We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
American Eagle (AEO) Tops on Q3 Earnings & Sales, Ups '23 View
Read MoreHide Full Article
American Eagle Outfitters, Inc. (AEO - Free Report) reported top and bottom-line beat in third-quarter fiscal 2023, driven by brand strength and solid demand. Earnings and sales also increased year over year.
The company’s third-quarter fiscal 2023 earnings of 49 cents per share rose 17% year over year and surpassed the Zacks Consensus Estimate of 48 cents.
Total net revenues of $1,301.1 million improved 5% year over year, beating the Zacks Consensus Estimate of $1,275 million. Revenue growth was driven by rising brand momentum and tremendous fall season merchandise collection. Store revenues grew 3% in the quarter, while digital revenues rose 10%.
Despite the strong results, shares of American Eagle slumped 15.8% on Nov 21. Shares of the Zacks Rank #2 (Buy) company have gained 5.1% in the past three months compared with the industry’s growth of 8.4%.
Image Source: Zacks Investment Research
Quarterly Details
Brand-wise, revenues increased 2% to $857 million for American Eagle and beat our estimate of $807.7 million. Comps for the American Eagle brand rose 2% year over year. American Eagle brand sales benefited from improvements in its assortments. The AE brand is poised to benefit from new trends in casual wear, the expansion of dominance in denim, and making investments to better penetrate categories and occasions.
Revenues advanced 12% to $393 million for the Aerie brand in the fiscal third quarter and outpaced our estimate of $388.8 million. Comps for the Aerie brand also improved 12%. Sturdy demand in its core apparel, activewear extension, strength in the OFFLINE brand and renewed momentum in intimates aided the brand.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
Gross profit increased 13% year over year to $544 million in the fiscal third quarter. The gross margin expanded 310 basis points (bps) to 41.8%. Gross margin growth in the quarter can be attributed to strong demand, reduced product and freight costs, and gains from profit improvement initiatives, which led to lower markdowns and leverage on rent, distribution, and warehousing and delivery expenses. Inventory discipline mainly resulted in lower markdowns as the company maintained healthy promotions.
Gross profit for the quarter surpassed our estimate of $532.4 million, which suggested year-over-year growth of 11%. We estimated the gross margin to expand 380 bps year over year to 42.5%, backed by a decline in the cost of sales due to lower freight expenses.
SG&A expenses rose 16% year over year to $362 million and beat our estimate of $361.4 million. As a percentage of sales, SG&A expenses increased 270 bps to 27.8%. Elevated SG&A expenses mainly resulted from higher incentive compensation compared with zero accruals last year. Additionally, higher store payroll due to increased wages led to SG&A deleverage. Our model had predicted a SG&A rate of 28.8% for the fiscal third quarter, reflecting an increase of 370 bps.
Operating income was $125.4 million in the quarter, up 6.7% from $117.5 million in the year-ago period. The operating margin of 9.6% expanded 10 bps year over year. Growth in the operating margin was aided by strong sales growth and an improved gross margin rate, offset by SG&A deleverage. Operating income surpassed our estimate of $115.7 million. Our model predicted operating margin decline of 30 bps to 9.2%.
For Aerie, operating income of $75.9 million increased 34.3% from the year-ago quarter’s $56.5 million and surpassed our estimate of $63.5 million. The AE brand’s operating income increased 5.7% year over year to $184 million in the quarter under review. AE’s operating income surpassed our estimate of $179.9 million.
Other Financial Details
American Eagle ended the fiscal third quarter with cash and cash equivalents of $240.9 million, and liquidity of $900 million, with no outstanding debt. Total shareholders’ equity as of Oct 28, 2023, was $1,738.3 million.
Capital expenditure was $43 million in the reported quarter. It expects a capital expenditure of $150-$175 million for fiscal 2023.
Inventory declined 4% year over year to $769 million, driven by continued inventory discipline. Inventory units were down 3%.
Guidance
The company noted that the strong business momentum continued in the fourth quarter of fiscal 2023 on robust holiday assortments, engaging marketing campaigns and solid execution. This, along with the strong year-to-date results, led management to raise its view for fiscal 2023.
For fiscal 2023, revenues are likely to be up year over year in the mid-single digits compared with the prior mentioned low-single-digit growth. Operating income is estimated to be $340-$350 million, narrowing toward the upper-end of the earlier stated $325-$350 million.
