On September 9, American Eagle Outfitters Inc. (NYSE:AEO) revealed results for its fiscal 2026 second quarter. The company achieved an 8% year-over-year topline growth with net revenue figures of $1.38 billion. The second quarter operating profit jumped up to $211 million compared to $103 million during the same period last year. As a result, diluted earnings per share for the quarter stood at $0.79 in comparison with $0.45 for Q2 FY25. This led to a $21 million distribution to shareholders with a dividend payout of $0.125 per share.
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Aerie Growth Meets Tariff Refund Boost
A resilient performance during the second quarter was primarily driven by robust momentum within the Aerie sub-brand and OFFLINE collection. There was a 6% year-over-year growth in company-wide comparable sales, whereas the Aerie’s comparable sales picked up by 19%. Total gross profit for the quarter reached $672 million, which shows a 34% increase against $500 million for Q2 FY25. This pushed Q2 gross margins to 48.7%, a jump of 980 basis points relative to the previous year’s quarter, despite 330 basis points deleveraging across the merchandise margins. Compared to an 8% operating margin in Q2 FY25, the company posted 15.3% margin in the recent period.
Even with a slight dip in comparable sales, the American Eagle brand also exhibited some encouraging signs. It posted sequential gains from the previous quarter, which marks the fourth consecutive quarter of expansion across menswear.
Results for the reported period were bolstered by $196 million in International Emergency Economic Powers Act (IEEPA) tariff refunds, which also included interest payments. This resulted in an additional $35 million in incentive compensation set aside by the company, which affected both gross profit and SG&A. After taking these additional expenses into consideration, the overall operating income gains related to tariff refunds amounted to $161 million.
Tariff Refunds Doing the Heavy Lifting
Comparable sales for the company’s American Eagle brand dropped 1% year-over-year. In addition, the Q2 interest bill climbed to $47 million, predominantly due to a sale agreement for some of the tariff refund claims. Consolidated inventory at cost also went up by 14%, while units grew by just 9% relative to the same period last year, which again points to the incremental effect of tariffs.
While the headline profitability figures look strong on a GAAP basis, several caveats temper that picture. Gross profit included a $179 million net benefit from tariff refunds, alone accounting for 1,300 basis points of the gross margin gain. Likewise, operating profit included a $161 million net benefit from tariff refunds, responsible for 1,170 basis points of the operating margin improvement.
Institutional Sentiment
Data tracked across 1,000+ hedge funds by Insider Monkey shows a decline in the number of hedge funds holding positions in the stock. As per 13F filings, hedge fund ownership declined from 43 funds in Q1 2026 to 36 funds in the following quarter. Short interest of 10.16% suggests moderately high level of skepticism against American Eagle Outfitters.
According to Yahoo Finance database, BlackRock was the largest institutional stakeholder in the company, as of June 30. The asset manager held 26.66 million shares, translating into 15.91% ownership in the stock. Other notable stakeholders included Vanguard Portfolio Management and Dimensional Fund Advisors with 7.01% and 6.12% ownerships respectively.
Way Forward
AEO now expects fiscal 2026 operating income of $540 million to $550 million, which includes the tariff-refund benefit. Subtracting the $161 million Q2 benefit implies roughly $379 million to $389 million of underlying operating income, compared with the company’s previous guidance of $390 million to $410 million.
The latest print certainly highlights substantial benefits reaped through the tariff refunds. This makes investors question the sustainability and durability of profitability margin gains, which weren’t purely linked to the company’s core operational strength. With that said, the ongoing momentum across Aerie and OFFLINE, as well as the improvement at American Eagle, will prove to be key growth enablers during the latter half of fiscal 2026.
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