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What's in the Cards for American Eagle (AEO) in Q1 Earnings?

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American Eagle Outfitters Inc. (AEO - Free Report) is slated to report first-quarter fiscal 2018 results on May 31, before the closing bell. Notably, the company has a mixed record of surprises in the trailing four quarters, with an average earnings beat of 1.9%.

For the to-be-reported quarter, the Zacks Consensus Estimate remained stable at 22 cents in the last 30 days, reflecting a year-over-year improvement of 37.5%. The company envisions earnings per share of 20-22 cents for the fiscal first quarter.


Let’s see how things are shaping up prior to the earnings announcement.

Factors Likely to Impact 1Q18

American Eagle has been grappling with soft margins for a while now. The decline in margins can be attributed to higher promotions along with increased shipping costs and compensation. Further, the company’s attempt to expand globally exposes it to adverse currency movements and other international risks.

Although American Eagle's expansion plans and omni-channel growth are likely to strengthen its business, high dependence on external suppliers and macroeconomic headwinds might weigh on results. Evidently, the company delivered negative surprises in two of the last four quarters, with in-line earnings in the previous quarter.

However, the stock has outperformed the industry in the past month, owing to the company’s impressive comps trend. Also, it has been gaining from strong online sales at both brands due to efficient use of omni-channel capabilities for enhancing customer experience.

In the last three months, shares of the company have rallied 13.4% against the industry’s decline of 5.4%.


What the Zacks Model Unveils

Our proven model does not conclusively show that American Eagle is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Eagle has an Earnings ESP of -0.21% and a Zacks Rank #4 (Sell), making surprise prediction impossible. We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

PVH Corp. (PVH - Free Report) has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corp. (DG - Free Report) has an Earnings ESP of +1.97% and a Zacks Rank #2.

Ulta Beauty Inc. (ULTA - Free Report) has an Earnings ESP of +0.46% and a Zacks Rank #2.

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