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Why Is American Eagle (AEO) Down 7.9% Since Last Earnings Report?
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It has been about a month since the last earnings report for American Eagle Outfitters (AEO - Free Report) . Shares have lost about 7.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
American Eagle Q4 Earnings & Sales Beat Estimates
American Eagle posted fourth-quarter fiscal 2022 results, wherein both the top and bottom lines came ahead of the Zacks Consensus Estimate. The company’s earnings increased year over year. Results were backed by better demand and robust margins.
Management entered fiscal 2023 with solid brands and healthy inventory status. AEO stated that the global supply chain continues to normalize, which is enhancing its cost structure. The company is also focused on curtailing expenses. That being said, an uncertain macro landscape and the overall consumer spending pattern caused management to offer cautious guidance for fiscal 2023.
Quarterly Details
American Eagle posted adjusted earnings of 37 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. Our estimate for the bottom line was 25 cents. The bottom line increased 5.7% from adjusted earnings of 35 cents reported in the fourth quarter of fiscal 2021.
Total net revenues of $1,496.1 million dipped nearly 1% year over year, while it beat the Zacks Consensus Estimate of $1,470 million. Our estimate for the top line was $1,438.3 million.
Brand revenues declined 2% in the quarter but were better than AEO’s expectation of a mid-single-digit decline. However, revenues were partly aided by a nearly one-percentage-point contribution from the supply-chain business and Quiet Platforms.
Brand-wise, revenues fell 8% to $962 million for AE but surpassed our estimate of $946.5 million. Comparable sales (comps) for the AE brand dropped 9% year over year. Revenues rose 8% to $464 million for Aerie and beat our estimate of $430.1 million. Comps for the Aerie brand declined 2% from the fourth- quarter fiscal 2021 level.
Consolidated store revenues were flat year over year, though it rose 5% from the pre-pandemic levels (fourth-quarter fiscal 2019). American Eagle’s total digital revenues were down 9% year over year, while it advanced 19% from the pre-pandemic levels. Digital revenues accounted for 36% of the total revenues.
Gross profit ascended around 4% year over year to $507 million. Gross margin expanded 150 bps to 33.9% and came ahead of management’s expectations due to lower-than-expected promotions.
Further, AEO’s merchandise margin was solid, backed by reduced product and transportation costs, somewhat negated by increased markdowns. The gross margin benefited from reduced compensations and delivery costs, partly countered by increased distribution, warehousing costs and elevated rent. Gross margin also bore an 80 bps adverse impact of the scaling of the Quiet Platforms business.
SG&A expenses remained flat year over year at $351 million. As a percentage of sales, SG&A expenses increased 30 bps to 23.5%.
The company’s adjusted operating income came in at approximately $96 million, which increased from the year-ago period’s tally of roughly $92 million. The adjusted operating margin was 6.4%, up 30 bps year over year.
GAAP operating income (included a $17 million loss from Quiet Platforms) was nearly $74 million in the quarter, down from around $80 million in the year-ago period. Operating margin of 4.9% contracted 40 bps year over year.
For the Aerie brand, adjusted operating income of $56.7 million increased significantly from the year-ago quarter’s $22.7 million. The AE brand’s operating income declined from $182.1 million to $153.6 million in the quarter under review. Adjusted operating income margin increased 690 bps to 12.2% for the Aerie brand, while it shrank 150 bps to 16% for the AE brand.
Other Financial Details
American Eagle ended the reported quarter with cash and cash equivalents of $170.2 million. Total shareholders’ equity as of Jan 28, was $1,599.2 million. AEO had total liquidity of $862 million at the fiscal-quarter end.
American Eagle’s capital expenditure was $61 million in the reported quarter and $260 million in fiscal 2022. It expects capital expenditure in the band of $150-$190 million for fiscal 2023.
The company paid out two quarterly cash dividends in the first half of fiscal 2022, which totaled $65 million. Following a temporary pause (in September), management reinstated a quarterly cash dividend of 10 cents per share on Feb 28, which is payable on Apr 21, to shareholders of record as of Apr 6.
AEO’s closing inventory improved 6% from the year-ago quarter’s reading to $585 million. Inventory units were up 4%. The increase in inventory resulted from earlier-than-anticipated deliveries (thanks to the continued normalization of the supply chain) and increases associated with Mexico and the Todd Snyder brand.
Guidance
For the fiscal first quarter, American Eagle expects revenue growth in the range of flat to an increase of low-single-digits. The operating income is likely to remain flat year over year.
For fiscal 2023, revenue growth is likely to be in the range of flat to an increase of low-single-digits. The operating income is anticipated in the band of $270-$310 million in comparison with the adjusted operating income of $269 million in fiscal 2022.
Management plans to open about 25 new Aerie stores next year, alongside undertaking about 25 net closures at AE.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 13.82% due to these changes.
