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American Eagle Gains on Brand Strength & Growth Plans: Apt to Hold?
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American Eagle Outfitters, Inc. (AEO - Free Report) is in good shape, thanks to its robust strategies including the Powering Profitable Growth plan. Immense strength in brands and sturdy demand for its products that resonate well with the customers have been yielding results.
AEO’s second-quarter fiscal 2024 results highlighted its sixth straight quarter of record revenues. American Eagle’s earnings beat the Zacks Consensus Estimate for the fifth consecutive time in the reported quarter. The bottom and top lines also increased year over year.
Analysts seem optimistic about AEO stock. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share (EPS) is currently pegged at $5.4 billion and $1.78, respectively. This indicates growth of 2.5% and 17.1%, respectively, year over year.
Let’s delve deeper.
AEO’s Robust Strategies Aid
AEO’s Real Power Real Growth value creation plan is focused on driving profitability through real estate and inventory-optimization efforts, omnichannel capabilities and investments to improve the supply chain. As part of this initiative, American Eagle is pursuing opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base.
American Eagle is on track with its Powering Profitable Growth plan, which is designed to deliver annual operating income growth in the mid-to-high teens to more than $570 million by the end of fiscal 2026. This translates into an operating margin of about 10% through the end of fiscal 2026, implying an expansion of 300 basis points over the next few years.
The company’s soft dressing categories and the expansion into Activewear with offline are key drivers. Soft Apparel was driven by tees, shorts, tanks and pants. Major categories mostly remained positive in the quarter. The company is seeing a positive response from consumers to newness and categories like sleepwear, and fleece and leggings. Management sees potential in Soft Apparel and Activewear going forward.
We note that American Eagle has been witnessing spectacular response for its brands for quite some time now. Strength in apparel and the offline active sub-brand aided growth. The company is focused on building brand awareness and expanding into new categories. New Aerie and offline stores are doing well, thereby expanding the reach and increasing the customer base.
In addition, the company’s flagship and Aerie brands are doing well. Revenues for the American Eagle (‘AE”) brand increased 8% year over year and comps rose 5% in the fiscal second quarter. This marked the fourth straight quarter of revenue and profit growth for AE. Sales rose 9% and comps jumped 4% for Aerie in the said quarter. The Top category registered six straight quarters of growth. Skirts, dresses and shorts also remained sturdy.
Weakness Hindering AEO’s Growth
Despite these robust strategies, AEO stock is exposed to a tough operating landscape including inflationary pressures and other macroeconomic headwinds. Also, evolving consumer spending patterns have been concerning.
Further, increased corporate compensation, incentives and other corporate expenses are deterrents. Selling, general and administrative expenses rose 4% year over year in the fiscal second quarter. These expenses are likely to add up to extra costs and weigh on its overall profitability.
What Else to Know About AEO?
Nevertheless, American Eagle is optimistic about fiscal 2024. It expects operating income to be at the high end of the $455-$465 million range. This indicates income growth in the range of 21-24% from adjusted operating income of $375 million recorded in fiscal 2023.
Management projects comparable sales to be up around 4%, with total revenues increasing 2-3% including the impact of one less selling week.
Image Source: Zacks Investment Research
Buoyed by such strengths, shares of this apparel and footwear dealer have gained 18.5% compared with the industry’s 30.5% growth in a year. AEO stock currently carries a Zacks Rank #3 (Hold).
Key Picks
We have highlighted three better-ranked stocks, namely Nordstrom JWN, Abercombie (ANF - Free Report) and Boot Barn (BOOT - Free Report) .
The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 0.6% from the year-ago figure. JWN delivered an earnings surprise of 29.7% in the last reported quarter.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank of 1. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 7.1%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share indicates growth of 12% and 10.5%, respectively, from the year-ago figures.
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American Eagle Gains on Brand Strength & Growth Plans: Apt to Hold?
American Eagle Outfitters, Inc. (AEO - Free Report) is in good shape, thanks to its robust strategies including the Powering Profitable Growth plan. Immense strength in brands and sturdy demand for its products that resonate well with the customers have been yielding results.
AEO’s second-quarter fiscal 2024 results highlighted its sixth straight quarter of record revenues. American Eagle’s earnings beat the Zacks Consensus Estimate for the fifth consecutive time in the reported quarter. The bottom and top lines also increased year over year.
Analysts seem optimistic about AEO stock. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share (EPS) is currently pegged at $5.4 billion and $1.78, respectively. This indicates growth of 2.5% and 17.1%, respectively, year over year.
Let’s delve deeper.
AEO’s Robust Strategies Aid
AEO’s Real Power Real Growth value creation plan is focused on driving profitability through real estate and inventory-optimization efforts, omnichannel capabilities and investments to improve the supply chain. As part of this initiative, American Eagle is pursuing opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base.
American Eagle is on track with its Powering Profitable Growth plan, which is designed to deliver annual operating income growth in the mid-to-high teens to more than $570 million by the end of fiscal 2026. This translates into an operating margin of about 10% through the end of fiscal 2026, implying an expansion of 300 basis points over the next few years.
The company’s soft dressing categories and the expansion into Activewear with offline are key drivers. Soft Apparel was driven by tees, shorts, tanks and pants. Major categories mostly remained positive in the quarter. The company is seeing a positive response from consumers to newness and categories like sleepwear, and fleece and leggings. Management sees potential in Soft Apparel and Activewear going forward.
We note that American Eagle has been witnessing spectacular response for its brands for quite some time now. Strength in apparel and the offline active sub-brand aided growth. The company is focused on building brand awareness and expanding into new categories. New Aerie and offline stores are doing well, thereby expanding the reach and increasing the customer base.
In addition, the company’s flagship and Aerie brands are doing well. Revenues for the American Eagle (‘AE”) brand increased 8% year over year and comps rose 5% in the fiscal second quarter. This marked the fourth straight quarter of revenue and profit growth for AE. Sales rose 9% and comps jumped 4% for Aerie in the said quarter. The Top category registered six straight quarters of growth. Skirts, dresses and shorts also remained sturdy.
Weakness Hindering AEO’s Growth
Despite these robust strategies, AEO stock is exposed to a tough operating landscape including inflationary pressures and other macroeconomic headwinds. Also, evolving consumer spending patterns have been concerning.
Further, increased corporate compensation, incentives and other corporate expenses are deterrents. Selling, general and administrative expenses rose 4% year over year in the fiscal second quarter. These expenses are likely to add up to extra costs and weigh on its overall profitability.
What Else to Know About AEO?
Nevertheless, American Eagle is optimistic about fiscal 2024. It expects operating income to be at the high end of the $455-$465 million range. This indicates income growth in the range of 21-24% from adjusted operating income of $375 million recorded in fiscal 2023.
Management projects comparable sales to be up around 4%, with total revenues increasing 2-3% including the impact of one less selling week.
Image Source: Zacks Investment Research
Buoyed by such strengths, shares of this apparel and footwear dealer have gained 18.5% compared with the industry’s 30.5% growth in a year. AEO stock currently carries a Zacks Rank #3 (Hold).
Key Picks
We have highlighted three better-ranked stocks, namely Nordstrom JWN, Abercombie (ANF - Free Report) and Boot Barn (BOOT - Free Report) .
Nordstrom, a clothing and accessories dealer, currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 0.6% from the year-ago figure. JWN delivered an earnings surprise of 29.7% in the last reported quarter.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank of 1. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 7.1%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share indicates growth of 12% and 10.5%, respectively, from the year-ago figures.