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Is American Eagle (AEO) Likely to Beat Again in Q3 Earnings?

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We expect American Eagle Outfitters Inc. (AEO - Free Report) to beat expectations when it reports third-quarter fiscal 2017 results on Dec 6. In the last quarter, the company delivered a positive earnings surprise of 18.8%.

In fact, this apparel retail chain surpassed estimates in the trailing four quarters with an average positive surprise of 3.9%.

What to Expect?

The question lingering in investors’ minds now is whether American Eagle will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is 39 cents per share, reflecting a decline of 5.9% from the year-ago quarter. We note that the Zacks Consensus Estimate for the quarter has been stable in the last 30 days. Analysts polled by Zacks anticipate revenues of $964.8 million, up 2.6% from the year-ago quarter.

Moreover, we note that the stock has outperformed the industry in the last three months. The company’s shares have increased 21.4%, while the industry grew 16%.



Factors at Play

American Eagle’s upsurge in recent months can be attributed to its much deserved triumph in second-quarter fiscal 2017. While the fiscal second-quarter marked the company's second straight quarter of sales beat, earnings topped estimates after a miss in the last quarter. The company also posted 10th straight quarter of positive comps on the back of strong online sales at both brands driven by efficient use of omni-channel capabilities to enhance customer experience.

Further, the company is striving to develop omni-channel platform to reach customers in every possible way. Backed by these efforts and efficient digital marketing endeavors, American Eagle’s e-commerce sales contributed about 23% to total revenues in second-quarter fiscal 2017. Further, its new loyalty program, AEO Connect is likely to enhance customer experience.

We commend American Eagle's focus on expansion, as evident from its plans to enter the Indian market. Moreover, the company remains committed toward enhancing store sales by rationalizing its brick-and-mortar store fleet that includes closing underperforming stores and expanding the profitable ones.

Looking ahead, it remains optimistic about the second half of fiscal 2017, especially the fall season. American Eagle anticipates comps for the fiscal third quarter to range from flat to low-single digit increase.

However, the company’s margins continue to be under pressure due to increased promotional activities to counter sluggish mall traffic, which is likely to persist in the quarter ahead. For the fiscal third quarter, the company projects soft merchandise margins due to intense promotional activities. Moreover, it anticipates SG&A expenses to increase in low-single digits.

What the Zacks Model Unveils?

Our proven model shows that American Eagle is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Earnings ESP of +1.04% and the company’s Zacks Rank #2 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dollar General Corp. (DG - Free Report) currently has an Earnings ESP of +1.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (ZUMZ - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #2.

The Kroger Company (KR - Free Report) currently has an Earnings ESP of +3.33% and a Zacks Rank #3.

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