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American Eagle (AEO) Progresses on Growth Plans: Apt to Hold?
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American Eagle Outfitters Inc. (AEO - Free Report) has shown resilience, backed by robust demand and margins, which have been aiding performance. The company remains well-placed on the back of cost-reduction efforts, strength in Aerie and a solid online show. Management entered fiscal 2023 with solid brands and healthy inventory status. Also, it is on track with the Real Power, Real Growth value-creation plan.
Driven by these factors and continued business momentum, the company delivered the second straight quarter of earnings and sales surprises in fourth-quarter fiscal 2022. American Eagle’s fiscal fourth-quarter earnings increased 5.7% from the year-ago quarter.
An uptrend in the Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company echoes a positive sentiment. The Zacks Consensus Estimate for American Eagle’s fiscal 2023 sales and EPS suggests growth of 1.5% and 15.5%, respectively, from the year-ago period’s reported numbers.
This Zacks Rank #3 (Hold) stock has lost 29.3% in the past year compared with the industry’s decline of 28.3%. The stock also compared unfavorably with the Retail-Wholesale sector’s fall of 22% and the S&P 500’s dip of 15.2%.
Image Source: Zacks Investment Research
Factors Driving Growth
American Eagle has been witnessing strong digital demand on the shift in consumers’ shopping preferences. Although the company’s total digital revenues were down 9% year over year, the same advanced 19% from the pre-pandemic levels (fourth-quarter fiscal 2019). Digital revenues accounted for 36% 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% of 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. Some other notable efforts include customer self-checkout, a new instant credit feature for returns, the expansion of its Afterpay capabilities in its mobile app and the introduction of Shop the Look service, which 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. Such well-chalked-out efforts are likely to contribute to the company’s top line in the near term.
American Eagle 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. The company’s efforts under the plan have aided the recovery of the American Eagle brand. Going forward, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
American Eagle has been witnessing spectacular growth for its Aerie brand for quite some time now. Sales rose 8% to $464 million for Aerie in fourth-quarter fiscal 2022. The brand reached $1.5 billion in revenues in 2022, driven by store expansion. Strength across core apparel, positive growth in fleece as well as the best sweater season in the brand's history acted as major growth drivers. Also, its active wear extension, OFFLINE by Aerie, performed well on the back of the Leggings franchise stemming from new customer acquisitions.
Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. Management also revealed plans to open 25 stores. The Aerie brand is a key growth engine for American Eagle and remains on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1.5 billion in revenues.
Headwinds to Overcome
Despite the top-line beat in fourth-quarter fiscal 2022, American Eagle’s total net revenues of $1,496.1 million dipped nearly 1% year over year. Brand revenues declined 2% in the quarter but were better than AEO’s expectation of a mid-single-digit decline. Notably, AE brand revenues fell 8% to $962 million. Comparable sales (comps) for the AE brand dropped 9% year over year.
Moreover, an uncertain macro landscape and the overall consumer spending pattern caused management to offer cautious guidance for fiscal 2023. For the first quarter and fiscal 2023, American Eagle expects revenue growth of flat to a low-single-digit increase. The fiscal view is in sync with our estimate of 0.5% revenue growth.
American Eagle has been witnessing a difficult macro environment, including continued supply-chain disruption and higher promotions. Also, rising inflation and higher interest rates are concerning.
Urban Outfitters currently sports a Zacks Rank #1 (Strong Buy). URBN has a trailing four-quarter negative earnings surprise of 7.1%, on average. Shares of Urban Outfitters have declined 1.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings suggests growth of 4.3% and 41.7%, respectively, from the year-ago period's reported figure. It has a long-term earnings growth rate of 18%.
Stitch Fix has a Zacks Rank #2 (Buy) at present. Shares of SFIX have declined 58.1% in the past year. The company has a trailing four-quarter negative earnings surprise of 10.6%, on average.
The Zacks Consensus Estimate for Stitch Fix's current-year EPS suggests growth of 1.2%, while the consensus estimate for sales indicates a decline of 21% from the year-ago reported figures.
Vera Bradley currently carries a Zacks Rank of 2. VRA has a trailing four-quarter earnings surprise of 24.9%, on average. Shares of Vera Bradley have declined 28.8% in the past year.
The Zacks Consensus Estimate for Vera Bradley’s current financial-year EPS suggests growth of 75% from the year-ago period's reported number.
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American Eagle (AEO) Progresses on Growth Plans: Apt to Hold?
