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Here's How American Eagle (AEO) Looks Ahead of Q3 Earnings

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American Eagle Outfitters Inc. (AEO - Free Report) is slated to release third-quarter fiscal 2019 results on Dec 11.

The leading apparel retailer delivered a positive earnings surprise of 21.9% in the last reported quarter. Moreover, its bottom line beat estimates by 10.2%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s earnings in the fiscal third quarter is pegged at 48 cents, suggesting no change from the year-ago quarter’s reported figure. Estimates have remained unchanged over the past 30 days. The consensus estimate for the fiscal third-quarter sales is pegged at $1,064 million, indicating 6% growth from the prior-year quarter’s reported number.

American Eagle Outfitters, Inc. Price and EPS Surprise

 

American Eagle Outfitters, Inc. Price and EPS Surprise

American Eagle Outfitters, Inc. price-eps-surprise | American Eagle Outfitters, Inc. Quote

Key Factors to Note

American Eagle has been witnessing a positive comparable sales (comps) trend on strength in the Aerie brand, stores and digital channels. Backed by its investments in omni-channel capabilities, store and digital channels have been witnessing strong growth for several quarters. Notably, it has been witnessing increases in app and mobile channels, which represent more than 50% of the company’s digital business. Further, store-optimization measures coupled with e-commerce expansion are likely to have boosted American Eagle’s top line in the to be reported quarter.

In addition, the company has been witnessing continued momentum for its Aerie brand. Aerie has evolved into a lifestyle brand, and is focused on expanding market share and customer base. After the success of its core intimate offerings, the brand has been rapidly gaining share in the innovative apparel market, with the body positivity movement. Gains from these efforts are expected to get reflected in the comparable sales performance of the brand.

In the last earnings call, management stated that the initial trends for the fiscal third quarter were robust, driven by the strong performance of fall product across both brands. Consequently, the company anticipates comps growth in a low to mid-single-digit range for third-quarter fiscal 2019. Further, it envisions adjusted earnings of 47-49 cents, whereas it reported 48 cents in the year-ago quarter.

However, the company has been witnessing cost-related headwinds for a while now. Higher markdowns, compensation costs and delivery expenses are anticipated to have partly offset gross margin growth in third-quarter fiscal 2019. Moreover, increased SG&A costs due to higher compensation expenses for investment in store organization and higher professional service fees are expected to have hurt margins and profitability.

Sluggish trends in its American Eagle brand, owing to challenges in some of its apparel categories, are also expected to have been deterrents.

Zacks Model

Our proven model does not conclusively predict an earnings beat for American Eagle this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although American Eagle carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +1.23% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (COST - Free Report) currently has an Earnings ESP of +1.01% and a Zacks Rank #2.

CarMax, Inc (KMX - Free Report) presently has an Earnings ESP of +0.50% and a Zacks Rank #2.

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