Back to top

Image: Bigstock

American Eagle (AEO) Up More Than 189% Y/Y: More Room to Run?

Read MoreHide Full Article

Shares of American Eagle Outfitters, Inc. (AEO - Free Report) surged 189.4% in a year’s time, outperforming the industry’s growth of 158.7%. The stock’s bullish run on the bourses can be attributable to a robust earnings trend. In first-quarter fiscal 2021, the bottom line surpassed the Zacks Consensus Estimate for the fourth straight time. Further, the metric improved year over year, driven by robust gross margins stemming from an increase in merchandise margins across brands, reduced promotions and inventory optimization efforts.

Moreover, strength across both the American Eagle (AE) and Aerie brands led to top-line growth in the fiscal first quarter. Also, smooth progress on the Real Power, Real Growth value-creation plan is a driver.

Speaking of Aerie brand, the company envisions it to be a key growth driver, as evident from solid demand for Aerie’s products. Notably, sales surged 89% from the pre-pandemic levels for Aerie, driven by its unique brand platform and significant momentum in all areas of the business. This marked the 26th successive quarter of double-digit growth for the Aerie brand. Looking ahead, the brand is on track to reach the next brand milestone of $2 billion in sales. Apart from these, its newly launched activewear collection, OFFLINE, is expected to further boost Aerie’s growth. Encouragingly, management revealed plans of opening 60 Aerie locations and more than 30 OFFLINE by Aerie stores.

With a continued shift to the online platform even after stores reopened, American Eagle has been witnessing strong digital demand. The company’s digital revenues rose 57% from the first-quarter fiscal 2019 levels. Notably, online sales across the Aerie and AE brands were up 158% and 20%, respectively. Overall, online sales contributed nearly 40% to the company’s revenues in the fiscal first quarter. Increased investments in digital and omnichannel e-commerce aided digital growth. Moreover, it is making efforts to improve its mobile facility by redesigning the mobile app, which led to a 70% surge in mobile revenues.

Zacks Investment ResearchImage Source: Zacks Investment Research

Similarly, other retailers gaining from a sustained online show include Abercrombie & Fitch (ANF - Free Report) , Gap (GPS - Free Report) and Foot Locker (FL - Free Report) . Abercrombie’s digital momentum continued in first-quarter fiscal 2021 with online sales growth of 45% year over year, contributing about 52% of total company sales. Meanwhile, Gap’s first-quarter fiscal 2021 digital sales increased 61% year over year, contributing 40% of total sales in the reported quarter. Also, Foot Locker’s digital business increased 43%, on a comparable basis and contributed 25% to total sales during first-quarter fiscal 2021.

Coming back to American Eagle, the company is reeling under higher costs related to corporate salaries, variable selling expenses and performance-based incentive compensation. Also, elevated delivery and distribution center expenses remain concerns. This led fiscal first-quarter SG&A expenses to increase $34 million from first-quarter fiscal 2019 levels to $264.5 million.

Wrapping Up

Despite cost headwinds, we believe that this Zacks Rank #3 (Hold) stock is likely to keep up the momentum on the back of strength in the Aerie brand, a solid online show and the value-creation plan. Also, it boasts a VGM Score of B. The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $2.06 per share, which has move up 5.6% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks' Top Picks to Cash in on Artificial Intelligence

In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.

See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>