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American Eagle (AEO) Q2 Earnings Beat Estimates, Revenues Lag

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American Eagle Outfitters, Inc. (AEO - Free Report) reported second-quarter fiscal 2021 results, wherein earnings per share beat the Zacks Consensus Estimate, while revenues lagged. Both top and bottom lines grew year over year. Results gained from brand strength, robust product portfolio and enhanced customer experience. It remains focused on inventory management, real-estate optimization efforts and investments to improve the supply chain. Continued momentum in the Aerie brand along with its Real Power, Real Growth value-creation plan remains an upside. Management noted that it is progressing well with its plans to attain an operating income of $600 million this year.

Shares of the Zacks Rank #3 (Hold) company have rallied 35.9% in the past three months compared with the industry’s 11.4% growth.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q2 Details

Adjusted earnings of 60 cents per share beat the Zacks Consensus Estimate of 55 cents. The bottom line increased substantially from a loss of 3 cents reported in second-quarter fiscal 2020.

Total net revenues of $1,194 million increased 35% year over year but missed the Zacks Consensus Estimate of $1,231 million. The metric also rose 19% from second-quarter fiscal 2019. Brand-wise, revenues increased 35% to $846 million for American Eagle (“AE”), while it rose 34% to $336 million for Aerie. This marked the 27th consecutive quarter of double-digit growth for Aerie, driven by strong demand and higher full-price sales. On a two-year basis, Aerie surged 80%, while the AE brand advanced 5% in the reported quarter. The AE brand’s revenues were flat compared with second-quarter fiscal 2019, including the 2019 gain from the change in its Japan license agreement.

The AE brand witnessed double-digit growth in all product categories, particularly core intimate, bralettes, and apparel and swimwear. Continued momentum in denim, with solid demand for jeans across all genders, remains upsides. Aerie's signature for legs than leggings, men’s business and its OFFLINE activewear brand have also been performing well. Notably, management launched its first digital clothing line on Bitmoji in the reported quarter, which generated a whopping 1 billion triumphs to date.

The company’s digital revenues fell 5% year over year due to improved traffic in stores across the United States, stemming from increased vaccination rates and the easing of the pandemic curbs. However, digital revenues surged 66% from second-quarter fiscal 2019. The digital platform accounted for 35% of total revenues, up from 25% contribution in second-quarter fiscal 2019. It witnessed year-over-year customer acquisition of 1.5 million and more than 2 million on a two-year basis. Management relaunched its loyalty program last summer and has been receiving positive customer responses ever since.

Store revenues skyrocketed 73% year over year, owing to improved store traffic. Strength in both factory outlets and mainline stores contributed to quarterly growth. Store sales rose 4% from second-quarter fiscal 2019.

The gross profit was $502 million, up 89% year over year and the gross margin expanded 1210 basis points (bps) to 42.1%. The upside can be attributed to higher revenues and robust merchandise margins across brands, stemming from strong demand, escalated full-priced sales, and reduced promotions as well as inventory optimization efforts. Reduced rent, digital delivery expenses and compensation costs drove the gross margin.

Selling, general and administrative expenses increased 31.4% year over year to $294 million, owing to store reopenings, higher advertising costs, and performance-based incentive compensation. As a percentage of sales, S&A expenses contacted 70 bps on the back of solid revenue growth.

The operating margin expanded 730 bps to 14.1% from the second-quarter fiscal 2020 levels.


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Other Financial Details

American Eagle ended the quarter with cash and short-term investments of $824 million. Total shareholders’ equity as of Jul 31, 2021, was $1,275.5 million. Management approved a dividend of 18 cents per share, which reflects an increase of 31% from the 13.75 cents mentioned earlier. It also paid out a quarterly cash dividend of $30 million.

The company’s capital expenditure was $49 million in the reported quarter. For fiscal 2021, management anticipates capital expenditure at the lower end of $250-$275 million, with investments in customer-facing and supply chain.

American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise


American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise

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

Store Update

In second-quarter fiscal 2021, American Eagle inaugurated seven AE and 12 Aerie stand-alone stores, while closing four AE stores. The company remodeled and refurbished eight stores in the aforesaid period.    

At the end of the reported quarter, American Eagle operated 1,090 stores, comprising 894 AE, 191 Aerie stand-alone, 183 Aerie side-by-side and three Todd Synder stores. Additionally, it operated 242 international license outlets.

Business Development

In August 2021, American Eagle acquired logistics startup AirTerra for an undisclosed amount. AirTerra’s network of stores and distribution centers will enable the company to compete better with retail giants like Amazon (AMZN - Free Report) , Walmart (WMT - Free Report) and Target (TGT - Free Report) by offering customers same-day services. The deal will also help achieve digital sales, accounting for half of its revenues in the long term.