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Aerie & Online Strength Aid American Eagle (AEO) Amid Cost Woes

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American Eagle Outfitters, Inc. (AEO - Free Report) has been gaining from robust online demand and strength in the Aerie brand. Also, it is progressing well with the Real Power, Real Growth value-creation plan. The plan is driving profitability through real estate and inventory optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.

This led to the impressive third-quarter fiscal 2021 results, wherein both earnings per share and revenues not only beat the Zacks Consensus Estimate but also improved year over year. This marked the sixth straight quarter of an earnings beat.

In the reported quarter, total net revenues increased 24% year over year and improved 19% from third-quarter fiscal 2019, driven by sustained momentum across its brands and channels. Store revenues improved 29% year over year, owing to increased store traffic. Store sales were up 9% from third-quarter fiscal 2019.

Speaking of the online platform, the company has been witnessing strong digital demand on the back of expanded omnichannel capabilities. American Eagle’s digital revenues were up 10% year over year, while the same rose 42% from third-quarter fiscal 2019. It expanded same-day delivery services and customer self-checkout to more regions as well as its virtual selling tool, AE Live and enhanced its e-gifting option.

The Aerie brand has long been serving as a growth driver for American Eagle. Sales rose 28% to $315 million for Aerie in third-quarter fiscal 2021 and surged more than 70% on a two-year basis. This marked the 28th consecutive quarter of double-digit growth for Aerie, driven by strong demand and higher full-price sales. The brand witnessed continued momentum across all categories, particularly its new activewear brand OFFLINE. Robust demand in the legging business, which is one of its best margin categories, along with strength in core intimates bralettes and apparel bodes well.

Management launched its largest integrated marketing campaign, Voices of AerieREAL. The company also opened 29 stand-alone and side-by-side Aerie stores, out of which a quarter are OFFLINE stores. Going ahead, the brand remains on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1 billion.

Driven by the above-mentioned factors, shares of the Zacks Rank #3 (Hold) company have gained 21.3% in a year against the industry’s decline of 10%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

However, AEO continues to witness higher store payroll, store openings and rising advertising costs. Alongside this, elevated freight costs remain concerning. It expects $70-$80 million of freight-related expenses to impact the fiscal fourth quarter.

Conclusion

We believe that American Eagle will drive growth on the back of strength in the Aerie brand, solid online show and the value-creation plan. The Zacks Consensus Estimate for its fiscal 2021 earnings is pegged at $2.28 per share, marking an increase of 0.4% in the past 30 days.

Here’s How Other Stocks Fared

We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Boot Barn Holdings (BOOT - Free Report) , Tractor Supply Company (TSCO - Free Report) and Capri Holdings (CPRI - Free Report) .

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). Shares of BOOT have skyrocketed 193.5% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ sales and earnings per share (EPS) for the current financial year suggests growth of 54.4% and 183.3%, respectively, from the year-ago period’s reported figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Capri Holdings, which operates membership warehouses, presently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 46.9% in the past year.

The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 12.6% and 1.2% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 56.4% for three-five years.

Tractor Supply, a rural lifestyle retailer in the United States, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 63.7% in a year.

The Zacks Consensus Estimate for Tractor Supply’s sales and EPS for the current financial year suggests growth of 19% and 23.9%, respectively, from the year-ago period’s reported numbers. TSCO has an expected EPS growth rate of 9.6% for three-five years.