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Here's Why You Must Buy American Eagle (AEO) Before Q3 Earnings
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American Eagle Outfitters, Inc. (AEO - Free Report) is slated to report third-quarter fiscal 2023 results on Nov 21. The company looks poised for solid top and bottom-line results in the to-be-reported quarter. Its revenues are expected to have gained from brand strength and solid demand, driven by compelling products and exciting new marketing campaigns.
The company’s demand trends look favorable, owing to momentum in its leading brands and expansionary efforts into new markets. Strength in Aerie and a solid online show are expected to have contributed to top-line growth in the to-be-reported quarter. Additionally, the company’s revenues are expected to reap benefits from progress on its Real Power Real Growth value creation plan.
Innovation efforts, solid omnichannel capabilities, cost-reduction initiatives and focus on efficient inventory management are also likely to have boosted the Zacks Rank #1 (Strong Buy) company’s performance in the to-be-reported quarter.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle has particularly been gaining from the solid performance of its Aerie brand, driven by strength across intimates, leggings, apparel, and beauty and accessories, as well as OFFLINE activewear. The brand has been on an extraordinary growth trajectory, as evidenced by its remarkable first-quarter fiscal 2023 performance. A solid online show is expected to have aided the fiscal third-quarter performance.
For the second half, the company anticipates a positive response to its early fall goods, which is likely to have a positive implication on fiscal third-quarter sales, particularly the Aerie brand. On the last reported quarter’s earnings call, management anticipated total revenues in the fiscal third quarter to grow in the low-single digits on a year-over-year basis.
Our model predicts third-quarter fiscal 2023 sales for the Aerie brand to increase 11.2% year over year. However, sales for the namesake brands are expected to decline 3.6% year over year.
Additionally, American Eagle’s profit improvement initiatives have been paying off. This, along with lower delivery, distribution and warehousing costs, are expected to have bolstered margins. Higher merchandising margins due to lower markdowns stemming from inventory control, and lower transportation and product costs are expected to have acted as tailwinds in the to-be-reported quarter.
AEO has envisioned a gross margin expansion for the second half of 2023, driven by lower freight and product costs, as well as reduced markdowns. It has also anticipated product costs and freight to act as tailwinds in the second half of 2023.
We expect the gross margin to expand 380 basis points (bps) year over year to 42.5% in the fiscal third quarter, suggesting a decline in the cost of sales due to lower freight expenses.
AEO has been on track with the Real Power, Real Growth value-creation plan. Its third-quarter fiscal 2023 performance is expected to have benefited from significant progress on its Real Power Real Growth value creation plan. The plan has been driving profitability through real estate and inventory-optimization efforts, omni-channel and customer focus, and investments to improve the supply chain. The company’s efforts under the plan have been aiding the recovery of the American Eagle brand.
Caution on Elevated Costs
American Eagle has been witnessing elevated corporate compensation, incentives and other corporate expenses, which have been partially offset by cost efficiencies. The increase in these expenses has been resulting in higher SG&A expenses. Rising costs and expenses are likely to have partly weighed on its margins and profitability in the to-be-reported quarter.
On the last reported quarter’s earnings call, management anticipated SG&A to increase in the mid-teens in the fiscal third quarter. Operating income was projected to be $115-$125 million.
We expect SG&A expenses to increase 16.2% year over year to $361.4 million in the fiscal third quarter. Meanwhile, SG&A expenses, as a percentage of sales, are expected to increase 370 bps.
Our model predicts an adjusted operating margin of 9.2%, down 30 bps from the year-ago quarter’s actual. In dollar terms, adjusted operating income is likely to have declined 2.1% year over year to $115.1 million.
Conclusion
The aforementioned factors indicate that American Eagle will deliver earnings and sales growth in the fiscal third quarter. We note that the Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $1.3 billion, which implies growth of 2.8% from the year-ago reported figure.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 48 cents per share, suggesting 14.3% growth from the year-ago quarter's reported number. The Zacks Consensus Estimate for the to-be-reported quarter's earnings has moved up by a penny in the past 30 days.
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently has a Zacks Rank #2 (Buy). ANF has a trailing four-quarter earnings surprise of 724.8%, on average.
The Zacks Consensus Estimate for ANF’s third-quarter fiscal 2023 earnings has moved up by a penny to $1.14 per share in the past seven days, indicating significant growth from the 1 cent reported in the year-ago quarter. The consensus mark for ANF’s quarterly revenues is pegged at $977.5 million, which suggests growth of 11.1% from the figure reported in the prior-year quarter.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Deckers Outdoor’s fourth-quarter 2023 sales and earnings suggests growth of 3.61% and 3.63%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
Beacon Roofing is the largest publicly traded distributor of residential and non-residential roofing materials and complementary building products in the United States and Canada. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Beacon Roofing’s fourth-quarter 2023 sales and earnings implies improvements of 12.6% and 32%, respectively, from the year-ago period’s actuals. BECN has a trailing four-quarter earnings surprise of 11.1%, on average.
