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American Eagle (AEO) Q1 Earnings Beat Estimates, Revenues Miss
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American Eagle Outfitters, Inc. (AEO - Free Report) reported first-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate, while revenues lagged the same. Top and bottom lines increased year over year, driven by brand strength and gains from progress on its Powering Profitable Growth strategy.
The company’s first-quarter fiscal 2024 earnings of 34 cents per share doubled from adjusted earnings per share of 17 cents in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of 28 cents.
Total net revenues of $1.14 billion improved 6% year over year but missed the Zacks Consensus Estimate of $1.15 billion. The company’s record revenue growth in the quarter was driven by the strengthening of American Eagle’s and Aerie’s leading market positions and making the best of the opportunity in casual apparel. Store revenues grew 4% in the quarter, while digital revenues improved 12%.
Shares of the Zacks Rank #3 (Hold) company have lost 0.4% in the past three months against the industry’s growth of 4.3%.
Image Source: Zacks Investment Research
Quarterly Details
Brand-wise, revenues increased 8% year over year to $725 million for American Eagle. Comps for the American Eagle brand rose 7%. American Eagle brand sales benefited from improvements in its assortments. Our model had estimated year-over-year sales growth of 8.5% for the American Eagle brand to $727.9 million.
Revenues improved 4% year over year to $373 million for the Aerie brand in the fiscal first quarter. Comps for the Aerie brand were up 6%, marking the all-time-high first-quarter comps for the brand. Sturdy demand for its core apparel and strength in the OFFLINE brand aided growth. Our model estimated year-over-year sales growth of 0.9% for the Aerie brand to $362.4 million.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
Gross profit increased 12% year over year to $464 million in the fiscal first quarter. The gross margin expanded 240 basis points (bps) to 40.6%. The increase in the adjusted gross margin mainly stemmed from robust inventory management, the company’s shift to a more profitable clearance strategy, reduced product and freight costs, and leverage on expenses, including rent, delivery, and distribution and warehousing.
Our model estimated a gross profit of $452.5 million for the fiscal first quarter, suggesting year-over-year growth of 9.5%. We estimated the gross margin to expand 150 bps year over year to 39.7%.
SG&A expenses rose 7% year over year to $333 million, almost in line with sales growth and the company’s guidance. As a percentage of sales, SG&A expenses increased 30 bps to 29.2%. Our model predicted a SG&A rate of 28.9% for the fiscal first quarter, which is likely to be flat year over year.
Operating income was $78 million in the quarter, up 76% from the year-ago quarter’s adjusted operating income of $44 million. The adjusted operating margin of 6.8% expanded 270 bps year over year. Our model predicted the adjusted operating margin to improve 200 bps to 6.1% for the fiscal first quarter. The rise in the operating margin was aided by strong sales growth and an improved gross margin rate.
Other Financial Details
American Eagle ended first-quarter fiscal 2024 with cash and cash equivalents of $300.5 million, with no outstanding debt. Total shareholders’ equity as of Feb 3, 2023, was $1.75 billion.
Capital expenditure was $36 million in the fiscal first quarter. The company expects a capital expenditure of $200-$250 million for fiscal 2024.
Inventory rose 9% year over year to $681 million, driven by continued inventory discipline, which resulted in higher end-of-season merchandise, owing to the company’s shift to a more profitable clearance strategy. Inventory per unit increased 10%.
In first-quarter fiscal 2024, the company returned $60 million to shareholders in the forms of dividends and share repurchases. It bought back 1.5 million shares for $35 million. Additionally, the company paid out a quarterly dividend of 12.5 cents per share, reflecting total dividend payouts of $25 million in the fiscal first quarter. As of May 4, 2024, the company has 28.5 million shares remaining under its current share repurchase authorization.
Guidance
American Eagle reiterated its guidance for fiscal 2024. The company expects revenues to increase 2-4% year over year for fiscal 2024, including a one-point negative impact of one less week than last year. Operating income is estimated to be $445-$465 million.
