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Why Is American Eagle (AEO) Up 4.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for American Eagle Outfitters (AEO - Free Report) . Shares have added about 4.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Eagle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Eagle’s Q1 Earnings Top Estimates, Revenues Up

American Eagle reported first-quarter fiscal 2021 results, with the top and bottom lines beating the Zacks Consensus Estimate. Moreover, revenues and earnings increased from first-quarter fiscal 2019 levels. Owing to massive impacts of the coronavirus outbreak in the year-ago quarter, the company believes that comparing results with the first quarter of fiscal 2019 is better suited.

It witnessed accelerated growth across both the American Eagle (AE) and Aerie brands in the reported quarter. Management was particularly impressed with the demand for Aerie’s products, which contributed to sales, margins and profitability in the reported quarter. Also, smooth progress on the Real Power, Real Growth value-creation plan aided results.

Q1 Details

Adjusted earnings of 48 cents per share beat the Zacks Consensus Estimate of 45 cents. The bottom line increased from 24 cents reported in first-quarter fiscal 2019.

Total net revenues were $1,034.6 million, up 17% from first-quarter fiscal 2019 levels. Further, the metric surpassed the Zacks Consensus Estimate of $1,022.1 million. Brand-wise, revenues increased slightly to $728 million for AE, while it surged 89% to $297 million for Aerie.

The company’s digital revenues rose 57% from the first-quarter fiscal 2019 levels. Notably, online sales across Aerie and AE brands were up 158% and 20%, respectively. The upside can be attributed to gains from several years of investments to capitalize customer migration to digital and omni-channel e-commerce. Meanwhile, store revenues were unchanged on the back of the pandemic-led traffic pressure as well as store closures in Canada. Nevertheless, U.S. store revenues rose in the quarter under review.

Gross profit was $436 million, up 34% from $325 million reported in the first quarter of 2019. Further, gross margin expanded 550 basis points (bps) to 42.2%. The upside can be attributed to solid increase in merchandise margins across brands, stemming from escalated full-priced sales, reduced promotions and inventory optimization efforts. Also, reduced rent costs drove gross margin. However, the upsides were somewhat countered by elevated delivery and distribution center expenses.

Selling, general and administrative expenses increased $34 million from the first-quarter fiscal 2019 levels to $264.5 million, thanks to higher corporate salaries, variable selling expenses and performance-based incentive compensation. These were somewhat offset by reduced travel costs. As a percentage of sales, the metric contacted 40 bps on the back of solid revenue growth.

Adjusted operating margin expanded 730 bps to 12.9% from the first-quarter fiscal 2019 levels.

Other Financial Details

American Eagle ended the reported quarter with cash and short-term investments of $792 million. The cash balance included proceeds from a convertible notes offering of $406 million. Total shareholders’ equity as of May 1, 2021, was $1,175.6 million.

Moreover, the company’s capital expenditure was $37 million in the reported quarter. For fiscal 2021, management anticipates capital expenditure of $250-$275 million, with investments in strategic customer-facing and supply chain.

Store Update

In first-quarter fiscal 2021, American Eagle inaugurated four AE and six Aerie stand-alone stores, while closing 14 AE stores and one Aerie stand-alone. Further, the company remodeled and refurbished three stores in the aforesaid period.    

At the end of the quarter, American Eagle operated 1,074 stores, comprising 891 AE, 179 Aerie stand-alone, 178 Aerie side-by-side and two Todd Synder stores. Additionally, it operated 236 international license outlets.

For the year, the company is looking at opening nearly 60 Aerie stores and more than 30 OFFLINE by Aerie stores. These will be a combination of stand-alone stores and Aerie side-by-side locations.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 25.18% due to these changes.

VGM Scores

Currently, American Eagle has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, American Eagle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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