It has been about a month since the last earnings report for American Eagle Outfitters (AEO Quick QuoteAEO - Free Report) . Shares have added about 10.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Eagle due for a pullback? 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 catalysts.

American Eagle Q1 Earnings Meet Estimates, Sales Beat

American Eagle posted first-quarter fiscal 2023 results, wherein its earnings came in line with the Zacks Consensus Estimate while sales exceeded the same. Both metrics increased year over year. Results were backed by solid demand and robust margins.

Management entered fiscal 2023 with solid brands and a focus on inventory discipline. AEO stated that both Aerie and American Eagle witnessed strong improvement in the quarter and maintained strength in their categories. An uncertain macro landscape and the overall consumer spending pattern caused management to offer a cautious guidance for fiscal 2023.

Quarterly Details

American Eagle posted adjusted earnings of 17 cents per share, which came in line with the Zacks Consensus Estimate. The bottom line increased 6.3% from adjusted earnings of 16 cents reported in the first quarter of fiscal 2022.

Total net revenues of $1,080.9 million increased nearly 2.5% year over year, beating the Zacks Consensus Estimate of $1,064 million. Store revenues increased 5% in the quarter, while digital revenues fell 4%.

Brand-wise, revenues fell 2% to $671 million for American Eagle. Comparable sales (comps) for the American Eagle brand decreased 4% year over year. Revenues rose 12% to $359 million for Aerie. Comps for the Aerie brand increased 2% from first-quarter fiscal 2022 level.

The gross profit rose around 6% year over year to $413 million and the gross margin expanded 140 basis points (bps) to 38.2%. The margin expansion was boosted by lower transportation, compensation and delivery costs, partially offset by increased markdowns and higher rent.

SG&A expenses increased 5% year over year to $312 million. As a percentage of sales, S&A expenses increased 60 bps to 28.9%. The increase was primarily accountable to increased corporate compensation and advertising, partially offset by lower store compensation and professional service expenses.

The company’s adjusted operating income came in at approximately $44 million, with an adjusted operating margin of 4.1%.
GAAP operating income was nearly $23 million in the quarter, down from around $41.9 million in the year-ago period. The GAAP operating income included a $21 million loss from Quiet Platforms. The operating margin of 2.1% contracted 190 bps year over year.

For Aerie, the adjusted operating income of $56.6 million increased from the year-ago quarter’s $43 million. The AE brand’s operating income increased from $103.9 million to $107.2 million in the quarter under review. The adjusted operating income margin increased 240 bps to 15.8% for the Aerie brand, while it increased 80 bps to 16% for the AE brand.

Other Financial Details

American Eagle ended the reported quarter with cash and cash equivalents of $117.8 million. Total shareholders’ equity as of Apr 29, 2023 was $1,619 million. AEO had long-term debt (net) of $30.2 million at the fiscal quarter’s end.

American Eagle’s capital expenditure was $46 million in the reported quarter. It expects capital expenditures in the band of $150-$175 million for fiscal 2023. American Eagle’s closing inventory declined 8.4% from the year-ago quarter’s reading to $624.9 million. Inventory units were down 9%. The decrease was due to a double-digit decline in AE and Aerie inventories across the United States and Canada.

Guidance

For the fiscal second quarter, American Eagle expects revenues to decline in the low single digits on a year over year basis. The operating income is likely to be in the range of $25-$35 million. The company expects SG&A to increase in the low-to-mid single digits. Depreciation is anticipated to be similar to this quarter.

For fiscal 2023, revenues are likely to be flat to down in low single digits. The operating income is anticipated in the band of $250-$270 million in comparison with the adjusted operating income of $269 million in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -25.75% due to these changes.

VGM Scores

Currently, American Eagle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Eagle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

American Eagle is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Tapestry (TPR Quick QuoteTPR - Free Report) , a stock from the same industry, has gained 5.5%. The company reported its results for the quarter ended March 2023 more than a month ago.

Tapestry reported revenues of $1.51 billion in the last reported quarter, representing a year-over-year change of +5%. EPS of $0.78 for the same period compares with $0.51 a year ago.

For the current quarter, Tapestry is expected to post earnings of $0.95 per share, indicating a change of +21.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Tapestry has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.