American Eagle Outfitters’ stock dropped more than 11% in premarket trading on Thursday, marking a significant decline for the retailer. This drop comes a year after the company launched its high-profile "Great Jeans" campaign featuring actress Sydney Sweeney, which initially generated buzz and new customer interest. However, despite beating revenue expectations in the second quarter, the company’s shares have fallen by about 36% this year due to weak demand and ongoing challenges in the clothing industry. Consumers are increasingly focusing on essential items and waiting for sales, reducing spending on discretionary purchases like trendy apparel. The decline in American Eagle Outfitters’ stock is linked to its main brand’s persistent underperformance. The company has had to offer frequent discounts to clear older inventory, as shifting fashion trends have left some stock mismatched with current consumer preferences. In an effort to attract wealthier Gen Z shoppers, while inflation has strained lower- and middle-income households, American Eagle has relied on high-profile celebrity endorsements. This includes the "Great Jeans" campaign with Sydney Sweeney and a partnership with NFL player Travis Kelce, whose Tru Kolors brand targets young consumers. These campaigns helped boost customer numbers by over 700,000 and generated 40 billion social media impressions. While the "Great Jeans" campaign faced some social media criticism over perceived racial undertones, it still delivered strong results, with Chief Marketing Officer Craig Brommers describing it as delivering "unprecedented new customer acquisition." The company has also partnered with other celebrities such as tennis player Coco Gauff and actress Jenna Ortega. However, the increased marketing efforts have come at a cost, with brand expenses rising 14% year-on-year, partly due to higher tariffs. Morgan Stanley analysts have noted that the company's earnings power is unlikely to improve soon, citing challenges like high inventory levels and uncertainty about the sustainability of Aerie’s recent success. Despite these challenges, American Eagle Outfitters managed to exceed Wall Street’s revenue expectations in the second quarter, thanks in part to strong performance from Aerie, its women’s intimates and activewear line. Looking ahead, the company expects gross margins to remain flat compared to the previous year, with mid-single-digit growth in comparable sales for fiscal 2026. American Eagle’s stock currently has a forward price-to-earnings ratio of 9.38, which is lower than rivals like Abercrombie (11.47) and Gap (8.91), suggesting the market may be pricing in continued uncertainty.