better attract mainstream consumers amid slower-than-expected EV adoption, CEO Carlos Tavares said.
    Stellantis currently offers an all-electric version of its Avenger SUV in Europe, starting at about 35,000 euros.
    The importance of an affordable EV has grown more apparent as Chinese automakers such as BYD and Nio grow their sales outside of China.

    Stellantis CEO Carlos Tavares photographed next to a Jeep Avenger at the Paris Motor Show on Oct. 17, 2022.
    Nathan Laine | Bloomberg | Getty Images

    Stellantis plans to offer a $25,000 all-electric Jeep vehicle in the U.S. “very soon” to better attract mainstream consumers amid slower-than-expected electric vehicle adoption, CEO Carlos Tavares said Wednesday.
    Tavares disclosed few details about the upcoming vehicle, saying it will be priced around $25,000 in the U.S. to emulate Stellantis’ pricing of the Citroen e-C3 SUV, a low-cost model starting at 23,300 euros, or about $25,200, in Europe.

    “In the same way we brought the 20,000 Euro Citroen e-C3, you will have a $25,000 Jeep very soon,” he said Wednesday during a Bernstein investor conference. “We are using the same expertise because we are a global company and this is totally fluid across the engineering world of Stellantis.”
    Stellantis currently offers an all-electric version of its Avenger SUV in Europe, starting at about 35,000 euros, or about $37,800, according to its website. The vehicle is not sold in the U.S., where the automaker has focused on plug-in hybrid electric Jeep vehicles.
    Offering a new EV for around $25,000 has long been a target for automakers such as Stellantis, Tesla and others. The importance of such a vehicle has grown more apparent as Chinese automakers such as BYD and Nio grow their sales of less-expensive EVs outside of China.
    “If you ask me what is an affordable BEV, I would say 20,000 euros in Europe and $25,000 in the U.S.,” Tavares said. “So our job is to bring the safe, clean and affordable BEV to the U.S., $25,000. We’ll do it.”

    Electric Jeep Wagoneer S.

    Jeep’s first all-electric vehicle for the U.S. is expected to be the large Wagoneer S SUV, due later this year. The company is scheduled to officially reveal the vehicle Thursday in New York. A Jeep Wrangler-inspired off-road vehicle called the Recon also is expected as soon as this year.

    Tavares said Wednesday that the company expects to achieve cost parity between its all-electric vehicles and traditional internal combustion engine vehicles in the next “three years, max” to better compete with the growing “China invasion” of affordable EVs.
    “It’s a very challenging period, very chaotic, very Darwinian,” Tavares said regarding the Chinese competitors, EV transition and potential consolidation of the automotive industry. “We are in the storm, and this storm is going to last a few years.”
    Tavares’ comments come amid increasing geopolitical tensions surrounding China-made EVs in the U.S., Europe and other regions. Many in and around the automotive industry fear the less-expensive, China-made vehicles will flood the markets, undercutting domestic-produced EVs.

    Electric Jeep Recon SUV.

    Tavares also said tariffs such as those the U.S. is implementing against Chinese EVs may delay their expansion to the U.S. but will not completely stop it.
    “Yes, time helps, but you cannot stop the competition,” Tavares said. “Putting you behind a protectionist bubble is not going to help you to be competitive. … If your strategy is to shrink and stay inside of the bubble, it will buy you time, but certainly it will cut your future.”
    The Biden administration’s 100% tariff announced earlier this month, up from a current import tax of about 25%, covers EVs imported from China but could still leave room for the often-cheap Chinese models to undercut domestic prices and leaves loopholes for imports made by Chinese automakers in other countries, such as neighboring Mexico. It also does nothing to address current or future gas-powered vehicles imported from the Communist country to the U.S.

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    Cadillac’s new entry-level Optiq EV to start at $54,000

    General Motors’ new entry-level 2025 Cadillac Optiq electric vehicle will start at $54,000, the company said Wednesday.
    The compact-sized crossover is set to be Cadillac’s fourth EV when it goes on sale later this year.
    The Optiq will be sold in 10 regions, including North America, China and Europe.

    2025 Cadillac Optiq

    DETROIT – General Motors’ new entry-level 2025 Cadillac Optiq electric vehicle will start at $54,000, the company said Wednesday.
    The compact-sized crossover is set to be Cadillac’s fourth electric vehicle when it goes on sale later this year. It follows the $59,000 Lyriq midsize crossover, the $300,000-plus bespoke Celestiq sedan and the upcoming $130,000 Escalade IQ SUV. Pricing excludes EV incentives, such as federal credits of up to $7,500.

    “Cadillac has always defined American luxury, and Optiq is an example of how our bold, innovative spirit is propelling us into the EV future,” John Roth, vice president of Cadillac, said in a release.
    The Optiq will be sold in 10 regions, including North America, China and Europe, where it debuted Wednesday at a new Cadillac showroom in Paris.
    It comes as automakers attempt to expand the appeal of EVs with less-expensive models following slower-than-expected sales for the emerging vehicles.

    2025 Cadillac Optiq

    The Optiq is also an opportunity for GM to reenter the European market after the automaker sold its operations there in 2017. It could also help GM regain ground in China following notable sales and earnings declines in recent years.
    The design of the vehicle is similar to Cadillac’s current EVs, including sleek vertical and horizontal lights and a black grille. It also has a large 33-inch diagonal LED interior display and uses GM’s Super Cruise hands-free driver-assistance system.

