American Eagle Outfitters (NYSE:AEO) faced a rocky start to fiscal 2025, delivering quarterly results that fell short of expectations. The apparel chain reported a first-quarter adjusted loss, reversing expectations for a profit, as shrinking margins and soft consumer demand took a toll.

Revenue for the quarter reached $1.1 billion, slightly topping Wall Street forecasts but reflecting a 5% decline from the prior year. Sales performance was sluggish across both major brands, with Aerie and American Eagle posting comparable sales drops of 4% and 2%, respectively.

Profitability took a significant hit, with gross margin plunging to 29.6%, down from 40.6% a year ago. The erosion was primarily linked to aggressive discounting and inventory write-offs as the company adjusted to shifting demand patterns.

Looking ahead, American Eagle expects the softness to persist into the second quarter, projecting another 5% revenue decline and a 3% drop in comparable sales. Operating income is forecasted to range between $40 million and $45 million.