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American Eagle (AEO) Down 4.9% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for American Eagle Outfitters, Inc. (AEO - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.
American Eagle Tops Q4 Earnings, Issues Dull View
American Eagle came out with fourth-quarter fiscal 2016 results, wherein quarterly adjusted earnings of $0.39 per share increased 11.4% from $0.35 recorded in the prior-year quarter, alongside beating the Zacks Consensus Estimate by a penny. Further, earnings matched the higher end of the company’s guidance range of $0.37–$0.39 per share, alongside marking its 10th straight quarter improvement in profits. On a GAAP basis, earnings fell 28.6% year over year to $0.30 per share.
Total revenue dipped nearly 1% year over year to $1,097.2 million, which also fell short of the Zacks Consensus Estimate of $1,106 million.
Consolidated comparable-store sales (comps) increased marginally by 0.4%, compared with a 4% jump recorded last year. Brand-wise, comps jumped 17% at the company's aerie stores, while it slipped 1% at American Eagle (AE) Total Brand outlets. Prior to this, the aerie brand posted comps growth of over 20% for six successive quarters.
As revealed earlier, fourth quarter comps (which mainly comprised holiday numbers), were backed by strong online sales at both brands, which in turn was driven by efficient use of omni-channel capabilities to enhance customer experience. However, mall traffic remained sluggish, and the holiday season was marked by intense promotional activities.
Quarter in Detail
Adjusted gross profit in the quarter inched up 0.3% to approximately $389 million, with the adjusted gross margin expanding 30 basis points (bps) to 35.4%. The upside was driven by better merchandise margins, backed by improvement in IMU, somewhat offset by greater delivery expenses.
Selling, general and administrative (SG&A) expenses, on an adjusted basis, remained flat year over year at $220 million as benefits from lower incentive compensation were nullified by increased advertising costs. As a percentage of sales, adjusted SG&A expenses escalated 20 bps to 22.1%.
The company’s adjusted operating income came in at $107 million, climbing about 1% from $106 million recorded in the prior-year quarter. Adjusted operating margin expanded 20 bps to 9.8%.
Financial Position
American Eagle ended fiscal 2016 with cash and cash equivalents of $378.6 million compared with $260.1 million in the prior-year quarter. The increase in cash balance was supported by robust free cash flow in fiscal 2016. Further, total shareholders’ equity as of Jan 28 was pegged at $1.2 billion.
The company incurred $161 million as capital expenditures in fiscal 2016. For fiscal 2017, management anticipates capital expenditures to range from $160–$170 million, out of which roughly 50% will be spent on store openings and refurbishment. The balance will be invested in omni-channel and digital projects. Additionally, the company paid $91 million as dividends in the fiscal.
As of Jan 28, American Eagle’s merchandise inventory was roughly $358 million, up 17% from the comparable year-ago period. This included a 13% rise in average unit cost, along with 4% unit volume growth.
Store Update
During the fiscal fourth quarter, American Eagle inaugurated two AE Brand stores, six Aerie stores, one Tailgate outlet (which was acquired at 2015 end) and one Todd Synder store. Further, the company closed 11 AE stores and one Aerie brand store. Alongside, the company opened 15 international licensed stores, while shutting two down. As of Jan 28, the company operated 943 AE stores (including 88 Aerie side-by-side locations), 102 stand-alone Aerie stores and 176 international licensed outlets.
Fiscal 2016 Synopsis
American Eagle’s adjusted earnings for fiscal 2016 grew 23.8% to $1.25 per share, which also exceeded the Zacks Consensus Estimate by a penny. Further, net revenues advanced 2.5% to $3,609.9 million. However, the top line missed our estimate of $3,619 million.
Despite a challenging and competitive retail landscape, American Eagle managed to deliver a decent fiscal 2016 performance, thanks to its continued focus on product innovation and enrichment of customer experience. Notably, the company maintained its solid position in the jeans and bottoms space, alongside witnessing superb growth in the women’s apparel category. Further, the company’s Aerie brand delivered double-digit sales increase throughout the fiscal, on the back of premium merchandise, increased awareness and enhanced customer strength.
Given the aforementioned strength and plenty of market opportunities, management expects to return solid returns to shareholders in the long-term.
Guidance
However, consistent with the trends witnessed so far this quarter, management issued a soft outlook for first-quarter fiscal 2017. The company anticipates comps to range from flat to low single-digits decrease. Further, the company expects weak merchandise margins, owing to intense promotional activities. SG&A expenses are forecasted to be in line with the year-ago period.
Considering all factors, the company envisions first quarter earnings in the band of $0.15–$0.17, which compares unfavorably with $0.22 recorded in first-quarter fiscal 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for in the past seven days.
American Eagle Outfitters, Inc. Price and Consensus
At this time, American Eagle's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum 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.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.
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American Eagle (AEO) Down 4.9% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for American Eagle Outfitters, Inc. (AEO - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.