    The vehicle, offered in Luxury and Sport trims, includes an 85-kilowatt-hour battery pack with a standard dual motor all-wheel drive propulsion system that offers a Cadillac-estimated 300 horsepower and 354 pound-feet of torque.
    Optiq’s electric range on a single charge is estimated at 300 miles. GM said the vehicle is capable of adding about 79 miles of range in about 10 minutes with a DC fast charger.
    The vehicle will be produced at GM’s Ramos Arizpe plant in Mexico.

    Interior of the 2025 Cadillac Optiq with GM’s Super Cruise hands-free driver-assistance system. More

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    Can Elon Musk’s xAI take on OpenAI?

    Every day seems to bring fresh bets on artificial intelligence (AI). In the past few weeks CoreWeave, an AI cloud-computing company, and H, a French AI startup, have raised hefty sums of money. On May 26th it was Elon Musk’s turn. The tech billionaire’s startup, christened xAI, said it had raised $6bn at a valuation of $24bn. Investors include Silicon Valley stalwarts such as Sequoia Capital and Andreessen Horowitz, two venture-capital (VC) giants, and an investment fund with ties to the Saudi royal family. Their backing puts xAI’s firepower in the big leagues, alongside model-builders such as OpenAI, the creator of ChatGPT, and Anthropic (see chart). Can Mr Musk compete with the AI superstars?This is not his first foray into AI. Mr Musk co-founded OpenAI, then left after falling out with Sam Altman, its boss. In April he told investors that Tesla, his electric-vehicle maker, should be viewed as an AI firm. Never one for modest ambitions, Mr Musk wants his latest venture, which he launched last July, to “advance our collective understanding of the universe”. More

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    Dick’s Sporting Goods raises guidance, says shoppers are spending more on sneakers and athletic gear

    Dick’s Sporting Goods raised its full-year guidance after shoppers spent more on new sneakers and athletic gear at its big-box stores.
    The company’s comparable sales grew 5.3%, well ahead of the 2.4% uptick that analysts had expected.
    The footwear and apparel markets have been sluggish over the last year but are beginning to show some signs of life.

    A shopping cart sits in front of a Dick’s Sporting Goods store on August 26, 2020 in Daly City, California. 
    Justin Sullivan | Getty Images News | Getty Images

    Dick’s Sporting Goods on Wednesday said customers are spending more on new sneakers and athletic gear, leading the retailer to raise its full-year earnings guidance. 
    The company’s shares jumped about 4% in premarket trading.

    The big-box sports store’s comparable sales grew 5.3% during its fiscal first quarter, well ahead of the 2.4% growth that analysts had expected, according to StreetAccount. 
    The company said that growth was driven by increased transactions, meaning more customers are shopping at Dick’s, and higher average ticket values, showing that shoppers are spending more, too. 
    Here’s how Dick’s did in the period compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: $3.30 vs. $2.95 expected
    Revenue: $3.02 billion vs. $2.94 billion expected

    The company’s reported net income for the three-month period that ended May 4 was $275 million, or $3.30 per share, compared with $305 million, or $3.40 per share, a year earlier. 
    Sales rose to $3.02 billion, up about 6% from $2.84 billion a year earlier.

    The strong quarter led Dick’s to raise its full-year guidance.
    The retailer is now expecting earnings per share to be between $13.35 and $13.75, up from its previous range of $12.85 to $13.25. That’s ahead of the $13.25 that analysts had expected, according to LSEG. 
    CEO Lauren Hobart said she expects “robust demand from athletes” in the quarters ahead, which underscores the company’s outlook. Even so, the sales guidance falls a bit flat after the retailer’s first-quarter revenue beat.
    Dick’s now expects comparable sales to rise between 2% and 3%, compared with previous guidance of up 1% to 2%. The low end of that range is only in line with the 2% growth that analysts had expected, according to StreetAccount. 
    Dick’s is expecting full-year revenue to be between $13.1 billion and $13.2 billion, which is also in line with estimates of $13.16 billion, according to LSEG. 

    A jolt for footwear and apparel

    Over the last year, consumers beaten down by stubborn inflation and high interest rates have pulled back on discretionary items like new clothes and shoes, but the apparel and footwear markets have shown some signs of life over the last couple of weeks. 
    Dick’s performance indicates that consumers are willing to shell out for new releases and other staples from big brands like Nike, Hoka, Adidas and On Running, and are spending on things that they may not necessarily need, but are nice to have. 
    Similar trends were spotted at other retailers. Last week, Ross Stores, Ralph Lauren, Urban Outfitters and TJX Cos. all reported positive comparable sales. Even Target mentioned that apparel was a bright spot in an otherwise dim quarter after the retailer saw sluggish clothes sales in the prior-year period. Demand for new Hoka sneakers and Ugg boots drove a 21% jump in sales at Deckers, and even Shoe Carnival, which caters more to lower-income consumers, saw sales grow about 7%, ahead of Wall Street’s estimates, according to LSEG. 
    More insights about the state of consumer health, and the impact it’s having on the apparel and footwear markets, are still to come. Abercrombie & Fitch reported its strongest first quarter in history on Wednesday and American Eagle is set to post earnings later in the afternoon. Foot Locker, Birkenstock and Gap will report on Thursday.
    Read Dick’s full earnings release here.
    — Additional reporting by CNBC’s Robert Hum.

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