AEO expects SG&A to rise in the low-double digits for fiscal 2023 as improved business trends are likely to result in elevated incentives. In fiscal 2023, the company’s plan for consolidated store count is nearly flat with last year, suggesting 25 Aerie store openings, offset by 25 net closures for the AE brand.
For the fiscal fourth quarter, American Eagle expects year-over-year revenue growth in the high-single digits. The revenue guidance includes a gain of 4 points from the additional 53rd week. Comp sales are expected to increase in the mid-single digits. Operating income is projected to be $105-$115 million.
Management expects SG&A expenses to increase 20% year over year in the fiscal fourth quarter, including a 5-point impact from the 53rd week. Additionally, the company envisions elevated incentive accruals for the second half of fiscal 2023, which is likely to result in SG&A deleverage. Depreciation in the fiscal fourth quarter is anticipated to be similar to the third quarter.
Additionally, the company provided an initial outlook for fiscal 2024. It expects the fiscal 2024 performance to benefit from actions to improve internal culture and reduce expenses. Consequently, the company anticipates delivering a continued gross margin expansion, leverage on SG&A and depreciation, operating rate expansion and healthy earnings growth in fiscal 2024. Driven by the structuring of its business, it estimates delivering revenue growth in the low-single digits in fiscal 2024.
Other Key Picks
Here are some other top-ranked stocks that investors can consider, namely The Gap Inc. (GPS - Free Report) , Abercrombie & Fitch (ANF - Free Report) and Deckers Outdoor (DECK - Free Report) .
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. GPS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Gap’s current financial-year earnings suggests growth of 332.5% from the year-ago reported figure. GPS has a trailing four-quarter earnings surprise of 137.9%, on average.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently carries a Zacks Rank of 2. ANF has a trailing four-quarter earnings surprise of 724.8%, on average.
The Zacks Consensus Estimate for Abercrombie’s current financial year’s sales suggests an increase of 10.4% from the year-ago reported figure. The consensus estimate for earnings per share of $4.56 indicates significant growth from the 25 cents reported in the prior fiscal year.
Deckers Outdoor, a leading designer, producer and brand manager of innovative, niche footwear and accessories, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 11.4% and 20.9% from the year-ago period’s actuals, respectively. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
American Eagle (AEO) Tops on Q3 Earnings & Sales, Ups '23 View
American Eagle Outfitters, Inc. (AEO - Free Report) reported top and bottom-line beat in third-quarter fiscal 2023, driven by brand strength and solid demand. Earnings and sales also increased year over year.
The company’s third-quarter fiscal 2023 earnings of 49 cents per share rose 17% year over year and surpassed the Zacks Consensus Estimate of 48 cents.
Total net revenues of $1,301.1 million improved 5% year over year, beating the Zacks Consensus Estimate of $1,275 million. Revenue growth was driven by rising brand momentum and tremendous fall season merchandise collection. Store revenues grew 3% in the quarter, while digital revenues rose 10%.
Despite the strong results, shares of American Eagle slumped 15.8% on Nov 21. Shares of the Zacks Rank #2 (Buy) company have gained 5.1% in the past three months compared with the industry’s growth of 8.4%.
Image Source: Zacks Investment Research
Quarterly Details
Brand-wise, revenues increased 2% to $857 million for American Eagle and beat our estimate of $807.7 million. Comps for the American Eagle brand rose 2% year over year. American Eagle brand sales benefited from improvements in its assortments. The AE brand is poised to benefit from new trends in casual wear, the expansion of dominance in denim, and making investments to better penetrate categories and occasions.
Revenues advanced 12% to $393 million for the Aerie brand in the fiscal third quarter and outpaced our estimate of $388.8 million. Comps for the Aerie brand also improved 12%. Sturdy demand in its core apparel, activewear extension, strength in the OFFLINE brand and renewed momentum in intimates aided the brand.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote
Gross profit increased 13% year over year to $544 million in the fiscal third quarter. The gross margin expanded 310 basis points (bps) to 41.8%. Gross margin growth in the quarter can be attributed to strong demand, reduced product and freight costs, and gains from profit improvement initiatives, which led to lower markdowns and leverage on rent, distribution, and warehousing and delivery expenses. Inventory discipline mainly resulted in lower markdowns as the company maintained healthy promotions.
Gross profit for the quarter surpassed our estimate of $532.4 million, which suggested year-over-year growth of 11%. We estimated the gross margin to expand 380 bps year over year to 42.5%, backed by a decline in the cost of sales due to lower freight expenses.
