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Can American Eagle (AEO) Bounce Back on Aerie, Real Growth Plan?
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American Eagle Outfitters (AEO - Free Report) has been reeling under an uncertain macro landscape and dismal consumer spending pattern. This led to a cautious fiscal 2023 guidance from management.
For fiscal 2023, revenues are likely to be flat to down in the low-single digits. The operating income is anticipated to be $250-$270 million in comparison with the adjusted operating income of $269 million in fiscal 2022.
For the fiscal second quarter, it expects revenues to decline in the low-single digits on a year-over-year basis. The company expects SG&A to increase in the low to mid-single digits.
Image Source: Zacks Investment Research
Consequently, shares of AEO have lost 11.6% in the past three months against the industry’s growth of 1%.
Brighter Side of the Story
Despite the macroeconomic challenges looming ahead, American Eagle’s strategies are on point to keep investors hooked. The company has been witnessing spectacular growth for its Aerie brand for quite some time now. Sales rose 12% to $359 million for Aerie in first-quarter fiscal 2023. Comps for the Aerie brand increased 2% from the first-quarter fiscal 2022 level. The brand reached $1.5 billion in revenues in 2022, driven by store expansion.
Strength across seasonal tops and new bottom silhouettes acted as major growth drivers. Also, its activewear extension, OFFLINE by Aerie, performed well on the back of tops, sports bras, active shorts and fashion items. Recently, Aerie launched the Real You summer campaign, which showcases its new summer collection, including the crowd-favorite Pool-To-Party capsule. Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL.
The Aerie brand is a key growth engine for American Eagle and remains on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1.5 billion in revenues.
The company is also on track with its Real Power Real Growth value creation plan, which has been aiding its performance. The plan is driving profitability through real estate and inventory optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.
As part of the Real Power Real Growth plan, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base. The company’s efforts under the plan have aided the recovery of the American Eagle brand. Going forward, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
Driven by the trends and progress on its growth plan, management raised its 2023 financial targets for the plan. The company expects revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion.
The operating income is estimated at $800 million, with the operating margin expanding to 13.5% by 2023. Previously, the operating income and the operating margin were anticipated to be $550 million and 10%, respectively.
Earlier, the company expected revenues for the Aerie brand to reach $2.2 billion by 2023, seeing more than a 20% compound annual growth rate compared with fiscal 2019. The American Eagle brand is also envisioned to grow slightly from fiscal 2019, with $3.6 billion in revenues.
Conclusion
Despite the ongoing challenging economic landscape, we believe that a solid online show, robust demand and brand strength will help the stock get back on track. Topping it, a VGM Score of A and a long-term earnings growth rate of 4.6% raise optimism in this Zacks Rank #3 (Hold) stock.
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently flaunts 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 ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s reported levels. The company has a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Can American Eagle (AEO) Bounce Back on Aerie, Real Growth Plan?
American Eagle Outfitters (AEO - Free Report) has been reeling under an uncertain macro landscape and dismal consumer spending pattern. This led to a cautious fiscal 2023 guidance from management.
For fiscal 2023, revenues are likely to be flat to down in the low-single digits. The operating income is anticipated to be $250-$270 million in comparison with the adjusted operating income of $269 million in fiscal 2022.
For the fiscal second quarter, it expects revenues to decline in the low-single digits on a year-over-year basis. The company expects SG&A to increase in the low to mid-single digits.
Image Source: Zacks Investment Research
Consequently, shares of AEO have lost 11.6% in the past three months against the industry’s growth of 1%.
Brighter Side of the Story
Despite the macroeconomic challenges looming ahead, American Eagle’s strategies are on point to keep investors hooked. The company has been witnessing spectacular growth for its Aerie brand for quite some time now. Sales rose 12% to $359 million for Aerie in first-quarter fiscal 2023. Comps for the Aerie brand increased 2% from the first-quarter fiscal 2022 level. The brand reached $1.5 billion in revenues in 2022, driven by store expansion.
Strength across seasonal tops and new bottom silhouettes acted as major growth drivers. Also, its activewear extension, OFFLINE by Aerie, performed well on the back of tops, sports bras, active shorts and fashion items. Recently, Aerie launched the Real You summer campaign, which showcases its new summer collection, including the crowd-favorite Pool-To-Party capsule. Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL.
The Aerie brand is a key growth engine for American Eagle and remains on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1.5 billion in revenues.
The company is also on track with its Real Power Real Growth value creation plan, which has been aiding its performance. The plan is driving profitability through real estate and inventory optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.
As part of the Real Power Real Growth plan, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base. The company’s efforts under the plan have aided the recovery of the American Eagle brand. Going forward, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
Driven by the trends and progress on its growth plan, management raised its 2023 financial targets for the plan. The company expects revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion.
The operating income is estimated at $800 million, with the operating margin expanding to 13.5% by 2023. Previously, the operating income and the operating margin were anticipated to be $550 million and 10%, respectively.
Earlier, the company expected revenues for the Aerie brand to reach $2.2 billion by 2023, seeing more than a 20% compound annual growth rate compared with fiscal 2019. The American Eagle brand is also envisioned to grow slightly from fiscal 2019, with $3.6 billion in revenues.
Conclusion
Despite the ongoing challenging economic landscape, we believe that a solid online show, robust demand and brand strength will help the stock get back on track. Topping it, a VGM Score of A and a long-term earnings growth rate of 4.6% raise optimism in this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Some better-ranked companies are Abercrombie & Fitch (ANF - Free Report) , Urban Outfitters (URBN - Free Report) and Walmart (WMT - Free Report) .
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently flaunts 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 ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s reported levels. The company has a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.