There’s no way around it — it’s been a difficult first quarter for retail. A few companies like Macy’s and Dollar Tree appear to have emerged unscathed, raising their quarterly guidance. But for the majority, including Walmart, Target, Kohl’s and Abercrombie & Fitch, weak Q1 2022 results drove downward revisions for the next quarter.
American Eagle (NYSE: AEO) is no exception. The outfitter missed on both revenue and EPS in what CEO Jay Schottenstein described on the company’s Q1 earnings call as “a complex quarter.” Schottenstein attributed weaker-than-expected revenue growth of 2% to rising inflation and freight costs.
But without its dynamic young supply chain business, Quiet Platforms, American Eagle would have actually seen a decline in year-over-year revenue for the first time since Q4 2020. In its earnings release, the outfitter said that its supply chain acquisitions of AirTerra and Quiet Logistics late last year contributed about 3 percentage points to the company’s 2% revenue growth in Q1.
That means that American Eagle’s supply chain business was the difference between revenue growth and decline despite forming less than a year ago. And it’s doing it with a radical new model that could change the balance of power between small retailers and massive delivery providers like Amazon.
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As it stands, most small- and medium-size businesses either work with a larger third-party service like Fulfillment by Amazon or Walmart GoLocal, or they try to build their own fleet from scratch. But what if they worked with each other instead? That’s exactly how Quiet Platforms sees things.
“So many retailers have tried to build their own vertically integrated supply chains, but building more assets and buying more resources is not the answer to achieving hyper-scale efficiencies,” Shekar Natarajan, executive vice president and chief supply chain officer for American Eagle parent company AEO, told Fast Company earlier this week. “Sharing is.”
Natarajan is the man behind the Quiet Platforms curtain. He characterizes it as a “plug-and-play platform” — it pools the transportation and logistics assets of the 50-plus retail customers on its network, which means a Quiet customer like Kohl’s could use the trucks of another client like Steve Madden. Or Peloton could deploy the logistics assets of Saks Fifth Avenue.
The other innovative piece of the Quiet Platforms business is its “click-to-door” edge network. The software intelligently positions inventory as close to the end consumer as possible, allowing retail clients to close the physical gap between their customers and their product.
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So far, American Eagle views Quiet Platforms as a “growth platform,” and the numbers bear it out.
In March, COO and Executive Vice President Michael Rempell said on the company’s Q4 2021 earnings call that the business reduced the number of shipments per order enough to leverage delivery cost by 190 basis points for the quarter, meaning it was a driver of delivery revenue growth. He also said the company was able to reduce delivery times by 35%.
That momentum continued into Q1 2022. Rempell on Thursday told investors that Quiet reduced delivery times a further 13% for the quarter. American Eagle doesn’t yet classify the supply chain business as its own segment. But Q1’s earnings release showed that the American Eagle and Aerie brands grew slower than the company’s Corporate and Other segment, which includes Quiet Platforms and the Todd Snyder and Unsubscribed brands.
That trio of brands grew at a rate of over 500% year-over-year, while Aerie grew by just over 8% and American Eagle declined by nearly 6%. The outfitter projects that for fiscal year 2022, its supply chain business will account for 5% to 6% of its anticipated midteens revenue growth rate. It also expects the business to break even on profitability this year.
Even Wall Street is singing the praises of Quiet Platforms. Jeffries analyst Corey Tarlowe, whose most recent action lowered American Eagle’s price target from $42 to $35 and assigned it a “buy” rating, said he’s bullish on the long-term potential of the company’s supply chain acquisitions.
“For the many retailers that are investing in their supply chain, acquiring upstream like this is not that common,” said Tarlowe. “This is truly unique.”
Tarlowe’s optimism hasn’t exactly translated to investors, at least not yet. Since acquiring AirTerra last August, American Eagle stock is down about 60%. Over a calendar year, its shares have lost about one-third of their value, while the S&P 500’s Retail ETF — which aggregates the top-performing retail stocks, including American Eagle — is down only 16%.
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