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Here's Why You Should Hold on to American Eagle (AEO) Stock

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American Eagle (AEO - Free Report) stock continues its bull run, courtesy of its robust surprise trend alongside solid comparable store sales (comps) growth. Further, the company’s progress on omni-channel initiatives — with strength in its Aerie brand, and strong financial backing have been aiding its performance.

Notably, the stock gained a solid 64.9% in a year, outperforming the industry’s growth of 22.7%.



Apart from these, this Zacks Rank #3 (Hold) company’s impressive long-term earnings growth rate of 8% and a VGM Score of A are witnesses to the stock’s strong fundamentals. Let’s delve deeper and see other factors that are aiding American Eagle.

Comps Growth Reveals Potential

American Eagle has been witnessing solid comps growth over the past several quarters, which continued in second-quarter fiscal 2018. The company reported positive comps for the 14th straight time in the fiscal second quarter.

Solid comps performance is backed by progress on its strategic initiatives, and ability to boost market share through strong brands and compelling merchandise. Further, both digital and in-store businesses are contributing to comps growth.

Strength in Aerie – A Key Contributor

American Eagle’s Aerie brand is displaying spectacular growth lately. Aerie has evolved into a lifestyle brand, and remains focused on expanding market share and rapidly growing customer base. Further, the company is expanding the brand’s category reach, with augmentation of swimwear and activewear apparel, and continued growth in the intimate apparel.

The Aerie brand is key growth engine for American Eagle and remains on track to reach the next milestone of $1 billion in sales.

The company sees store expansion as an essential tool for building the Aerie brand. Consequently, it targets opening nearly 40 Aerie stores in fiscal 2018. Further, it plans to accelerate the brand’s footprint by opening 50-80 Aerie stores in fiscal 2019, including a number of stores in new markets.

Omni-Channel Growth

American Eagle is reaping the benefits of setting up a strong omni-channel platform, enabling it to reach customers in every possible way. Consequently, the company has not only widened its digital presence but is also investing in store fleet. This was clearly evident from second-quarter fiscal 2018 results, where digital sales contributed about 24% to net sales. In fact, this was the company’s 14th straight quarter of double-digit e-commerce growth.

Additionally, trends in brick-and-mortar stores continued to improve as both AE and Aerie stores reported positive in-store comps, increasing high-single digits. This marked the third consecutive quarter of positive in-store comps for both the brands. This makes it clear that a winning marketing strategy in retail is providing the best combination of digital and physical store experiences.

Financials Support Growth

American Eagle’s financial status looked chic, with a debt-free balance sheet, and cash and cash equivalents of $323.3 million as of Aug 4. Further, its healthy cash flows are aiding in making capital investments while returning excess cash to shareholders via dividends and share buybacks.

Backed by its strong cash position, positive free cash flow and gains from the tax reform, the company returned nearly $24 million to shareholders through cash dividends. This clearly illustrates the company’s commitment toward boosting shareholder-value.

Bottom Line

Given the inherent strength in American Eagle’s business, we would suggest holding the stock for the long term. While the company is surely not immune to the challenges in the macro environment, we believe that it has the potential to keep ticking the charts with the aforementioned strategies and business strength.

Looking for Some Lucrative Picks? Look at These

Some better-ranked stocks in the same industry are DSW Inc. (DSW - Free Report) , Urban Outfitters (URBN - Free Report) and Shoe Carnival (SCVL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DSW has surged 63.7% in the past year. The company has long-term earnings growth rate of 9%.

Urban Outfitters has long-term EPS growth rate of 12.8%. Further, the stock has increased a whopping 73.4% in the past year.

Shoe Carnival grew nearly 75.9% in a year. Moreover, the company delivered an average positive earnings surprise of 26.1% in the trailing four quarters.

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