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After Q2 Profit Boost, Should You Buy American Eagle (AEO) Stock?
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On Wednesday, popular teen retailer American Eagle Outfitters (AEO - Free Report) reported its fiscal 2016 second quarter results. Diluted earnings per share of 23 cents beat the Zacks estimate of 21 cents and increased a whopping 35% year-over-year. Total net revenue also beat our consensus estimate, coming in at $823 million for the quarter and gaining 3% year-over-year.
Despite these results, AEO stock was down 5% in early morning trading (though it appears the stock is gaining some of this loss back as the day moves on), suggesting that investors were not completely satisfied with the company’s performance
Consolidated comparable sales grew 3%, down from an 11% increase seen in the prior year. Weak comps growth may be the reason for AEO's downward movement today.
Gross profit saw a significant boost, increasing 8% to $307 million and expanding 160 basis points to 37.3%. This rise was driven by an improved merchandise margin thanks to lower cost and higher-realized selling prices.
Operating income rose 29% to $69 million, compared to $53 million seen in the same quarter last year; operating margin expanded 160 basis points to 8.3%.
In a statement, CEO Jay Schottenstein, said, “For the past few years, we have worked hard to lift our brands through merchandise leadership and innovation, strengthen our customer focus and invest in technology. Our efforts around these priorities are clearly paying off, as again evidenced by our strong earnings growth in the second quarter.”
“As we enter the fall season, our execution, focus and market opportunities are greater than ever. In today’s evolving retail landscape, we are committed to offering the very best product and customer experience to position AEO’s brands as leaders in a new generation of successful retail brands, Schottenstein continued.”
Looking ahead, management expects Q3 earnings to fall in the range of 40 cents to 41 cents per share, based on anticipated low single digit increase in comps.
Should You Buy AEO Stock?
This quarter marks the seventh consecutive period that American Eagle has beat estimates on its bottom line, and despite a two-year sales slump, the retailer is finally starting a much-needed turnaround.
American Eagle has recently been highlighting its denim products, and its Aerie brand is a very popular stop for women’s intimate apparel and loungewear. Comparable sales of Aerie jumped 24% in the second quarter, much higher than expectations of 13.7%.
The company is also apt at quickly responding to changing fashion trends, something their customer base desires, and something their competitors like Gap and Abercrombie (ANF - Free Report) have trouble executing successfully.
In terms of estimate revision activity, American Eagle has seen a wave of positive change. For the next quarter, both its top and bottom line are looking to see year-over-year growth, while its current fiscal year has seen two positive revisions within the last 30 days. Make sure to keep an eye on these revisions in the near future. Currently, AEO is a Zacks Rank #2 (Buy).
Year-to-date, American Eagle has gained an impressive 22.32%, and if the company can keep its positive momentum going, it’s looking like AEO could be a solid retail pick for your portfolio.
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After Q2 Profit Boost, Should You Buy American Eagle (AEO) Stock?
On Wednesday, popular teen retailer American Eagle Outfitters (AEO - Free Report) reported its fiscal 2016 second quarter results. Diluted earnings per share of 23 cents beat the Zacks estimate of 21 cents and increased a whopping 35% year-over-year. Total net revenue also beat our consensus estimate, coming in at $823 million for the quarter and gaining 3% year-over-year.
Despite these results, AEO stock was down 5% in early morning trading (though it appears the stock is gaining some of this loss back as the day moves on), suggesting that investors were not completely satisfied with the company’s performance
Consolidated comparable sales grew 3%, down from an 11% increase seen in the prior year. Weak comps growth may be the reason for AEO's downward movement today.
Gross profit saw a significant boost, increasing 8% to $307 million and expanding 160 basis points to 37.3%. This rise was driven by an improved merchandise margin thanks to lower cost and higher-realized selling prices.
Operating income rose 29% to $69 million, compared to $53 million seen in the same quarter last year; operating margin expanded 160 basis points to 8.3%.
In a statement, CEO Jay Schottenstein, said, “For the past few years, we have worked hard to lift our brands through merchandise leadership and innovation, strengthen our customer focus and invest in technology. Our efforts around these priorities are clearly paying off, as again evidenced by our strong earnings growth in the second quarter.”
“As we enter the fall season, our execution, focus and market opportunities are greater than ever. In today’s evolving retail landscape, we are committed to offering the very best product and customer experience to position AEO’s brands as leaders in a new generation of successful retail brands, Schottenstein continued.”
Looking ahead, management expects Q3 earnings to fall in the range of 40 cents to 41 cents per share, based on anticipated low single digit increase in comps.
Should You Buy AEO Stock?
This quarter marks the seventh consecutive period that American Eagle has beat estimates on its bottom line, and despite a two-year sales slump, the retailer is finally starting a much-needed turnaround.
American Eagle has recently been highlighting its denim products, and its Aerie brand is a very popular stop for women’s intimate apparel and loungewear. Comparable sales of Aerie jumped 24% in the second quarter, much higher than expectations of 13.7%.
The company is also apt at quickly responding to changing fashion trends, something their customer base desires, and something their competitors like Gap and Abercrombie (ANF - Free Report) have trouble executing successfully.
In terms of estimate revision activity, American Eagle has seen a wave of positive change. For the next quarter, both its top and bottom line are looking to see year-over-year growth, while its current fiscal year has seen two positive revisions within the last 30 days. Make sure to keep an eye on these revisions in the near future. Currently, AEO is a Zacks Rank #2 (Buy).
AMER EAGLE OUTF Price, Consensus and EPS Surprise
AMER EAGLE OUTF Price, Consensus and EPS Surprise | AMER EAGLE OUTF Quote
Year-to-date, American Eagle has gained an impressive 22.32%, and if the company can keep its positive momentum going, it’s looking like AEO could be a solid retail pick for your portfolio.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>