VGM Scores
Currently, American Eagle has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly 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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Why Is American Eagle (AEO) Down 7.9% Since Last Earnings Report?
It has been about a month since the last earnings report for American Eagle Outfitters (AEO - Free Report) . Shares have lost about 7.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
American Eagle Q4 Earnings & Sales Beat Estimates
American Eagle posted fourth-quarter fiscal 2022 results, wherein both the top and bottom lines came ahead of the Zacks Consensus Estimate. The company’s earnings increased year over year. Results were backed by better demand and robust margins.
Management entered fiscal 2023 with solid brands and healthy inventory status. AEO stated that the global supply chain continues to normalize, which is enhancing its cost structure. The company is also focused on curtailing expenses. That being said, an uncertain macro landscape and the overall consumer spending pattern caused management to offer cautious guidance for fiscal 2023.
Quarterly Details
American Eagle posted adjusted earnings of 37 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. Our estimate for the bottom line was 25 cents. The bottom line increased 5.7% from adjusted earnings of 35 cents reported in the fourth quarter of fiscal 2021.
Total net revenues of $1,496.1 million dipped nearly 1% year over year, while it beat the Zacks Consensus Estimate of $1,470 million. Our estimate for the top line was $1,438.3 million.
Brand revenues declined 2% in the quarter but were better than AEO’s expectation of a mid-single-digit decline. However, revenues were partly aided by a nearly one-percentage-point contribution from the supply-chain business and Quiet Platforms.
Brand-wise, revenues fell 8% to $962 million for AE but surpassed our estimate of $946.5 million. Comparable sales (comps) for the AE brand dropped 9% year over year. Revenues rose 8% to $464 million for Aerie and beat our estimate of $430.1 million. Comps for the Aerie brand declined 2% from the fourth- quarter fiscal 2021 level.
Consolidated store revenues were flat year over year, though it rose 5% from the pre-pandemic levels (fourth-quarter fiscal 2019). American Eagle’s total digital revenues were down 9% year over year, while it advanced 19% from the pre-pandemic levels. Digital revenues accounted for 36% of the total revenues.
Gross profit ascended around 4% year over year to $507 million. Gross margin expanded 150 bps to 33.9% and came ahead of management’s expectations due to lower-than-expected promotions.
Further, AEO’s merchandise margin was solid, backed by reduced product and transportation costs, somewhat negated by increased markdowns. The gross margin benefited from reduced compensations and delivery costs, partly countered by increased distribution, warehousing costs and elevated rent. Gross margin also bore an 80 bps adverse impact of the scaling of the Quiet Platforms business.
SG&A expenses remained flat year over year at $351 million. As a percentage of sales, SG&A expenses increased 30 bps to 23.5%.
The company’s adjusted operating income came in at approximately $96 million, which increased from the year-ago period’s tally of roughly $92 million. The adjusted operating margin was 6.4%, up 30 bps year
over year.
GAAP operating income (included a $17 million loss from Quiet Platforms) was nearly $74 million in the quarter, down from around $80 million in the year-ago period. Operating margin of 4.9% contracted 40 bps
year over year.
For the Aerie brand, adjusted operating income of $56.7 million increased significantly from the year-ago quarter’s $22.7 million. The AE brand’s operating income declined from $182.1 million to $153.6 million in the quarter under review. Adjusted operating income margin increased 690 bps to 12.2% for the Aerie brand, while it shrank 150 bps to 16% for the AE brand.
Other Financial Details
American Eagle ended the reported quarter with cash and cash equivalents of $170.2 million. Total shareholders’ equity as of Jan 28, was $1,599.2 million. AEO had total liquidity of $862 million at the fiscal-quarter end.
American Eagle’s capital expenditure was $61 million in the reported quarter and $260 million in fiscal 2022. It expects capital expenditure in the band of $150-$190 million for fiscal 2023.
The company paid out two quarterly cash dividends in the first half of fiscal 2022, which totaled $65 million. Following a temporary pause (in September), management reinstated a quarterly cash dividend of 10 cents per share on Feb 28, which is payable on Apr 21, to shareholders of record as of Apr 6.
AEO’s closing inventory improved 6% from the year-ago quarter’s reading to $585 million. Inventory units were up 4%. The increase in inventory resulted from earlier-than-anticipated deliveries (thanks to the continued normalization of the supply chain) and increases associated with Mexico and the Todd Snyder brand.
Guidance
For the fiscal first quarter, American Eagle expects revenue growth in the range of flat to an increase of low-single-digits. The operating income is likely to remain flat year over year.
For fiscal 2023, revenue growth is likely to be in the range of flat to an increase of low-single-digits. The operating income is anticipated in the band of $270-$310 million in comparison with the adjusted operating income of $269 million in fiscal 2022.
Management plans to open about 25 new Aerie stores next year, alongside undertaking about 25 net closures at AE.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 13.82% due to these changes.
VGM Scores
Currently, American Eagle has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly 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.