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American Eagle (AEO) Reveals Growth Plan & Q4 View, Stock Rises

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Shares of American Eagle Outfitters Inc. (AEO - Free Report) rose 5.3% on Jan 21, 2021, after the company outlined its upbeat growth plan for 2023. It also presented its fourth-quarter fiscal 2020 view ahead of its investor conference yesterday.

As part of its fourth-quarter fiscal 2020 outlook, the company expects adjusted operating income of more than $95 million. This suggests a significant increase from operating income of $0.5 million on a reported basis and adjusted operating income of $77 million in the year-ago quarter. The company’s current adjusted operating income guidance excludes potential asset impairment and restructuring charges. The robust operating income view for the fiscal fourth quarter is backed by strong margins on lower promotions, higher full-priced sales and compelling holiday product response.

Revenues for the fiscal fourth quarter is still expected to decline in low-single digits, owing to weak in-store traffic, store closures and reduced hours caused by the pandemic. Revenue forecast for the quarter reflects continued strong digital momentum with double-digit sales growth across all brands as well as Aerie’s revenue growth in the high-20%. Meanwhile, the company’s mature namesake brand (American Eagle) is likely to witness sales decline in low-double digits, stemming from higher store penetration.

Moreover, management indicated that the company’s strong inventory and expense management position it well for growth in 2021.

In another release, the company revealed its growth plan — Real Power. Real Growth — and also set long-term financial targets. As part of the plan, it decided to disaggregate the results of its American Eagle and Aerie brand operating segments. The plan mainly focuses on building customer-focused capabilities and strengthening its return on investment (ROI). The company expects to achieve its goals by enhancing revenues and profitability of its Aerie brand and returning the American Eagle brand to profitable growth in the next three years. Additionally, the plan involves streamlining its store fleet, expanding digital business and improving omni-channel capabilities.

The financial targets laid under the plan projects revenues of $5.5 billion and operating income of $550 million in fiscal 2023. Moreover, operating margin is expected to expand to 10%. The targets do not account for any potential asset impairment and restructuring charges.

Over the next three years, the company expects revenues for the Aerie brand to increase, witnessing a mid-20% compounded annual growth rate (CAGR) to nearly $2 billion. This marks a significant increase from revenues of $800 million delivered in fiscal 2019 for the Aerie brand. Additionally, the company expects significant profits growth at the Aerie brand.

Driven by its efforts to revive the American Eagle brand, the company targets delivering revenues of $3.5 billion, suggesting a growth rate roughly flat with fiscal 2019. However, the company anticipates improved profitability at the namesake brand.

Evidently, its three-year growth plan provided increased visibility into the future, raising investor sentiments. Additionally, we believe that the company delivered momentous growth through 2020 despite the impacts of the pandemic. It has been benefiting from the Aerie brand’s more casual assortments, which have been in demand due to the stay-at-home trend.



Over the past year, the Zacks Rank #3 (Hold) stock has gained 62.9% compared with the industry’s growth of 52.4%. Moreover, the company has comfortably surpassed the Retail-Wholesale sector and S&P 500’s growth of 37.5% and 17.8%, respectively, in the same period.

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