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Earnings Preview: American Eagle

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American Eagle Outfitters Inc. (AEO - Free Report) is scheduled to release its third-quarter 2012 financial results on Wednesday, November 28, 2012.  

The Zacks Consensus Estimate for third quarter earnings stands at 39 cents a share, which reflects an increase of 43.3% from the comparable prior-year quarter earnings. The Zacks Consensus Estimate lies between a low of 37 cents and a high of 41 cents. Further, revenue as per Zacks Consensus Estimate is pegged at $873 million.

Looking Back at the Last Quarter

American Eagle Outfitters Inc. reported adjusted earnings of 21 cents per share for the second quarter of fiscal 2012, which climbed nearly 62% from the prior-year quarter’s adjusted earnings of 13 cents. The year-over-year growth in earnings was driven by a double-digit augmentation in the top line, coupled with lower input and operating expenses. Moreover, quarterly adjusted earnings were in line with the Zacks Consensus Estimate.

During the quarter, American Eagle's adjusted net sales went up 11% year over year to $739.7 million, while beating the Zacks Consensus Estimate of $738 million. Growth in revenue was driven by a 9% increase in comparable store sales compared with a rise of 1% registered in the year-ago quarter. The company's AE Brand, aerie and AEO Direct segments reported growth of 7%, 13% and 28%, respectively, in comparable store sales.

For the third quarter of fiscal 2012, American Eagle expects to earn in the range of 37 – 38 cents per share compared with 30 cents in the prior-year period. In addition, the company is anticipating a decline in the range of the mid-single-digits in inventory per square foot.

Looking into fiscal 2012, the company raised its earnings guidance range to $1.33 – $1.36 per share from $1.16 – $1.22 forecasted earlier. The improved guidance range is based on the company’s expectation of mid-single-digit and low-sing-digit growth in comparable store sales for the third and fourth quarters of fiscal 2012.

Agreement of Estimate Revisions

For the to-be-reported quarter, 1 out of 22 estimates was raised while none moved in the opposite direction over the last 30 days. In the last 7 days, there were no estimate movements in either direction.

For fiscal 2012, 1 of the 22 estimates moved upwards and none were lowered in the last 30 days. During the last 7 days, the story remained similar to the upcoming quarter, with no estimate revisions in either direction.

Magnitude of the Estimate Revisions

For the third-quarter of 2012, the Zacks Consensus Estimate for earnings remained stable at 39 cents a share in the last 30 days as well as 7 days. Similarly, the Zacks Consensus Estimate for fiscal 2012 also remained intact at $1.37 per share in the last 30 days and 7 days.

Earnings Surprise History

The earnings surprise history for American Eagle remains positive with the company meeting the Zacks Consensus Estimate in three of the trailing four quarters and beating in the remaining quarter. The average of the surprise history stands at positive 2.94% over the last four quarters. Looking at the previous performances, we believe the company will likely meet or beat the Zacks Consensus Estimate in the upcoming quarters.


American Eagle currently remains focused on increasing merchandise assortments, adding more compelling brands, managing inventory level much diligently and augmenting e-commerce business. Further, in order to emphasize more on the core business while generating the best possible return for shareholders, the company has decided to exit its children’s brand, 77Kids.

We remain impressed with the company’s continued momentum in denim along with improved merchandise assortments in the women’s business segment, which will likely augment its top-line performance as well as enhance the gross margin.

Moreover, we believe that American Eagle’s cost-saving initiatives and long-term growth strategy will not only provide financial flexibility, but will help drive value proposition. In an effort to boost its bottom line, the company is relentlessly focusing on initiatives to cut down costs through supply chain efficiencies and updated product allocation system.

American Eagle, which competes with Abercrombie & Fitch Co. (ANF - Free Report) and Gap Inc. (GPS - Free Report) , carries a Zacks #2 Rank, translating into a short-term Buy rating for the next 1-3 months. Moreover, we maintain our long-term ‘Outperform’ recommendation on the stock.

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