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4 Reasons to Invest in American Eagle (AEO) Stock Right Away
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American Eagle Outfitters (AEO - Free Report) is an appropriate investment option, as the Pittsburgh-based company’s shares have outperformed the industry and the overall Retail-Wholesale sector in the past three months. The Zacks Rank #2 (Buy) company has rallied 53.2% compared with the industry’s and the sector’s growth of 25.3% and 8.4%, respectively.
That said, let’s delve into the factors that make the stock a promising bet.
Cost-Saving Efforts
American Eagle is on track with efforts to reduce expenses across store payroll, corporate expenses, professional services and advertising. The move is expected to generate cost savings of $100 million on an annual basis compared with the prior target of $60 million. As a result, SG&A expenses are anticipated to be flat year over year in the fourth quarter of fiscal 2022.
Image Source: Zacks Investment Research
Solid Online Show
The company has been witnessing strong digital demand on the shift in consumers’ shopping preferences. Although the company’s total digital revenues were down 5% year over year, the same advanced 35% from the pre-pandemic levels (third-quarter fiscal 2019). Digital revenues accounted for 33% of the total revenues, driven by its mobile app, which is now the largest source of revenues in the digital channel. The mobile app business contributed 40% to the total digital spending, driven by a strong engagement across both brands.
Earlier, the company launched a mobile point-of-sale system in its North America stores, through which customers can check out or return items through a store associate. The move is likely to expedite transaction speed and minimize wait time. Also, its newly-acquired Quiet Platforms partnered with Fanatics to launch same-day and next-day delivery services across 11 markets in the United States.
Some other notable efforts are customer self-checkout, a new instant credit feature for returns, the expansion of its Afterpay capabilities in its mobile app and the introduction of the Shop the Look service that allows customers to browse and shop head-to-toe looks curated by stylists. The relaunch of its loyalty program bodes well. Gains from the acquisition of Quiet Logistics also aided delivery.
Strength in Aerie’s Brand
Continued momentum in its Aerie brand is a key growth driver. Sales rose 11% to $350 million for Aerie in third-quarter fiscal 2022 and nearly doubled on a two-year basis. Comps for the Aerie brand declined 3% from the third-quarter fiscal 2021 level but improved 59% from third-quarter fiscal 2019.
This was mainly driven by solid demand across intimates, leggings, apparel, and beauty and accessories. Also, OFFLINE activewear grew in the strong double digits on the back of an improved assortment and customer base.
Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. The Aerie brand is a key growth engine for American Eagle and is on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1 billion in revenues.
Real Power Real Growth Plan
The company is on track with its Real Power Real Growth value creation plan, which has been aiding its performance. The plan is driving profitability through real estate and inventory-optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.
As part of the Real Power Real Growth plan, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base. Also, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
Driven by the trends and progress on its growth plan, American Eagle raised its 2023 financial targets. The company expects to achieve an operating income of $800 million for fiscal 2023. It also expects revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion. The operating income is estimated to be $800 million, with the operating margin expanding to 13.5% by 2023.
Conclusion
All said, although elevated freight expenses and inflation are near-term headwinds, we believe that a solid online show, robust demand and brand strength will drive further growth for the company. Also, encouraging preliminary fourth-quarter fiscal 2022 results raise optimism in the stock.
The American Eagle brand has shown improvement and Aerie is in sync with expectations. Although the company’s brand revenues declined 3% from the fourth quarter through Jan 7, its top line is anticipated to reflect gains of 2 percentage points from Quiet Logistics.
AEO also noted that it recorded the second-highest holiday sales period in its history. The company’s gross margin is envisioned to be at the higher end of its earlier mentioned 32-33%, driven by lesser promotions and strong inventory management. Its quarter-end inventories are likely to be down year over year, in line with the prior view.
Topping it, a Value Score of A and a long-term earnings growth rate of 11.6% reflects its inherent strength. The Zacks Consensus Estimate also grew 3.6% to 87 cents in the past seven days.
Tecnoglass, the manufacturer and seller of architectural glass and windows, and aluminum products for the residential and commercial construction industries, currently sports a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently has a Zacks Rank #2. ROST has an expected EPS growth rate of 10.5% for three to five years.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and EPS suggests declines of 1.6% and 11.7%, respectively, from the year-ago period’s reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Wingstop, the operator of franchises and restaurants, currently carries a Zacks Rank #2. WING has a long-term earnings growth rate of 11%.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the year-ago period’s reported levels.