American Eagle Outfitters Inc. (AEO - Free Report) has shown resilience, backed by robust demand and margins, which have been aiding performance. The company remains well-placed on the back of cost-reduction efforts, strength in Aerie and a solid online show. Management entered fiscal 2023 with solid brands and healthy inventory status. Also, it is on track with the Real Power, Real Growth value-creation plan.
Driven by these factors and continued business momentum, the company delivered the second straight quarter of earnings and sales surprises in fourth-quarter fiscal 2022. American Eagle’s fiscal fourth-quarter earnings increased 5.7% from the year-ago quarter.
An uptrend in the Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company echoes a positive sentiment. The Zacks Consensus Estimate for American Eagle’s fiscal 2023 sales and EPS suggests growth of 1.5% and 15.5%, respectively, from the year-ago period’s reported numbers.
This Zacks Rank #3 (Hold) stock has lost 29.3% in the past year compared with the industry’s decline of 28.3%. The stock also compared unfavorably with the Retail-Wholesale sector’s fall of 22% and the S&P 500’s dip of 15.2%.
Image Source: Zacks Investment Research
Factors Driving Growth
American Eagle has been witnessing strong digital demand on the shift in consumers’ shopping preferences. Although the company’s total digital revenues were down 9% year over year, the same advanced 19% from the pre-pandemic levels (fourth-quarter fiscal 2019). Digital revenues accounted for 36% 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% of 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. Some other notable efforts include customer self-checkout, a new instant credit feature for returns, the expansion of its Afterpay capabilities in its mobile app and the introduction of Shop the Look service, which 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. Such well-chalked-out efforts are likely to contribute to the company’s top line in the near term.
American Eagle 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. The company’s efforts under the plan have aided the recovery of the American Eagle brand. Going forward, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
American Eagle has been witnessing spectacular growth for its Aerie brand for quite some time now. Sales rose 8% to $464 million for Aerie in fourth-quarter fiscal 2022. The brand reached $1.5 billion in revenues in 2022, driven by store expansion. Strength across core apparel, positive growth in fleece as well as the best sweater season in the brand's history acted as major growth drivers. Also, its active wear extension, OFFLINE by Aerie, performed well on the back of the Leggings franchise stemming from new customer acquisitions.
Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. Management also revealed plans to open 25 stores. The Aerie brand is a key growth engine for American Eagle and remains on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1.5 billion in revenues.
Headwinds to Overcome
Despite the top-line beat in fourth-quarter fiscal 2022, American Eagle’s total net revenues of $1,496.1 million dipped nearly 1% year over year. Brand revenues declined 2% in the quarter but were better than AEO’s expectation of a mid-single-digit decline. Notably, AE brand revenues fell 8% to $962 million. Comparable sales (comps) for the AE brand dropped 9% year over year.
Moreover, an uncertain macro landscape and the overall consumer spending pattern caused management to offer cautious guidance for fiscal 2023. For the first quarter and fiscal 2023, American Eagle expects revenue growth of flat to a low-single-digit increase. The fiscal view is in sync with our estimate of 0.5% revenue growth.
American Eagle has been witnessing a difficult macro environment, including continued supply-chain disruption and higher promotions. Also, rising inflation and higher interest rates are concerning.
Stocks to Consider
Some better-ranked stocks that investors may consider are Urban Outfitters (URBN - Free Report) , Stitch Fix (SFIX - Free Report) and Vera Bradley (VRA - Free Report) .
Urban Outfitters currently sports a Zacks Rank #1 (Strong Buy). URBN has a trailing four-quarter negative earnings surprise of 7.1%, on average. Shares of Urban Outfitters have declined 1.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings suggests growth of 4.3% and 41.7%, respectively, from the year-ago period's reported figure. It has a long-term earnings growth rate of 18%.
Stitch Fix has a Zacks Rank #2 (Buy) at present. Shares of SFIX have declined 58.1% in the past year. The company has a trailing four-quarter negative earnings surprise of 10.6%, on average.
The Zacks Consensus Estimate for Stitch Fix's current-year EPS suggests growth of 1.2%, while the consensus estimate for sales indicates a decline of 21% from the year-ago reported figures.
Vera Bradley currently carries a Zacks Rank of 2. VRA has a trailing four-quarter earnings surprise of 24.9%, on average. Shares of Vera Bradley have declined 28.8% in the past year.
The Zacks Consensus Estimate for Vera Bradley’s current financial-year EPS suggests growth of 75% from the year-ago period's reported number.