Once an investors’ favorite, American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) has been in the red zone of late. Stiff competition, macroeconomic challenges and adverse currency fluctuations are the headwinds, which have been plaguing this apparel and footwear retailer. Also, management‘s soft first-quarter fiscal 2017 outlook adds to the stock’s dismal performance.

This Zacks Rank #4 (Sell) company’s shares plunged 19.4% in the past six months, thus underperforming both the Zacks categorized Retail – Apparel/Shoe industry and the broader sector. While the industry fell 13.8%, the Zacks categorized Retail-Wholesale sector gained 3.4%. In fact, its shares also fell 12.9% since it reported fourth-quarter fiscal 2016 results.

Let’s Delve Deep

The estimates have witnessed negative revisions over the past 60 days. The Zacks Consensus Estimate of $1.25 and $1.31 for fiscal 2017 and 2018 declined 10 cents and 8 cents, respectively. Moreover, the Zacks Consensus Estimate for the fiscal first quarter has dropped 5 cents to 17 cents over the said time period.

Though American Eagle reverted to positive earnings surprise trend in fourth-quarter fiscal 2016, the company posted soft revenues on account of a tough holiday season. In fact, the holiday season remained highly promotional along with sluggish consumer traffic, which weighed upon the top line.

Further, consistent with the trends witnessed so far this quarter, management issued a soft outlook for the fiscal first quarter. The company anticipates comparable-store sales (comps) to range from flat to low single-digits decrease. In addition, it expects weak merchandise margins, owing to intense promotional activities. Moving ahead, American Eagle envisions first-quarter earnings in the band of 15–17 cents per share. The current Zacks Consensus Estimate for the quarter is 17 cents, down over 22% from the year-ago period.

Is Revival Efforts Enough to Lift the Stock?

Though investors’ sentiments are being hurt by its recent performance, management at American Eagle is striving hard to make a turnaround. Additionally, the company is making efforts like efficient utilization of omni-channel capabilities, enhancement of brands via innovations and commitment toward enriching consumer experience. Evidently, it recorded solid online sales, which boosted comps in the fourth quarter.

Key Picks

Meanwhile, investors can consider better-ranked stocks in the same industry like The Children's Place, Inc. (PLCE Quick QuotePLCE - Free Report) , Foot Locker, Inc. (FL Quick QuoteFL - Free Report) and Kate Spade & Company .

The Children's Place, with a long-term earnings growth rate of 8% has surged 55.4% in the past six months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, which carries a Zacks Rank #2 (Buy) has jumped 18.4 in the past one year. Also, the stock has a long-term earnings growth rate of 9.7%.

Kate Spade, a Zacks Rank #2 stock rose 27.6% in the past six months. Also, it has a long-term earnings growth rate of 28.3%.

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