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Why Is American Eagle (AEO) Up 5.5% Since the Last Earnings Report?
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It has been about a month since the last earnings report for American Eagle Outfitters, Inc. (AEO - Free Report) . Shares have added about 5.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
American Eagle Posts Dismal Q1 Earnings, Issues Soft View
American Eagle posted lower-than-expected first-quarter fiscal 2017 earnings. Quarterly adjusted earnings of $0.16 per share tumbled 27.3% from $0.22 recorded in the prior-year quarter, alongside lagging the Zacks Consensus Estimate by a penny. On a GAAP basis, earnings slumped 36.4% year over year to $0.14 per share.
On the positive side, total revenue climbed about 2% year over year to $762 million, also surpassing the Zacks Consensus Estimate of $744 million.
Consolidated comparable-store sales (comps) increased 2%, compared with a 6% jump recorded last year. Brand-wise, comps surged 25% at the company's aerie stores, while it slipped 1% at American Eagle (AE) Total Brand outlets. Notably, this marked aerie brand’s 13th straight quarter of double-digit comps increase, out of which many quarters witnessed growth of over 20%.
Comps were backed by strong online sales at both brands, which in turn were driven by efficient use of omni-channel capabilities to enhance customer experience. Notably, e-commerce sales represented about 26% of the company’s total sales, reflecting an improvement from 19% last year. However, mall traffic remained sluggish in the first quarter.
Quarter in Detail
Gross profit in the quarter declined 5.1% to approximately $278 million, with the adjusted gross margin contracting 270 basis points (bps) to 36.5%. The downside was accountable to greater promotional activity and higher shipping expenditure on digital operations.
SG&A expenses dipped 1% to $195 million, while as a percentage of sales it improved 60 bps to 25.6%. This was backed by reduced compensation and certain other costs, partly countered by increased advertising costs.
Excluding restructuring charges, the company’s adjusted operating income came in at $42 million, decreasing 28.8% from $59 million recorded in the prior-year quarter. Adjusted operating margin shriveled 220 bps to 5.6%.
Financial Position
American Eagle ended the quarter with cash and cash equivalents of $225.2 million compared with $239 million in the prior-year quarter. Further, total shareholders’ equity as of Apr 29 was $1,117.9 million.
The company incurred $40 million as capital expenditures in the first quarter. For fiscal 2017, management continues anticipating capital expenditures to range from $160–$170 million, 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 incurred $110 million on dividends and share buybacks in the first quarter. While American Eagle paid dividends of $22 million, it repurchased 6 million shares for $88 million, leaving 19 million shares for buybacks under its existing authorization.
As of Apr 29, American Eagle’s merchandise inventory was roughly $364 million, up 9% from the comparable year-ago period. This included a 9% rise in average unit cost, with unit volumes remaining flat.
Store Update
During the fiscal first quarter, American Eagle inaugurated three AE Brand stores, two Aerie stores and one Todd Synder store. Further, the company closed two AE and Aerie brand stores, each. As of Apr 29, the company operated a total of 1,053 stores, alongside having 189 international licensed outlets.
In fiscal 2017, management intends to open 35 new outlets (including AE and Aerie stores) across U.S., Canada and Mexico. Further, the company plans to open 45 licensed stores, globally – while shutting two down.
However, given the rapid shift in consumers’ preferences toward online shopping, many retailers are switching to the store closure mode, as store traffic has been constantly declining. Following suit, American Eagle also announced plans to shutter down 25–40 stores in fiscal 2017.
Guidance
These factors and mounting industry competition are likely to hurt American Eagle’s results, as it will be compelled to offer major discounts and incur high shipping expenses on online sales. Thus, management issued a soft outlook for second-quarter fiscal 2017, wherein 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 increase in low-single digits.
Considering all factors, the company envisions second quarter earnings in the band of $0.15–$0.17, which is pegged considerably lower than the year-ago earnings of $0.23.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
American Eagle Outfitters, Inc. Price and Consensus
At this time, the stock has a nice Growth Score of 'B', 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 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
The consensus estimate shifted down over the last 30 days. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.
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Why Is American Eagle (AEO) Up 5.5% Since the Last Earnings Report?
