American Eagle shares plunge a year after controversial Sydney Sweeney campaign

American Eagle Outfitters shares tumbled more than 11% in premarket trading on Thursday after a stagnant quarterly gross-margin forecast overshadowed a second-quarter revenue beat, driven by persistent weakness in its main brand—a year on from launching its controversial “Great Jeans” campaign featuring Sydney Sweeney.

Erratic demand across the clothing sector has led price-conscious shoppers to prioritize essentials over discretionary purchases and hold out for promotional sales, contributing to an approximate 36% decline in the retailer’s shares this year.

Executives noted on Wednesday that ongoing markdowns are clearing older stock after rapid shifts in fashion trends left portions of inventory mismatched with consumer preferences.

Aiming to capture spending from wealthier Gen Z consumers as inflation hits lower- and middle-income households, American Eagle has turned to high-profile celebrity marketing, including its “Great Jeans” campaign starring actor Sydney Sweeney.

“‘Sydney Sweeney Has Great Jeans’ (the ad campaign) is not going anywhere. Sydney will be part of our team as we get into the back half of the year, and we’ll be introducing new elements of the campaign as we continue forward,” Chief Marketing Officer Craig Brommers said in September 2025.

Although the campaign faced social media backlash over perceived racial undertones concerning genetic traits, it delivered what Brommers called “unprecedented new customer acquisition” during earnings disclosures at the time. The retailer is also benefiting from a tie-up with National Football League (NFL) star Travis Kelce, husband of pop superstar Taylor Swift, partnering with his Tru Kolors brand to expand its audience among young shoppers.

Customer numbers grew by over 700,000 around the Sweeney and Kelce campaign launches, generating 40 billion impressions. American Eagle has previously teamed up with celebrities including tennis player Coco Gauff and actress Jenna Ortega.

For the quarter ended August 1, brand expenses rose 14% year-on-year, driven in part by costs connected to additional tariffs.

“Earnings power is unlikely to improve and low valuation remains justified by several overhangs, including elevated inventory levels and Aerie’s ability to sustain recent momentum,” stated Morgan Stanley analysts.

Second-quarter sales topped Wall Street expectations as strong performance from Aerie, the women’s intimates and activewear line, cushioned softer demand for the core label.

For the current quarter, gross margins are projected to remain flat from a year earlier, alongside mid-single-digit comparable sales growth forecasted for fiscal year 2026. The stock trades at a forward price-to-earnings multiple of 9.38, compared to rivals Abercrombie at 11.47 and Gap at 8.91.