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Here's What Makes American Eagle (AEO) a Good Investment Now
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American Eagle Outfitters (AEO - Free Report) is well-placed on cost-reduction efforts, strength in Aerie and a solid online show. Its Real Power Real Growth value creation plan bodes well.
Notably, the company posted impressive second-quarter fiscal 2023 results. Its earnings and sales beat the Zacks Consensus Estimate and increased year over year. Results gained from brand strength, solid demand, particularly in June and July, and products that resonated with customers, driven by exciting new marketing campaigns.
Adjusted earnings of 25 cents per share climbed significantly from the 4 cents reported in the second quarter of fiscal 2022. Total net revenues of $1,201 million inched up 0.3% year over year.
Moving on, profit improvement initiatives, and lower delivery, distribution and warehousing costs contributed to margins in second-quarter fiscal 2023. The gross margin expanded 680 basis points (bps) to 37.7%. Also, higher merchandising margins, driven by lower markdowns stemming from inventory control, and lower transportation and product costs acted as tailwinds. The operating margin of 5.4% expanded 360 bps year over year. The adjusted operating margin for the Aerie and AE brands increased 12 bps to 15.1% and 3 bps to 16.8%, respectively.
Management expects the positive momentum to continue in the fiscal third quarter across brands and channels. For the second half, the company anticipates a positive response to its early fall goods.
For fiscal 2023, management raised its guidance, driven by the better-than-expected business performance in the second quarter, solid demand and the possibility of continued profit improvement in the second half of the year. Revenues are likely to be up in the low-single digits, comparing favorably with its prior view of flat-to-down low-single digits.
Going into fiscal 2023, operating income is estimated to be $325-$350 million, up from the earlier stated $250-$270 million. The estimation includes $25 million in gains from the company’s profit improvement initiatives. AEO also envisions gross margin expansion, driven by lower freight and product costs, as well as reduced markdowns. Product costs and freight are also predicted to act as tailwinds in the second half of 2023.
Image Source: Zacks Investment Research
Consequently, shares of this Zacks Rank #1 (Strong Buy) company have rallied 32.4% in the past three months compared with the industry’s growth of 2.7%.
Growth Initiatives Aiding AEO
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.
Driven by the trends and progress on its growth plan, American Eagle raised its 2023 financial targets. The company expects an operating income of $800 million for fiscal 2023. It anticipates revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion. The operating income is estimated at $800 million, with the operating margin expanding to 13.5% by 2023.
Previously, the operating income and the operating margin were anticipated to be $550 million and 10%, respectively. Earlier, the company expected revenues for the Aerie brand to reach $2.2 billion by 2023, seeing more than a 20% compound annual growth rate compared with fiscal 2019. The American Eagle brand also envisioned revenues to grow slightly from fiscal 2019, with $3.6 billion in revenues.
The company’s Aerie brand has been serving as a major growth catalyst for quite some time now. Sales rose 2% to $380 million for Aerie in second-quarter fiscal 2023 and outpaced our estimate of $359.3 million. Comps for Aerie brand remained flat with the second-quarter fiscal 2022 level. Sturdy demand in its core apparel, activewear extension, strength in the OFFLINE brand and renewed momentum in intimates aided the brand. Its newly launched SMOOTHEZ styles and extended body suit collection have been received well by customers.
The brand witnessed double-digit comps growth across categories, except for swimwear and intimates. The metric grew further following the introduction of the latest merchandise in July and, thus, accelerated into the fiscal third quarter. Strength in its core apparel collection, particularly in fleece, bottoms and tops, acted as major growth drivers.
The company’s activewear extension, OFFLINE by Aerie, performed well on the back of tops, sports bras, active shorts and fashion items. Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. It expects 25 store openings in 2023. 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.
Wrapping Up
Despite the ongoing challenging economic landscape, we believe that robust demand, brand strength, continued strength in the Aerie brand and other growth endeavors will help the stock get back on track.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for American Eagle’s fiscal 2023 sales and EPS is pegged at $7.5 billion and $5.87, suggesting respective growth of 1.5% and 26.8% from the year-ago reported figures. The Zacks Consensus Estimate for AEO’s fiscal 2023 earnings for the current financial year has inched up 17% in the past 30 days.
The PEG ratio for American Eagle is just 0.82, a level that is far lower than the industry average of 1.31. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, AEO is a solid choice on the value front from multiple angles. Topping it, a VGM Score of A speaks volumes.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. It has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in retail and wholesale of general consumer products, currently flaunts a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales implies an improvement of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Here's What Makes American Eagle (AEO) a Good Investment Now
American Eagle Outfitters (AEO - Free Report) is well-placed on cost-reduction efforts, strength in Aerie and a solid online show. Its Real Power Real Growth value creation plan bodes well.
