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American Eagle's Solid Growth Efforts & Comps Trend Bode Well

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American Eagle Outfitters Inc. (AEO - Free Report) has been gaining investors’ confidence on the back of solid growth endeavors including strengthening of brands and expansion of omni-channel capabilities. In addition, the company’s impressive comparable store sales (comps) trend along with strength in both digital and in-store businesses drives optimism.

These positives have aided this Pittsburgh, PA-based company to gain 6.2% on a year-to-date basis against the industry’s 4.3% decline.



Let’s Delve Deep

American Eagle is striving to develop its omni-channel platform by enhancing digital portals and investing in store fleet. Backed by its investments in omni-channel capabilities, both store and digital channels reported solid sales in fourth-quarter fiscal 2018. Digital business contributed about 31% to net revenues, marking the company’s 16th straight quarter of double-digit e-commerce growth.

Moreover, the company reported positive in-store comps for the fifth consecutive quarter. Trends in brick-and-mortar stores continued to improve as both American Eagle (‘AE’) and Aerie stores reported positive in-store comps. This makes it clear that a winning marketing strategy in retail is providing the best combination of digital and physical store experiences.

Notably, American Eagle marked 16th straight quarter of positive comps in the fiscal fourth quarter. Solid gains from strategic initiatives and the company’s ability to boost its market share through strong brands and compelling merchandise led to comps growth. Additionally, the company witnessed healthy sales with positive store conversion and a marginal rise in average unit retail price and transaction value.

American Eagle also witnessed strength in both its iconic brands, with AE and Aerie, outpacing mall traffic. Brand-wise, comps were up 23% and 3% at Aerie stores and AE brand outlets, respectively. In fact, the Aerie brand delivered 17th straight quarter of double-digit comps growth, reflecting a significant momentum in all areas of the business. Aerie has evolved into a lifestyle brand, and remains focused on expanding market share and rapidly growing customer base. After the success of its core intimates offerings, the brand is rapidly gaining share in the innovative apparel market with the body positivity movement. Currently, Aerie remains on track to reach the next milestone of accomplishing $1 billion in sales.

Meanwhile, the AE brand is primarily benefiting from its leadership position in bottoms. In fact, the jeans business registered 22nd consecutive quarter of comps growth in the last reported quarter.

AEO’s Quarterly Performance

American Eagle delivered fourth straight quarter of earnings beat in fourth-quarter fiscal 2018. Also, it has an average four-quarter positive surprise of 4.7%. On the top-line front, the company outshined the Zacks Consensus Estimate in three of the last five quarters.

In fiscal 2018, the company accomplished a milestone of $4 billion in annual revenues. Going forward, management expects to continue this momentum and brand strength, which should keep driving the company’s top- and bottom-line performance.

Wrapping Up

While all the afore-mentioned factors raise confidence in American Eagle’s prospects, higher SG&A expenses make us a little apprehensive. The spending is toward higher investments in brands and initiatives to boost customer experience as well as increased store payroll, wages, incentive expenses and advertising.

Nevertheless, American Eagle’s solid growth endeavors and impressive performance are likely to favor the company. Also, this Zacks Rank #3 (Hold) stock has a VGM Score of A and an expected long-term earnings growth rate of 7.2%.

Three Better-Ranked Retail Stocks

The Buckle, Inc. (BKE - Free Report) delivered an average positive earnings surprise of 4.2% in the trailing four quarters. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings, Inc. (BOOT - Free Report) has an impressive long-term earnings growth rate of 20.7% and a Zacks Rank #2 (Buy).

Canada Goose Holdings Inc. (GOOS - Free Report) is also a Zacks Rank #2 company, which delivered average positive earnings surprise of 82.7% in the last four quarters.

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