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Why Is American Eagle (AEO) Down 9.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for American Eagle Outfitters (AEO - Free Report) . Shares have lost about 9.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
American Eagle’s Q1 Earnings Beat Estimates, Revenues Miss
American Eagle Outfitters 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 improving 12%.
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.
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.
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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 5.28% due to these changes.
VGM Scores
At this time, American Eagle has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, American Eagle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is American Eagle (AEO) Down 9.6% Since Last Earnings Report?
A month has gone by since the last earnings report for American Eagle Outfitters (AEO - Free Report) . Shares have lost about 9.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
American Eagle’s Q1 Earnings Beat Estimates, Revenues Miss
American Eagle Outfitters 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 improving 12%.
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.
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.
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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 5.28% due to these changes.
VGM Scores
At this time, American Eagle has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, American Eagle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.