AEO expects SG&A expense leverage for fiscal 2024, driven by ongoing cost management initiatives. The company expects a D&A of $220 million for fiscal 2024. It anticipates the tax rate in the mid-to-high 20s for fiscal 2024. The company expects average shares outstanding to be in the high-190s at the end of fiscal 2024.
American Eagle expects the business momentum to continue in the fiscal second quarter. The company anticipates year-over-year revenue growth in the high-single digits, including $55-million positive impacts of the retail calendar shift. Operating income is projected to be $95-$100 million in the fiscal second quarter.
Management expects SG&A expense leverage in the fiscal second quarter, driven by its profit improvement initiatives.
Long-Term Strategy
Concurrent with the earnings release, the company revealed its new Powering Profitable Growth plan, which is likely to build upon the strength displayed in fiscal 2023. The plan is designed to deliver annual operating income growth in the mid-to-high teens to more than $570 million by the end of fiscal 2024. This translates into an operating margin of 10% through the end of fiscal 2026, implying an expansion of 300 bps over the next three years. The plan also targets 3-5% annual revenue growth through the end of fiscal 2026. This indicates revenues of $5.7-$6 billion at the end of fiscal 2026.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 715.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales and earnings per share suggests growth of 6.4% and 24.2%, respectively, from the year-ago reported figure.
Levi Strauss, which designs and markets jeans, casual wear and related accessories for men, women and children, presently carries a Zacks Rank of 2 (Buy). The company has a trailing four-quarter earnings surprise of 16.4%, on average.
The Zacks Consensus Estimate for Levi Strauss’ current financial-year sales and earnings suggests growth of 2.9% and 15.5%, respectively, from the year-ago reported figures.
J.Jill operates as a specialty retailer of women’s apparel. It currently carries a Zacks Rank of 2. JILL has a trailing four-quarter earnings surprise of 621.6%, on average.
The Zacks Consensus Estimate for J.Jill’s current financial-year sales and earnings suggests growth of 1.7% and 8%, respectively, from the year-ago reported figures.
Image: Bigstock
American Eagle (AEO) Q1 Earnings Beat Estimates, Revenues Miss
American Eagle Outfitters, Inc. (AEO - Free Report) reported first-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate, while revenues lagged the same. Top and bottom lines increased year over year, driven by brand strength and gains from progress on its Powering Profitable Growth strategy.
The company’s first-quarter fiscal 2024 earnings of 34 cents per share doubled from adjusted earnings per share of 17 cents in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of 28 cents.
Total net revenues of $1.14 billion improved 6% year over year but missed the Zacks Consensus Estimate of $1.15 billion. The company’s record revenue growth in the quarter was driven by the strengthening of American Eagle’s and Aerie’s leading market positions and making the best of the opportunity in casual apparel. Store revenues grew 4% in the quarter, while digital revenues improved 12%.
Shares of the Zacks Rank #3 (Hold) company have lost 0.4% in the past three months against the industry’s growth of 4.3%.
Image Source: Zacks Investment Research
Quarterly Details
Brand-wise, revenues increased 8% year over year to $725 million for American Eagle. Comps for the American Eagle brand rose 7%. American Eagle brand sales benefited from improvements in its assortments. Our model had estimated year-over-year sales growth of 8.5% for the American Eagle brand to $727.9 million.
Revenues improved 4% year over year to $373 million for the Aerie brand in the fiscal first quarter. Comps for the Aerie brand were up 6%, marking the all-time-high first-quarter comps for the brand. Sturdy demand for its core apparel and strength in the OFFLINE brand aided growth. Our model estimated year-over-year sales growth of 0.9% for the Aerie brand to $362.4 million.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote
Gross profit increased 12% year over year to $464 million in the fiscal first quarter. The gross margin expanded 240 basis points (bps) to 40.6%. The increase in the adjusted gross margin mainly stemmed from robust inventory management, the company’s shift to a more profitable clearance strategy, reduced product and freight costs, and leverage on expenses, including rent, delivery, and distribution and warehousing.
Our model estimated a gross profit of $452.5 million for the fiscal first quarter, suggesting year-over-year growth of 9.5%. We estimated the gross margin to expand 150 bps year over year to 39.7%.