It has been about a month since the last earnings report for American Eagle Outfitters, Inc. (AEO - Free Report) . Shares have added about 5.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
American Eagle Posts Dismal Q1 Earnings, Issues Soft View
American Eagle posted lower-than-expected first-quarter fiscal 2017 earnings. Quarterly adjusted earnings of $0.16 per share tumbled 27.3% from $0.22 recorded in the prior-year quarter, alongside lagging the Zacks Consensus Estimate by a penny. On a GAAP basis, earnings slumped 36.4% year over year to $0.14 per share.
On the positive side, total revenue climbed about 2% year over year to $762 million, also surpassing the Zacks Consensus Estimate of $744 million.
Consolidated comparable-store sales (comps) increased 2%, compared with a 6% jump recorded last year. Brand-wise, comps surged 25% at the company's aerie stores, while it slipped 1% at American Eagle (AE) Total Brand outlets. Notably, this marked aerie brand’s 13th straight quarter of double-digit comps increase, out of which many quarters witnessed growth of over 20%.
Comps were backed by strong online sales at both brands, which in turn were driven by efficient use of omni-channel capabilities to enhance customer experience. Notably, e-commerce sales represented about 26% of the company’s total sales, reflecting an improvement from 19% last year. However, mall traffic remained sluggish in the first quarter.
Quarter in Detail
Gross profit in the quarter declined 5.1% to approximately $278 million, with the adjusted gross margin contracting 270 basis points (bps) to 36.5%. The downside was accountable to greater promotional activity and higher shipping expenditure on digital operations.
SG&A expenses dipped 1% to $195 million, while as a percentage of sales it improved 60 bps to 25.6%. This was backed by reduced compensation and certain other costs, partly countered by increased advertising costs.
Excluding restructuring charges, the company’s adjusted operating income came in at $42 million, decreasing 28.8% from $59 million recorded in the prior-year quarter. Adjusted operating margin shriveled 220 bps to 5.6%.
Financial Position
American Eagle ended the quarter with cash and cash equivalents of $225.2 million compared with $239 million in the prior-year quarter. Further, total shareholders’ equity as of Apr 29 was $1,117.9 million.
The company incurred $40 million as capital expenditures in the first quarter. For fiscal 2017, management continues anticipating capital expenditures to range from $160–$170 million, 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 incurred $110 million on dividends and share buybacks in the first quarter. While American Eagle paid dividends of $22 million, it repurchased 6 million shares for $88 million, leaving 19 million shares for buybacks under its existing authorization.
As of Apr 29, American Eagle’s merchandise inventory was roughly $364 million, up 9% from the comparable year-ago period. This included a 9% rise in average unit cost, with unit volumes remaining flat.
Store Update
During the fiscal first quarter, American Eagle inaugurated three AE Brand stores, two Aerie stores and one Todd Synder store. Further, the company closed two AE and Aerie brand stores, each. As of Apr 29, the company operated a total of 1,053 stores, alongside having 189 international licensed outlets.
In fiscal 2017, management intends to open 35 new outlets (including AE and Aerie stores) across U.S., Canada and Mexico. Further, the company plans to open 45 licensed stores, globally – while shutting two down.
However, given the rapid shift in consumers’ preferences toward online shopping, many retailers are switching to the store closure mode, as store traffic has been constantly declining. Following suit, American Eagle also announced plans to shutter down 25–40 stores in fiscal 2017.
Guidance
These factors and mounting industry competition are likely to hurt American Eagle’s results, as it will be compelled to offer major discounts and incur high shipping expenses on online sales. Thus, management issued a soft outlook for second-quarter fiscal 2017, wherein 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 increase in low-single digits.
Considering all factors, the company envisions second quarter earnings in the band of $0.15–$0.17, which is pegged considerably lower than the year-ago earnings of $0.23.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
American Eagle Outfitters, Inc. Price and Consensus
American Eagle Outfitters, Inc. Price and Consensus | American Eagle Outfitters, Inc. Quote
VGM Scores
At this time, the stock has a nice Growth Score of 'B', 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 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
The consensus estimate shifted down over the last 30 days. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.