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4 Reasons to Invest in American Eagle (AEO) Stock Right Away
American Eagle Outfitters (AEO - Free Report) is an appropriate investment option, as the Pittsburgh-based company’s shares have outperformed the industry and the overall Retail-Wholesale sector in the past three months. The Zacks Rank #2 (Buy) company has rallied 53.2% compared with the industry’s and the sector’s growth of 25.3% and 8.4%, respectively.
That said, let’s delve into the factors that make the stock a promising bet.
Cost-Saving Efforts
American Eagle is on track with efforts to reduce expenses across store payroll, corporate expenses, professional services and advertising. The move is expected to generate cost savings of $100 million on an annual basis compared with the prior target of $60 million. As a result, SG&A expenses are anticipated to be flat year over year in the fourth quarter of fiscal 2022.
Image Source: Zacks Investment Research
Solid Online Show
The company has been witnessing strong digital demand on the shift in consumers’ shopping preferences. Although the company’s total digital revenues were down 5% year over year, the same advanced 35% from the pre-pandemic levels (third-quarter fiscal 2019). Digital revenues accounted for 33% of the total revenues, driven by its mobile app, which is now the largest source of revenues in the digital channel. The mobile app business contributed 40% to the total digital spending, driven by a strong engagement across both brands.
Earlier, the company launched a mobile point-of-sale system in its North America stores, through which customers can check out or return items through a store associate. The move is likely to expedite transaction speed and minimize wait time. Also, its newly-acquired Quiet Platforms partnered with Fanatics to launch same-day and next-day delivery services across 11 markets in the United States.
Some other notable efforts are customer self-checkout, a new instant credit feature for returns, the expansion of its Afterpay capabilities in its mobile app and the introduction of the Shop the Look service that allows customers to browse and shop head-to-toe looks curated by stylists. The relaunch of its loyalty program bodes well. Gains from the acquisition of Quiet Logistics also aided delivery.
Strength in Aerie’s Brand
Continued momentum in its Aerie brand is a key growth driver. Sales rose 11% to $350 million for Aerie in third-quarter fiscal 2022 and nearly doubled on a two-year basis. Comps for the Aerie brand declined 3% from the third-quarter fiscal 2021 level but improved 59% from third-quarter fiscal 2019.
This was mainly driven by solid demand across intimates, leggings, apparel, and beauty and accessories. Also, OFFLINE activewear grew in the strong double digits on the back of an improved assortment and customer base.
Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. The Aerie brand is a key growth engine for American Eagle and is on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1 billion in revenues.
Real Power Real Growth Plan
The company is on track with its Real Power Real Growth value creation plan, which has been aiding its performance. The plan is driving profitability through real estate and inventory-optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.
As part of the Real Power Real Growth plan, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base. Also, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
Driven by the trends and progress on its growth plan, American Eagle raised its 2023 financial targets. The company expects to achieve an operating income of $800 million for fiscal 2023. It also expects revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion. The operating income is estimated to be $800 million, with the operating margin expanding to 13.5% by 2023.
Conclusion
All said, although elevated freight expenses and inflation are near-term headwinds, we believe that a solid online show, robust demand and brand strength will drive further growth for the company. Also, encouraging preliminary fourth-quarter fiscal 2022 results raise optimism in the stock.
The American Eagle brand has shown improvement and Aerie is in sync with expectations. Although the company’s brand revenues declined 3% from the fourth quarter through Jan 7, its top line is anticipated to reflect gains of 2 percentage points from Quiet Logistics.
AEO also noted that it recorded the second-highest holiday sales period in its history. The company’s gross margin is envisioned to be at the higher end of its earlier mentioned 32-33%, driven by lesser promotions and strong inventory management. Its quarter-end inventories are likely to be down year over year, in line with the prior view.
Topping it, a Value Score of A and a long-term earnings growth rate of 11.6% reflects its inherent strength. The Zacks Consensus Estimate also grew 3.6% to 87 cents in the past seven days.
Other Stocks to Consider
Here are three other top-ranked stocks to consider, namely Technoglass (TGLS - Free Report) , Ross Stores (ROST - Free Report) and Wingstop (WING - Free Report) .
Tecnoglass, the manufacturer and seller of architectural glass and windows, and aluminum products for the residential and commercial construction industries, currently sports a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently has a Zacks Rank #2. ROST has an expected EPS growth rate of 10.5% for three to five years.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and EPS suggests declines of 1.6% and 11.7%, respectively, from the year-ago period’s reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Wingstop, the operator of franchises and restaurants, currently carries a Zacks Rank #2. WING has a long-term earnings growth rate of 11%.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the year-ago period’s reported levels.