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Why American Eagle (AEO) Failed to Recover Post Q1 Earnings?
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Specialty apparel retailer, American Eagle Outfitters Inc. (AEO - Free Report) is yet to recover from the slump witnessed post its dismal first-quarter fiscal 2017 results. This is clearly reflected in the near 10.6% fall in share price since May 16. Moreover, the stock has declined 15.1% in the last three months, underperforming the Zacks categorized Retail – Apparel and Shoes industry’s dip of 8.9%.
While earnings is one of the factors, American Eagle’s performance is largely plagued by soft store traffic trends and stiff competition that has been looming over the retail space. Let’s look more closely at what’s actually hurting the stock.
What’s Hurting the Stock?
American Eagle’s first-quarter fiscal 2017 earnings tumbled year over year, alongside lagging estimates. Further, margins remained pressurized owing to intense promotions undertaken by the company to counter sluggish demand.
Apart from this, management announced plans to shutter 25–40 stores in fiscal 2017, given the rapid shift in consumers’ preferences toward online shopping. This act is of late becoming common among retailers. Recently, retailers like Macy’s Inc. (M - Free Report) , DICK’S Sporting Goods Inc. (DKS - Free Report) and J. C. Penney Company Inc. are also concentrating on optimizing store fleet.
Coming back to American Eagle, the aforementioned factors and mounting industry competition are likely to compel American Eagle in offering major discounts leading to high shipping expenses on online sales. Thus, the company issued a soft outlook for second-quarter fiscal 2017. The company anticipates comps to range from flat to low single-digits decrease in the second quarter. Further, it expects weak merchandise margins owing to intense promotional activities. SG&A expenses are forecasted to increase in low-single digits. Finally, the company envisions earnings in the band of 15–17 cents, which is pegged considerably lower than the year-ago earnings of 23 cents.
Consequently, the company’s estimates have been trending down in the last 30 days. The Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 has declined to $1.13 per share and $1.17 per share, down 5 cents and 6 cents, respectively.
Additionally, the company’s attempt to expand globally exposes it to currency woes and other global risks.
Is a Turnaround Possible?
Though drab outlook and the resultant decline in estimates portray a negative picture, we cannot ignore the company’s solid surprise trend and strategic initiatives that position it for growth. Notably, the company has delivered positive earnings surprises in eight out of the past 10 quarters, with an average trailing four-quarter surprise of 1.6%.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
Moreover, the company’s top-line performance in the first quarter has been impressive as it registered year-over-year growth and also beat estimates. Further, the company’s solid online sales, backed by omni-channel initiatives and efforts to enhance customer experience, provided a boost to comps. In fact, the aerie brand posted double-digit comps growth for the 13th straight time this quarter. Notably, eCommerce sales represented about 26% of the company’s total sales, reflecting an improvement from 19% last year.
In addition to its focus on omni-channel growth, the company is making efforts to enhance brands through innovations while also remaining committed toward enriching consumer experience. We believe these efforts can help the company overcome the current turmoil in the retail space.
Further, the stock is supported by a Value Style Score of “A” and long-term earnings growth rate of 8.7%, which justify its growth prospects.
American Eagle currently has a Zacks Rank #4 (Sell).
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Why American Eagle (AEO) Failed to Recover Post Q1 Earnings?
Specialty apparel retailer, American Eagle Outfitters Inc. (AEO - Free Report) is yet to recover from the slump witnessed post its dismal first-quarter fiscal 2017 results. This is clearly reflected in the near 10.6% fall in share price since May 16. Moreover, the stock has declined 15.1% in the last three months, underperforming the Zacks categorized Retail – Apparel and Shoes industry’s dip of 8.9%.
While earnings is one of the factors, American Eagle’s performance is largely plagued by soft store traffic trends and stiff competition that has been looming over the retail space. Let’s look more closely at what’s actually hurting the stock.
What’s Hurting the Stock?
American Eagle’s first-quarter fiscal 2017 earnings tumbled year over year, alongside lagging estimates. Further, margins remained pressurized owing to intense promotions undertaken by the company to counter sluggish demand.
Apart from this, management announced plans to shutter 25–40 stores in fiscal 2017, given the rapid shift in consumers’ preferences toward online shopping. This act is of late becoming common among retailers. Recently, retailers like Macy’s Inc. (M - Free Report) , DICK’S Sporting Goods Inc. (DKS - Free Report) and J. C. Penney Company Inc. are also concentrating on optimizing store fleet.
Coming back to American Eagle, the aforementioned factors and mounting industry competition are likely to compel American Eagle in offering major discounts leading to high shipping expenses on online sales. Thus, the company issued a soft outlook for second-quarter fiscal 2017. The company anticipates comps to range from flat to low single-digits decrease in the second quarter. Further, it expects weak merchandise margins owing to intense promotional activities. SG&A expenses are forecasted to increase in low-single digits. Finally, the company envisions earnings in the band of 15–17 cents, which is pegged considerably lower than the year-ago earnings of 23 cents.
Consequently, the company’s estimates have been trending down in the last 30 days. The Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 has declined to $1.13 per share and $1.17 per share, down 5 cents and 6 cents, respectively.
Additionally, the company’s attempt to expand globally exposes it to currency woes and other global risks.
Is a Turnaround Possible?
Though drab outlook and the resultant decline in estimates portray a negative picture, we cannot ignore the company’s solid surprise trend and strategic initiatives that position it for growth. Notably, the company has delivered positive earnings surprises in eight out of the past 10 quarters, with an average trailing four-quarter surprise of 1.6%.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise | American Eagle Outfitters, Inc. Quote
Moreover, the company’s top-line performance in the first quarter has been impressive as it registered year-over-year growth and also beat estimates. Further, the company’s solid online sales, backed by omni-channel initiatives and efforts to enhance customer experience, provided a boost to comps. In fact, the aerie brand posted double-digit comps growth for the 13th straight time this quarter. Notably, eCommerce sales represented about 26% of the company’s total sales, reflecting an improvement from 19% last year.
In addition to its focus on omni-channel growth, the company is making efforts to enhance brands through innovations while also remaining committed toward enriching consumer experience. We believe these efforts can help the company overcome the current turmoil in the retail space.
Further, the stock is supported by a Value Style Score of “A” and long-term earnings growth rate of 8.7%, which justify its growth prospects.
American Eagle currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>