SG&A expenses rose 7% year over year to $333 million, almost in line with sales growth and the company’s guidance. As a percentage of sales, SG&A expenses increased 30 bps to 29.2%. Our model predicted a SG&A rate of 28.9% for the fiscal first quarter, which is likely to be flat year over year.
Operating income was $78 million in the quarter, up 76% from the year-ago quarter’s adjusted operating income of $44 million. The adjusted operating margin of 6.8% expanded 270 bps year over year. Our model predicted the adjusted operating margin to improve 200 bps to 6.1% for the fiscal first quarter. The rise in the operating margin was aided by strong sales growth and an improved gross margin rate.
Other Financial Details
American Eagle ended first-quarter fiscal 2024 with cash and cash equivalents of $300.5 million, with no outstanding debt. Total shareholders’ equity as of Feb 3, 2023, was $1.75 billion.
Capital expenditure was $36 million in the fiscal first quarter. The company expects a capital expenditure of $200-$250 million for fiscal 2024.
Inventory rose 9% year over year to $681 million, driven by continued inventory discipline, which resulted in higher end-of-season merchandise, owing to the company’s shift to a more profitable clearance strategy. Inventory per unit increased 10%.
In first-quarter fiscal 2024, the company returned $60 million to shareholders in the forms of dividends and share repurchases. It bought back 1.5 million shares for $35 million. Additionally, the company paid out a quarterly dividend of 12.5 cents per share, reflecting total dividend payouts of $25 million in the fiscal first quarter. As of May 4, 2024, the company has 28.5 million shares remaining under its current share repurchase authorization.
Guidance
American Eagle reiterated its guidance for fiscal 2024. The company expects revenues to increase 2-4% year over year for fiscal 2024, including a one-point negative impact of one less week than last year. Operating income is estimated to be $445-$465 million.
AEO expects SG&A expense leverage for fiscal 2024, driven by ongoing cost management initiatives. The company expects a D&A of $220 million for fiscal 2024. It anticipates the tax rate in the mid-to-high 20s for fiscal 2024. The company expects average shares outstanding to be in the high-190s at the end of fiscal 2024.
American Eagle expects the business momentum to continue in the fiscal second quarter. The company anticipates year-over-year revenue growth in the high-single digits, including $55-million positive impacts of the retail calendar shift. Operating income is projected to be $95-$100 million in the fiscal second quarter.
Management expects SG&A expense leverage in the fiscal second quarter, driven by its profit improvement initiatives.
Long-Term Strategy
Concurrent with the earnings release, the company revealed its new Powering Profitable Growth plan, which is likely to build upon the strength displayed in fiscal 2023. The plan is designed to deliver annual operating income growth in the mid-to-high teens to more than $570 million by the end of fiscal 2024. This translates into an operating margin of 10% through the end of fiscal 2026, implying an expansion of 300 bps over the next three years. The plan also targets 3-5% annual revenue growth through the end of fiscal 2026. This indicates revenues of $5.7-$6 billion at the end of fiscal 2026.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch Co. (ANF - Free Report) , Levi Strauss & Co. (LEVI - Free Report) and J.Jill (JILL - Free Report) .
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 715.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales and earnings per share suggests growth of 6.4% and 24.2%, respectively, from the year-ago reported figure.
Levi Strauss, which designs and markets jeans, casual wear and related accessories for men, women and children, presently carries a Zacks Rank of 2 (Buy). The company has a trailing four-quarter earnings surprise of 16.4%, on average.
The Zacks Consensus Estimate for Levi Strauss’ current financial-year sales and earnings suggests growth of 2.9% and 15.5%, respectively, from the year-ago reported figures.
J.Jill operates as a specialty retailer of women’s apparel. It currently carries a Zacks Rank of 2. JILL has a trailing four-quarter earnings surprise of 621.6%, on average.
The Zacks Consensus Estimate for J.Jill’s current financial-year sales and earnings suggests growth of 1.7% and 8%, respectively, from the year-ago reported figures.