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Here's Why You Must Buy American Eagle (AEO) Before Q3 Earnings
American Eagle Outfitters, Inc. (AEO - Free Report) is slated to report third-quarter fiscal 2023 results on Nov 21. The company looks poised for solid top and bottom-line results in the to-be-reported quarter. Its revenues are expected to have gained from brand strength and solid demand, driven by compelling products and exciting new marketing campaigns.
The company’s demand trends look favorable, owing to momentum in its leading brands and expansionary efforts into new markets. Strength in Aerie and a solid online show are expected to have contributed to top-line growth in the to-be-reported quarter. Additionally, the company’s revenues are expected to reap benefits from progress on its Real Power Real Growth value creation plan.
Innovation efforts, solid omnichannel capabilities, cost-reduction initiatives and focus on efficient inventory management are also likely to have boosted the Zacks Rank #1 (Strong Buy) company’s performance in the to-be-reported quarter.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote
Factors Backing Growth in Q3
American Eagle has particularly been gaining from the solid performance of its Aerie brand, driven by strength across intimates, leggings, apparel, and beauty and accessories, as well as OFFLINE activewear. The brand has been on an extraordinary growth trajectory, as evidenced by its remarkable first-quarter fiscal 2023 performance. A solid online show is expected to have aided the fiscal third-quarter performance.
For the second half, the company anticipates a positive response to its early fall goods, which is likely to have a positive implication on fiscal third-quarter sales, particularly the Aerie brand. On the last reported quarter’s earnings call, management anticipated total revenues in the fiscal third quarter to grow in the low-single digits on a year-over-year basis.
Our model predicts third-quarter fiscal 2023 sales for the Aerie brand to increase 11.2% year over year. However, sales for the namesake brands are expected to decline 3.6% year over year.
Additionally, American Eagle’s profit improvement initiatives have been paying off. This, along with lower delivery, distribution and warehousing costs, are expected to have bolstered margins. Higher merchandising margins due to lower markdowns stemming from inventory control, and lower transportation and product costs are expected to have acted as tailwinds in the to-be-reported quarter.
AEO has envisioned a gross margin expansion for the second half of 2023, driven by lower freight and product costs, as well as reduced markdowns. It has also anticipated product costs and freight to act as tailwinds in the second half of 2023.
We expect the gross margin to expand 380 basis points (bps) year over year to 42.5% in the fiscal third quarter, suggesting a decline in the cost of sales due to lower freight expenses.
AEO has been on track with the Real Power, Real Growth value-creation plan. Its third-quarter fiscal 2023 performance is expected to have benefited from significant progress on its Real Power Real Growth value creation plan. The plan has been driving profitability through real estate and inventory-optimization efforts, omni-channel and customer focus, and investments to improve the supply chain. The company’s efforts under the plan have been aiding the recovery of the American Eagle brand.
Caution on Elevated Costs
American Eagle has been witnessing elevated corporate compensation, incentives and other corporate expenses, which have been partially offset by cost efficiencies. The increase in these expenses has been resulting in higher SG&A expenses. Rising costs and expenses are likely to have partly weighed on its margins and profitability in the to-be-reported quarter.
On the last reported quarter’s earnings call, management anticipated SG&A to increase in the mid-teens in the fiscal third quarter. Operating income was projected to be $115-$125 million.
We expect SG&A expenses to increase 16.2% year over year to $361.4 million in the fiscal third quarter. Meanwhile, SG&A expenses, as a percentage of sales, are expected to increase 370 bps.
Our model predicts an adjusted operating margin of 9.2%, down 30 bps from the year-ago quarter’s actual. In dollar terms, adjusted operating income is likely to have declined 2.1% year over year to $115.1 million.
Conclusion
The aforementioned factors indicate that American Eagle will deliver earnings and sales growth in the fiscal third quarter. We note that the Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $1.3 billion, which implies growth of 2.8% from the year-ago reported figure.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 48 cents per share, suggesting 14.3% growth from the year-ago quarter's reported number. The Zacks Consensus Estimate for the to-be-reported quarter's earnings has moved up by a penny in the past 30 days.
Other Key Picks
Some other top-ranked stocks are Abercrombie & Fitch (ANF - Free Report) , Deckers Outdoor (DECK - Free Report) and Beacon Roofing Supply (BECN - Free Report) .
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently has a Zacks Rank #2 (Buy). ANF has a trailing four-quarter earnings surprise of 724.8%, on average.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s third-quarter fiscal 2023 earnings has moved up by a penny to $1.14 per share in the past seven days, indicating significant growth from the 1 cent reported in the year-ago quarter. The consensus mark for ANF’s quarterly revenues is pegged at $977.5 million, which suggests growth of 11.1% from the figure reported in the prior-year quarter.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Deckers Outdoor’s fourth-quarter 2023 sales and earnings suggests growth of 3.61% and 3.63%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
Beacon Roofing is the largest publicly traded distributor of residential and non-residential roofing materials and complementary building products in the United States and Canada. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Beacon Roofing’s fourth-quarter 2023 sales and earnings implies improvements of 12.6% and 32%, respectively, from the year-ago period’s actuals. BECN has a trailing four-quarter earnings surprise of 11.1%, on average.