Notably, the company posted impressive second-quarter fiscal 2023 results. Its earnings and sales beat the Zacks Consensus Estimate and increased year over year. Results gained from brand strength, solid demand, particularly in June and July, and products that resonated with customers, driven by exciting new marketing campaigns.
Adjusted earnings of 25 cents per share climbed significantly from the 4 cents reported in the second quarter of fiscal 2022. Total net revenues of $1,201 million inched up 0.3% year over year.
Moving on, profit improvement initiatives, and lower delivery, distribution and warehousing costs contributed to margins in second-quarter fiscal 2023. The gross margin expanded 680 basis points (bps) to 37.7%. Also, higher merchandising margins, driven by lower markdowns stemming from inventory control, and lower transportation and product costs acted as tailwinds. The operating margin of 5.4% expanded 360 bps year over year. The adjusted operating margin for the Aerie and AE brands increased 12 bps to 15.1% and 3 bps to 16.8%, respectively.
Management expects the positive momentum to continue in the fiscal third quarter across brands and channels. For the second half, the company anticipates a positive response to its early fall goods.
For fiscal 2023, management raised its guidance, driven by the better-than-expected business performance in the second quarter, solid demand and the possibility of continued profit improvement in the second half of the year. Revenues are likely to be up in the low-single digits, comparing favorably with its prior view of flat-to-down low-single digits.
Going into fiscal 2023, operating income is estimated to be $325-$350 million, up from the earlier stated $250-$270 million. The estimation includes $25 million in gains from the company’s profit improvement initiatives. AEO also envisions gross margin expansion, driven by lower freight and product costs, as well as reduced markdowns. Product costs and freight are also predicted to act as tailwinds in the second half of 2023.
Image Source: Zacks Investment Research
Consequently, shares of this Zacks Rank #1 (Strong Buy) company have rallied 32.4% in the past three months compared with the industry’s growth of 2.7%.
Growth Initiatives Aiding AEO
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.
Driven by the trends and progress on its growth plan, American Eagle raised its 2023 financial targets. The company expects an operating income of $800 million for fiscal 2023. It anticipates revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion. The operating income is estimated at $800 million, with the operating margin expanding to 13.5% by 2023.
Previously, the operating income and the operating margin were anticipated to be $550 million and 10%, respectively. Earlier, the company expected revenues for the Aerie brand to reach $2.2 billion by 2023, seeing more than a 20% compound annual growth rate compared with fiscal 2019. The American Eagle brand also envisioned revenues to grow slightly from fiscal 2019, with $3.6 billion in revenues.
The company’s Aerie brand has been serving as a major growth catalyst for quite some time now. Sales rose 2% to $380 million for Aerie in second-quarter fiscal 2023 and outpaced our estimate of $359.3 million. Comps for Aerie brand remained flat with the second-quarter fiscal 2022 level. Sturdy demand in its core apparel, activewear extension, strength in the OFFLINE brand and renewed momentum in intimates aided the brand. Its newly launched SMOOTHEZ styles and extended body suit collection have been received well by customers.
The brand witnessed double-digit comps growth across categories, except for swimwear and intimates. The metric grew further following the introduction of the latest merchandise in July and, thus, accelerated into the fiscal third quarter. Strength in its core apparel collection, particularly in fleece, bottoms and tops, acted as major growth drivers.
The company’s activewear extension, OFFLINE by Aerie, performed well on the back of tops, sports bras, active shorts and fashion items. Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL. It expects 25 store openings in 2023. 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.
Wrapping Up
Despite the ongoing challenging economic landscape, we believe that robust demand, brand strength, continued strength in the Aerie brand and other growth endeavors will help the stock get back on track.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for American Eagle’s fiscal 2023 sales and EPS is pegged at $7.5 billion and $5.87, suggesting respective growth of 1.5% and 26.8% from the year-ago reported figures. The Zacks Consensus Estimate for AEO’s fiscal 2023 earnings for the current financial year has inched up 17% in the past 30 days.
The PEG ratio for American Eagle is just 0.82, a level that is far lower than the industry average of 1.31. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, AEO is a solid choice on the value front from multiple angles. Topping it, a VGM Score of A speaks volumes.
Other Key Picks
Some other top-ranked stocks are BJ's Restaurants (BJRI - Free Report) , Urban Outfitters (URBN - Free Report) and Walmart (WMT - Free Report) .
BJ's Restaurants, which operates a chain of high-end casual dining restaurants in the United States, currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. It has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in retail and wholesale of general consumer products, currently flaunts a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales implies an improvement of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.