American Eagle is falling into one of retail's most dangerous traps as it reports 'softer demand' for its clothes

Business Insider/Jessica Tyler

American Eagle's earnings were hit by "softer demand."

• American Eagle Outfitters has an inventory problem.
• The teen retailer posted results that missed Wall Street expectations on Wednesday, which the company attributed to "softer demand" and heavy discounting.
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Despite its enduring appeal among teens, American Eagle Outfitters posted results below expectations on Wednesday, attributed largely to heavy discounting.

The company reported that comparable sales across brands rose by 5% in the third quarter and 2% for the American Eagle brand, falling short of Wall Street forecasts. CEO Jay Schottenstein said the stalled growth was a result of "softer demand" that transpired to heavy sales across the company.

"Softer demand in certain AE apparel categories led to higher markdowns and has persisted into the fourth quarter," Schottenstein said in prepared remarks before a call with analysts. "The team has been working hard to quickly course correct, and our focus is squarely on continuing to capitalize on the strength of our brands, accelerating the growth of Aerie, and creating shareholder value."

American Eagle is not the only retailer to be plagued by inventory woes this year. Macy's has struggled with persistent surplus inventory leading to store-wide markdowns, which CEO Jeff Gennette called a "mounting problem" during a call with investors in August. Likewise, rampant discounting this year has marred sales at brands like Gap and Victoria's Secret.

Still, American Eagle cited bright spots in its denim offerings and continued growth for its Aerie brand, which reported comparable sales growth of 20%.

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