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American Eagle (AEO) on Track for Growth: Should You Buy?
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American Eagle Outfitters Inc. (AEO - Free Report) has been gaining from brand strength and solid demand, driven by products that resonate with customers. The company's Aerie and American Eagle brands have been performing well. Also, it is well-poised to tap the positive trends in the fashion arena, thanks to its digital endeavors and other robust strategies, including the Real Power Real Growth Plan.
As a result, management expects revenues to increase 2-4% year over year in fiscal 2024, including a one-point negative impact of one less week than last year.
Buoyed by these strengths, shares of this apparel and footwear dealer have jumped 33.7% compared with the industry’s 24.2% growth in a year. AEO also compared favorably with the sector’s growth of 19.5% and the S&P 500’s improvement of 26.2% in a year. Its VGM Score of A adds strength to this Zacks Rank #2 (Buy) company.
Image Source: Zacks Investment Research
Strategies in Focus
American Eagle remains well-placed on the back of cost-reduction efforts, strength in Aerie and a solid online show. The company’s profit improvement initiatives have been paying off. This, along with lower delivery, distribution and warehousing costs, aided first-quarter fiscal 2024 margins. Also, higher merchandising margins stemming from lower markdowns, inventory control, and lower transportation and product costs acted as tailwinds.
Driven by these factors, the gross margin expanded 240 basis points (bps) year over year. The operating margin of 6.8% expanded 270 bps year over year. The adjusted operating margin for the Aerie and AE brands increased 70 bps to 16.5% and 310 bps to 19%, respectively.
American Eagle has a clear vision for growth and profitability through its Real Power Real Growth and Powering Profitable Growth plans. This growth can be achieved by focusing on areas such as real estate optimization, inventory management, omni-channel strategies and customer-centric initiatives.
The targets in the new Powering Profitable Growth plan are achievable, which include annual operating income growth in the mid to high-teens to more than $570 million by the end of fiscal 2026. This translates into an operating margin of 10% through the end of fiscal 2026, implying an expansion of 300 bps in the three years between fiscal 2023 and 2026. The plan aims for 3-5% annual revenue growth by fiscal 2026, reflecting a strong belief in the brand’s potential for expansion. This indicates revenues of $5.7-$6 billion at the end of fiscal 2026.
As part of the Real Power Real Growth plan, American Eagle continues to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base.
Driven by the progress of its growth plans, the company reiterated its guidance for fiscal 2024. American Eagle expects revenues to increase 2-4% year over year for fiscal 2024. Operating income is estimated to be $445-$465 million.
AEO expects the business momentum to continue in second-quarter fiscal 2024. The company anticipates year-over-year revenue growth in the high-single digits, including the $55-million positive impacts of the retail calendar shift. Operating income is projected to be $95-$100 million for the fiscal second quarter.
Other Key Picks
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Gap and Deckers Outdoor (DECK - Free Report) .
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings indicates growth of 11.5% and 51.1%, respectively, from the year-ago reported figure. ANF delivered an earnings surprise of 210.3% in the last reported quarter.
Gap, a leading apparel retailer, presently has a Zacks Rank of 2. GPS delivered an average earnings surprise of 202.7% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s current financial-year sales and earnings indicates growth of 0.2% and 24.5%, respectively, from the year-ago reported figures.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2. DECK delivered an earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings indicates growth of 11.5% and 8.3%, respectively, from the year-ago reported figure.
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American Eagle (AEO) on Track for Growth: Should You Buy?
American Eagle Outfitters Inc. (AEO - Free Report) has been gaining from brand strength and solid demand, driven by products that resonate with customers. The company's Aerie and American Eagle brands have been performing well. Also, it is well-poised to tap the positive trends in the fashion arena, thanks to its digital endeavors and other robust strategies, including the Real Power Real Growth Plan.
As a result, management expects revenues to increase 2-4% year over year in fiscal 2024, including a one-point negative impact of one less week than last year.
Buoyed by these strengths, shares of this apparel and footwear dealer have jumped 33.7% compared with the industry’s 24.2% growth in a year. AEO also compared favorably with the sector’s growth of 19.5% and the S&P 500’s improvement of 26.2% in a year. Its VGM Score of A adds strength to this Zacks Rank #2 (Buy) company.
Image Source: Zacks Investment Research
Strategies in Focus
American Eagle remains well-placed on the back of cost-reduction efforts, strength in Aerie and a solid online show. The company’s profit improvement initiatives have been paying off. This, along with lower delivery, distribution and warehousing costs, aided first-quarter fiscal 2024 margins. Also, higher merchandising margins stemming from lower markdowns, inventory control, and lower transportation and product costs acted as tailwinds.
Driven by these factors, the gross margin expanded 240 basis points (bps) year over year. The operating margin of 6.8% expanded 270 bps year over year. The adjusted operating margin for the Aerie and AE brands increased 70 bps to 16.5% and 310 bps to 19%, respectively.
American Eagle has a clear vision for growth and profitability through its Real Power Real Growth and Powering Profitable Growth plans. This growth can be achieved by focusing on areas such as real estate optimization, inventory management, omni-channel strategies and customer-centric initiatives.
The targets in the new Powering Profitable Growth plan are achievable, which include annual operating income growth in the mid to high-teens to more than $570 million by the end of fiscal 2026. This translates into an operating margin of 10% through the end of fiscal 2026, implying an expansion of 300 bps in the three years between fiscal 2023 and 2026. The plan aims for 3-5% annual revenue growth by fiscal 2026, reflecting a strong belief in the brand’s potential for expansion. This indicates revenues of $5.7-$6 billion at the end of fiscal 2026.
As part of the Real Power Real Growth plan, American Eagle continues to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base.
Driven by the progress of its growth plans, the company reiterated its guidance for fiscal 2024. American Eagle expects revenues to increase 2-4% year over year for fiscal 2024. Operating income is estimated to be $445-$465 million.
AEO expects the business momentum to continue in second-quarter fiscal 2024. The company anticipates year-over-year revenue growth in the high-single digits, including the $55-million positive impacts of the retail calendar shift. Operating income is projected to be $95-$100 million for the fiscal second quarter.
Other Key Picks
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Gap and Deckers Outdoor (DECK - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer, currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings indicates growth of 11.5% and 51.1%, respectively, from the year-ago reported figure. ANF delivered an earnings surprise of 210.3% in the last reported quarter.
Gap, a leading apparel retailer, presently has a Zacks Rank of 2. GPS delivered an average earnings surprise of 202.7% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s current financial-year sales and earnings indicates growth of 0.2% and 24.5%, respectively, from the year-ago reported figures.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2. DECK delivered an earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings indicates growth of 11.5% and 8.3%, respectively, from the year-ago reported figure.