American Eagle Outfitters (AEO Quick QuoteAEO - Free Report) and Nordstrom (JWN Quick QuoteJWN - Free Report) continue to strive for dominance in the Retail – Apparel and Shoes sector. Each company is navigating a rapidly evolving retail environment shaped by shifting consumer preferences, digital transformation, and economic headwinds, with distinct strategies and customer bases.

Nordstrom operates as an upscale fashion retailer with a dual-channel model, combining its full-line department stores with its off-price banner, Nordstrom Rack. The company also maintains a strong digital presence, aiming to deliver a high-touch, curated shopping experience to a more affluent demographic.

American Eagle, in contrast, targets a younger, value-conscious audience through its two key brands: American Eagle, known for casual wear and denim, and Aerie, which has become a growth engine with its focus on intimates, loungewear, and inclusive messaging. AEO has carved out a strong identity among Gen Z and younger millennials, tapping into trends around comfort, self-expression and digital engagement.

As consumer preferences evolve and digital transformation reshapes the retail landscape, both brands face unique challenges and opportunities. This face-off explores their strategies, financial performance, and market positioning to determine which brand is better poised for long-term success. The core question for investors: Which of the two offers a better long-term value proposition? 

Let’s take a closer look.

The Case for JWN

Nordstrom shows steady progress in its plans to grow and improve its business. The company is focusing on three main goals: growing the Nordstrom brand, improving how it runs its operations, and strengthening its off-price business, Nordstrom Rack. It is working on better managing inventory and delivering products faster to create a smoother shopping experience. Nordstrom Rack has seen improvements thanks to smart changes that help get more popular brands into stores. The company is confident in its strong brand and is committed to growing in a way that benefits its customers and shareholders.

Nordstrom is also investing in its online business to keep up with how people like to shop today. In the fourth quarter of fiscal 2024, online sales contributed a large part of its total sales. The company is using new technologies to improve how it manages inventory and to make shopping easier and more personal for its customers. By improving its website and using tools like artificial intelligence, Nordstrom stays competitive in a digital world, keeping shoppers more engaged.

Another area where Nordstrom has made strong progress is in its supply chain. The company has worked on getting products to customers faster and making returns easier. These efforts have made a big difference, for example, the time it takes to process a return has improved by 40%. This means that items get back on shelves quicker, increasing the chance they can be sold at full price. This is good for customers and helps Nordstrom run its business more efficiently.

The Case for AEO

American Eagle is actively advancing its long-term growth strategy through targeted investments in digital innovation, supply chain automation, and customer experience enhancements. The company is executing its Powering Profitable Growth Plan well, which focuses on strengthening brand relevance, improving operational efficiency, and maintaining financial discipline. AEO is seeing meaningful progress across its core brands, American Eagle and Aerie, driven by omnichannel expansion, real estate optimization, and inventory management.

The company delivered robust operating income growth in the fourth quarter of fiscal 2024, supported by effective cost controls and an improvement in operating margins. The company reduced selling, general, and administrative (SG&A) expenses through lower compensation and incentive costs while strategically reinvesting in brand marketing. This balance between cost discipline and growth-focused spending enabled stronger financial performance and positioned the company for sustainable earnings expansion in the coming years.

The Aerie brand remains a key growth engine for AEO, driven by innovation, new category development, and expanding customer reach. The brand’s focus on building awareness, enhancing core collections, and expanding successful franchises like Real Me and SMOOTHEZ is fueling consumer engagement and reinforcing its leadership in the body-positive, youth-focused market segment.

The American Eagle brand also contributed to strength in the fiscal fourth quarter, particularly through its continued dominance in denim. The brand maintained its number-one ranking among core customers and posted its sixth consecutive quarter of comparable sales growth. Performance in the women’s category was especially strong, supported by new dressing occasions and refreshed assortments, while the men’s category showed sequential improvement. 

However, AEO faces a series of near-term headwinds that raise caution around its fiscal 2025 outlook. Factors, including retail calendar shifts and increased markdowns, also remain concerns. For the first quarter of fiscal 2025, American Eagle expects revenues to decline in the mid-single digits. It projects gross margin to drop year over year for the fiscal first quarter. SG&A dollars are likely to remain flat, while operating income is projected to be $20-$25 million. This reflects nearly $10 million in adverse impacts due to the strengthening of the U.S. dollar.

For fiscal 2025, AEO expects revenues to dip in low-single digits and the gross margin to decline year over year. Operating income is projected to be $360-$375 million. This includes a roughly $20 million adverse impact of the strengthening of the U.S. dollar and about a $5-$10 million negative impact from U.S. tariffs on China, net of the mitigation strategies. Management expects a mid-single-digit revenue decrease in the first half of fiscal 2025, with declining profits.

How Do Zacks Consensus Estimates Compare for JWN & AEO?

The Zacks Consensus Estimate for Nordstrom’s fiscal 2025 sales and EPS implies year-over-year growth of 2.2% and 1.8%, respectively. The EPS estimates have remained stable in the past 30 days.

The Zacks Consensus Estimate for American Eagle’s fiscal 2025 sales and EPS suggests a year-over-year decline of 2% and 31.6%, respectively. EPS estimates have moved down by 20.1% in the past seven days.

Price Performance & Valuation of JWN & AEO

Nordstrom currently trades at a forward 12-month P/E ratio of 10.89X, which is below the Zacks Retail - Discount Stores industry average of 17.97X, suggesting a reasonable valuation given its strong fundamentals. In contrast, AEO trades at a lower multiple of 9.68, making it the more value-oriented pick of the two. 

Image Source: Zacks Investment Research

However, when it comes to stock performance, JWN has outshone, delivering a 16.5% gain over the past year, significantly ahead of AEO’s 47.9% decline and slightly behind the industry’s 17.5% growth. While AEO offers a lower valuation, Nordstrom’s stronger stock performance and solid growth trajectory give it the edge.

Image Source: Zacks Investment Research

Conclusion

While both companies are well-positioned to capitalize on shifting consumer trends, Nordstrom emerges as the smarter long-term investment, primarily due to its consistent strategic execution and strong brand equity. The company is expanding at a faster pace, driven by premium product offerings, and expanding its digital capabilities. This has enabled it to stay competitive in a digital world and keep shoppers more engaged.

Meanwhile, AEO continues to strengthen its position in the youth-oriented retail market through its core brands, American Eagle and Aerie. The company is executing well with its Powering Profitable Growth Plan, focusing on digital innovation, operational efficiency, and customer engagement. However, the company faces headwinds, including soft fiscal 2025 guidance, declining revenue and earnings expectations, and execution risks tied to its turnaround strategy. AEO’s story displays growth potential, but with more volatility and uncertainty.

Therefore, for investors seeking stability, consistent brand-driven growth, and long-term value creation, Nordstrom stands out as the stronger, more reliable choice. JWN currently carries a Zacks Rank #2 (Buy), whereas AEO has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.