SG&A expenses rose 16% year over year to $362 million and beat our estimate of $361.4 million. As a percentage of sales, SG&A expenses increased 270 bps to 27.8%. Elevated SG&A expenses mainly resulted from higher incentive compensation compared with zero accruals last year. Additionally, higher store payroll due to increased wages led to SG&A deleverage. Our model had predicted a SG&A rate of 28.8% for the fiscal third quarter, reflecting an increase of 370 bps.
Operating income was $125.4 million in the quarter, up 6.7% from $117.5 million in the year-ago period. The operating margin of 9.6% expanded 10 bps year over year. Growth in the operating margin was aided by strong sales growth and an improved gross margin rate, offset by SG&A deleverage. Operating income surpassed our estimate of $115.7 million. Our model predicted operating margin decline of 30 bps to 9.2%.
For Aerie, operating income of $75.9 million increased 34.3% from the year-ago quarter’s $56.5 million and surpassed our estimate of $63.5 million. The AE brand’s operating income increased 5.7% year over year to $184 million in the quarter under review. AE’s operating income surpassed our estimate of $179.9 million.
Other Financial Details
American Eagle ended the fiscal third quarter with cash and cash equivalents of $240.9 million, and liquidity of $900 million, with no outstanding debt. Total shareholders’ equity as of Oct 28, 2023, was $1,738.3 million.
Capital expenditure was $43 million in the reported quarter. It expects a capital expenditure of $150-$175 million for fiscal 2023.
Inventory declined 4% year over year to $769 million, driven by continued inventory discipline. Inventory units were down 3%.
Guidance
The company noted that the strong business momentum continued in the fourth quarter of fiscal 2023 on robust holiday assortments, engaging marketing campaigns and solid execution. This, along with the strong year-to-date results, led management to raise its view for fiscal 2023.
For fiscal 2023, revenues are likely to be up year over year in the mid-single digits compared with the prior mentioned low-single-digit growth. Operating income is estimated to be $340-$350 million, narrowing toward the upper-end of the earlier stated $325-$350 million.
AEO expects SG&A to rise in the low-double digits for fiscal 2023 as improved business trends are likely to result in elevated incentives. In fiscal 2023, the company’s plan for consolidated store count is nearly flat with last year, suggesting 25 Aerie store openings, offset by 25 net closures for the AE brand.
For the fiscal fourth quarter, American Eagle expects year-over-year revenue growth in the high-single digits. The revenue guidance includes a gain of 4 points from the additional 53rd week. Comp sales are expected to increase in the mid-single digits. Operating income is projected to be $105-$115 million.
Management expects SG&A expenses to increase 20% year over year in the fiscal fourth quarter, including a 5-point impact from the 53rd week. Additionally, the company envisions elevated incentive accruals for the second half of fiscal 2023, which is likely to result in SG&A deleverage. Depreciation in the fiscal fourth quarter is anticipated to be similar to the third quarter.
Additionally, the company provided an initial outlook for fiscal 2024. It expects the fiscal 2024 performance to benefit from actions to improve internal culture and reduce expenses. Consequently, the company anticipates delivering a continued gross margin expansion, leverage on SG&A and depreciation, operating rate expansion and healthy earnings growth in fiscal 2024. Driven by the structuring of its business, it estimates delivering revenue growth in the low-single digits in fiscal 2024.
Other Key Picks
Here are some other top-ranked stocks that investors can consider, namely The Gap Inc. (GPS - Free Report) , Abercrombie & Fitch (ANF - Free Report) and Deckers Outdoor (DECK - Free Report) .
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. GPS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Gap’s current financial-year earnings suggests growth of 332.5% from the year-ago reported figure. GPS has a trailing four-quarter earnings surprise of 137.9%, on average.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently carries a Zacks Rank of 2. ANF has a trailing four-quarter earnings surprise of 724.8%, on average.
The Zacks Consensus Estimate for Abercrombie’s current financial year’s sales suggests an increase of 10.4% from the year-ago reported figure. The consensus estimate for earnings per share of $4.56 indicates significant growth from the 25 cents reported in the prior fiscal year.
Deckers Outdoor, a leading designer, producer and brand manager of innovative, niche footwear and accessories, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 11.4% and 20.9% from the year-ago period’s actuals, respectively. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.