American Eagle Tops Q4 Earnings, Issues Dull View
American Eagle came out with fourth-quarter fiscal 2016 results, wherein quarterly adjusted earnings of $0.39 per share increased 11.4% from $0.35 recorded in the prior-year quarter, alongside beating the Zacks Consensus Estimate by a penny. Further, earnings matched the higher end of the company’s guidance range of $0.37–$0.39 per share, alongside marking its 10th straight quarter improvement in profits. On a GAAP basis, earnings fell 28.6% year over year to $0.30 per share.
Total revenue dipped nearly 1% year over year to $1,097.2 million, which also fell short of the Zacks Consensus Estimate of $1,106 million.
Consolidated comparable-store sales (comps) increased marginally by 0.4%, compared with a 4% jump recorded last year. Brand-wise, comps jumped 17% at the company's aerie stores, while it slipped 1% at American Eagle (AE) Total Brand outlets. Prior to this, the aerie brand posted comps growth of over 20% for six successive quarters.
As revealed earlier, fourth quarter comps (which mainly comprised holiday numbers), were backed by strong online sales at both brands, which in turn was driven by efficient use of omni-channel capabilities to enhance customer experience. However, mall traffic remained sluggish, and the holiday season was marked by intense promotional activities.
Quarter in Detail
Adjusted gross profit in the quarter inched up 0.3% to approximately $389 million, with the adjusted gross margin expanding 30 basis points (bps) to 35.4%. The upside was driven by better merchandise margins, backed by improvement in IMU, somewhat offset by greater delivery expenses.
Selling, general and administrative (SG&A) expenses, on an adjusted basis, remained flat year over year at $220 million as benefits from lower incentive compensation were nullified by increased advertising costs. As a percentage of sales, adjusted SG&A expenses escalated 20 bps to 22.1%.
The company’s adjusted operating income came in at $107 million, climbing about 1% from $106 million recorded in the prior-year quarter. Adjusted operating margin expanded 20 bps to 9.8%.
Financial Position
American Eagle ended fiscal 2016 with cash and cash equivalents of $378.6 million compared with $260.1 million in the prior-year quarter. The increase in cash balance was supported by robust free cash flow in fiscal 2016. Further, total shareholders’ equity as of Jan 28 was pegged at $1.2 billion.
The company incurred $161 million as capital expenditures in fiscal 2016. For fiscal 2017, management anticipates capital expenditures to range from $160–$170 million, out of which roughly 50% will be spent on store openings and refurbishment. The balance will be invested in omni-channel and digital projects. Additionally, the company paid $91 million as dividends in the fiscal.
As of Jan 28, American Eagle’s merchandise inventory was roughly $358 million, up 17% from the comparable year-ago period. This included a 13% rise in average unit cost, along with 4% unit volume growth.
Store Update
During the fiscal fourth quarter, American Eagle inaugurated two AE Brand stores, six Aerie stores, one Tailgate outlet (which was acquired at 2015 end) and one Todd Synder store. Further, the company closed 11 AE stores and one Aerie brand store. Alongside, the company opened 15 international licensed stores, while shutting two down. As of Jan 28, the company operated 943 AE stores (including 88 Aerie side-by-side locations), 102 stand-alone Aerie stores and 176 international licensed outlets.
Fiscal 2016 Synopsis
American Eagle’s adjusted earnings for fiscal 2016 grew 23.8% to $1.25 per share, which also exceeded the Zacks Consensus Estimate by a penny. Further, net revenues advanced 2.5% to $3,609.9 million. However, the top line missed our estimate of $3,619 million.
Despite a challenging and competitive retail landscape, American Eagle managed to deliver a decent fiscal 2016 performance, thanks to its continued focus on product innovation and enrichment of customer experience. Notably, the company maintained its solid position in the jeans and bottoms space, alongside witnessing superb growth in the women’s apparel category. Further, the company’s Aerie brand delivered double-digit sales increase throughout the fiscal, on the back of premium merchandise, increased awareness and enhanced customer strength.
Given the aforementioned strength and plenty of market opportunities, management expects to return solid returns to shareholders in the long-term.
Guidance
However, consistent with the trends witnessed so far this quarter, management issued a soft outlook for first-quarter fiscal 2017. The company anticipates comps to range from flat to low single-digits decrease. Further, the company expects weak merchandise margins, owing to intense promotional activities. SG&A expenses are forecasted to be in line with the year-ago period.
Considering all factors, the company envisions first quarter earnings in the band of $0.15–$0.17, which compares unfavorably with $0.22 recorded in first-quarter fiscal 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for in the past seven days.
American Eagle Outfitters, Inc. Price and Consensus
American Eagle Outfitters, Inc. Price and Consensus | American Eagle Outfitters, Inc. Quote
VGM Scores
At this time, American Eagle's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum 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.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.