American Eagle Outfitters (NYSE: AEO), which sells men’s and women’s apparel and accessories under the American Eagle, Tailgate, Todd Snyder, and Aerie brands, fell 13% (after hours) on 4th December, as compared to a 0.6% increase in the S&P 500 index. In comparison, AEO’s peer Abercrombie & Fitch (NYSE: ANF) fell 1% on the same day. AEO stock price was down after the company posted a revenue and gross margin miss in the third quarter. During the earnings call, American Eagle Outfitters provided a cautious outlook, forecasting a slowdown in sales during the holiday quarter, with comparable sales expected to rise by only 1% and total Q4 sales declining by 4%.
For comparison, AEO comparable sales increased 3% in Q3 2024, following the 5% reported comp growth last year. The retailer is now expecting comparable sales to grow by 3% for the full year, down from prior guidance of 4% growth. Full-year sales are also expected to be up 1%, down from previous guidance of between 2% and 3% growth. Overall, AEO’s current price of $20 is trading at par with Trefis’ estimate for AEO’s Valuation. This is based on a $1.78 expected EPS and an 11.6x P/E multiple for the fiscal year 2024. We forecast AEO’s Revenues to be $5.3 billion for the fiscal year 2024, up marginally y-o-y.
The retailer’s gross margin fell 90 basis points to 40.9% in Q3, due to the impact of the shifted retail calendar on revenue and an increase in markdowns due to the timing of promotional activity. The company’s Aerie brand has shown impressive growth despite the macroeconomic environment. The namesake brand has struggled with tough comparisons to its post-pandemic recovery, as its revenues fell 3% y-o-y in Q3 2024 (mostly due to the shift in the calendar).
American Eagle brand’s growth figure was still lower than what the company achieved in Q3 2019, but it had many more stores (940 stores) at that point than it does today (845). That said, American Eagle brand revenues were up 4% in the nine months of fiscal 2024. A y-o-y upturn in the American Eagle brand is still a noteworthy inflection point for the company. We expect the company’s social media activities, e-commerce growth, lack of debt, and a larger focus on Aerie to likely give the business greater flexibility in the long run.
Overall, the performance of AEO stock with respect to the index over the last 3-year period has been quite volatile. Returns for the stock were 29% in 2021, -43% in 2022, and 55% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.
Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could AEO face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?
In Q3, American Eagle Outfitters’ revenue fell 1% y-o-y to $1.3 billion and its diluted earnings per share was 41 cents per share, down 9% y-o-y. Excluding one-time charges related to restructuring and impairment costs, the apparel retailer posted an adjusted profit of 48 cents per share. Aerie brand rose 4% y-o-y (with same-store sales up 5% on top of 12% growth from the year-ago period) to $410 million, and the American Eagle core brand fell 3% y-o-y (comps increased 3%, following the 2% reported comp growth last year) to $832 million in Q3. In addition, the company’s digital revenue increased 6%, and store revenue decreased 4% in Q3.
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