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Factors Likely to Shape American Eagle's (AEO) Q3 Earnings

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American Eagle Outfitters Inc. (AEO - Free Report) is slated to release third-quarter fiscal 2018 results on Dec 5.

The company has delivered a positive earnings surprise in three of the trailing five quarters. Further, it recorded an average earnings beat of 2.3% in the last four quarters.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 47 cents, reflecting a year-over-year improvement of about 27%. Estimates have been stable over the past 30 days. Management envisions adjusted earnings per share in the range of 45-47 cents for the same period.

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

Factors Likely to Influence 3Q18

American Eagle is benefiting from its strategic efforts, including robust omni-channel endeavors and initiatives to strengthen brands. The company is striving to develop its omni-channel platform to reach customers in every possible way. To this end, American Eagle is not only enhancing digital presence but also investing in its store fleet. Evidently, digital sales contributed about 24% to net sales in second-quarter fiscal 2018. In fact, this was the company’s 14th straight quarter of double-digit e-commerce growth.

Moreover, 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.

Additionally, we note that the company’s AE brand is gaining from its leadership position in bottoms, recording 20th consecutive quarter of comps growth in the fiscal second quarter. The company remains focused on expanding market share and rapidly growing customer base for its Aerie brand. Furthermore, the company is extending category reach with expansions in the swimwear, active wear apparel and continued growth in the intimate space. It also plans to accelerate the brand’s footprint by opening about 40 Aerie stores in fiscal 2018. Notably, the Aerie brand marked 15th straight quarter (nearly four years) of double-digit sales growth in the fiscal second quarter.

All these initiatives are expected to boost the company’s top and bottom lines in the to-be-reported quarter. The Zacks Consensus Estimate for quarterly revenues stands at $1,034 million, reflecting more than 7% growth year over year. Further, analysts surveyed by Zacks expect consolidated comps to grow 8.6% in the fiscal third quarter. American Eagle anticipates comps for third-quarter fiscal 2018 to increase high-single digits, with mid-single-digit revenue growth.

So far this year, shares of American Eagle have gained 12.4% against the industry’s 6.7% decline.

Although American Eagle's expansion plans and omni-channel development are expected to boost growth, high dependence on external suppliers and macroeconomic headwinds might weigh on its quarterly performance. Stiff competition in the retail space is an added concern.

Zacks Model

Our proven model does not conclusively show that American Eagle is likely to beat earnings estimates in the fiscal third 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 may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Eagle has a Zacks Rank #3 but the company’s Earnings ESP of -2.39% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +4.89% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +3.09% and a Zacks Rank #3.

The Michaels Companies, Inc. (MIK - Free Report) has an Earnings ESP of +2.86% and a Zacks Rank #3.

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