June 22, 2024

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Why Is American Eagle (AEO) Down 42.8% Since Last Earnings Report?

It has been about a month since the last earnings report for American Eagle Outfitters (AEO). Shares have lost about 42.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

American Eagle Beats Earnings & Sales Estimates in Q4

American Eagle reported better-than-expected results in fourth-quarter fiscal 2019. Despite sluggishness in the AE brand; robust traffic across brands and channels, an impressive performance of Aerie’s, solid growth in the bottoms unit on robust jeans contributed to the strong quarterly results.

The company witnessed positive consumer feedback for women’s sweaters and fleece, and men’s hoodies in the holiday season. Also, the accessories category, including its new mood personal care line, performed well. Moreover, sturdy traffic during the holiday season as well as the post-holiday period acted as a catalyst. Apart from these, the Aerie brand continued to show strength, recording the fifth straight year of double-digit sales growth.

Q4 Highlights

Adjusted earnings of 37 cents per share in the fiscal fourth quarter surpassed the Zacks Consensus Estimate of 36 cents. However, the figure decreased 14% year over year from 43 cents reported in the prior-year quarter.

Total revenues grew 6% year over year to $1,314.6 million and beat the Zacks Consensus Estimate of $1,270 million. The upside was backed by consolidated comparable sales (comps) growth of 2% year over year. This marked the company’s 20th straight quarter of positive comps, with strong performances across AE Jeans, Aerie and the digital channel.

Brand-wise, comps rose 26% at Aerie, marking the brand’s 21st straight quarter of double-digit comps growth. Further, Aerie’s digital business continued to exhibit solid growth, contributing about 33% to total revenues.

However, comps fell 3% for the AE brand, owing to the soft demand for selective tops categories and higher promotions. On the flip side, customer traffic and transactions remained positive. Meanwhile, the AE jeans business recorded the 26th consecutive quarter of robust top-line growth.

Overall, the company’s digital sales rose in double digits, up 200 basis points (bps) from the year-ago period. In the recent quarter, American Eagle saw significant increases in its app and mobile channels, which represented more than half of the company’s digital business. On a consolidated basis, in-store comps fell 3% in the reported quarter, after a rise in the previous quarter.

Quarter in Detail

Gross profit declined 5% to $408 million in the reported quarter. However, gross margin contracted 360 bps to 31% mainly due to higher markdowns.

SG&A expenses edged down 0.3% to $287 million, thanks to lower incentive expenses, somewhat offset by increased professional fees. As a percentage of sales, SG&A declined 130 bps to 21.8%.

Further, adjusted operating income was $77 million as compared to $101 million in the year ago quarter. Adjusted operating margin declined 240 bps to 5.8% due to gross margin contraction, somewhat mitigated by lower SG&A as a percentage of sales.

Other Financial Details

American Eagle ended fiscal 2019 with cash and investments of $361.9 million. Further, total shareholders’ equity as of Feb 1, 2020, was $1,247.9 million. Moreover, the company spent $210 million as capital expenditure in fiscal 2019.

As of Feb 1, American Eagle’s merchandise inventory was $446.3 million, up 5.2% from the comparable year-ago period number.

During fiscal 2019, the company returned nearly $205 million to its shareholders via dividends and share buybacks. It paid out dividends of $93 million and bought back 6.3 million shares for $112 million.

Store Update

In fourth-quarter fiscal 2019, American Eagle inaugurated eight AE stores and Aerie stand-alone stores each, while closed 13 AE stores and two Aerie stand-alone outlets.

During the quarter, the company operated 1,095 stores, comprising 940 AE (including 174 Aerie side-by-side locations), 148 Aerie stand-alone, five Tailgate and two Todd Synder stores. Additionally, it operated 217 international licensed outlets.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -86.4% due to these changes.

VGM Scores

At this time, American Eagle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise American Eagle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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