Shares of American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) have risen 11.3% after it reported robust comparable sales (comps) from the start of the fourth quarter fiscal 2024  through Jan. 4, 2025, which increased in the low-single digits, ahead of its outlook of 1% growth. The company benefited from positive trends across American Eagle and Aerie brands during the holiday season.

AEO witnessed record sales in December, benefiting from great product assortments and engaging customer experiences. As a result, management raised its view for the fourth quarter of fiscal 2024.

The company’s share growth of 11.3% since Jan. 13, 2025, contrasts with the broader industry’s growth of 2.8%, and the Retail-Wholesale sector and the S&P 500’s rallies of  2.7% each.

AEO Stock’s Price Performance

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AEO’s Raised Q4 View

American Eagle is benefiting from its digital endeavors and other robust strategies, including the Powering Profitable Growth Plan. The company is gaining from brand strength and solid demand for its products that resonate well with customers.

Management envisions a fourth-quarter fiscal 2024 operating profit of $135 million, up from the earlier mentioned $125-$130 million. This is based on comps growth of about 2% for the fourth quarter of fiscal 2024, whereas it reported an 8% rise in the prior year.

Backed by a continued focus on maintaining operational efficiencies, the company is on track to deliver high-teens operating profit growth in fiscal 2024.

AEO bought back 1.5 million shares for $27 million in the fiscal fourth quarter through Jan. 4, bringing total fiscal year-to-date repurchases to 7.5 million shares for $158 million. Following this, the company has 22.5 million shares available for repurchase under its current authorization. It has returned $231 million in cash to shareholders via dividends and share repurchases so far in fiscal 2024.

American Eagle’s Estimate Revision Trend

Reflecting the upgraded view, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past seven days, analysts have increased their estimates for the fourth quarter and fiscal 2024 by a penny each to 49 cents and $1.70 per share, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

AEO’s Discounted Valuation

American Eagle’s current valuation suggests that the stock is available at a discounted price compared with the industry average. The AEO stock trades at a forward 12-month price-to-earnings (P/E) ratio of 9.6X, significantly lower than the Zacks Retail – Apparel and Shoes industry average of 18.9X and the S&P 500’s average of 22.31X.

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Is AEO’s One-Year Performance as Impressive?

While the AEO stock has rebounded after the holiday results, its one-year stock performance is not as impressive. The stock has declined 14.2% in the past year against the industry’s growth of 40.9% and the sector’s rally of 30.5%. It has also surpassed the S&P 500’s growth of 24.3%.

At the current price of $17.24, the American Eagle stock reflects a 34.8% discount from its 52-week high mark of $26.44. This indicates that the stock has upside potential.

American Eagle has been witnessing cautiousness about challenges from retail calendar shifts, increased markdowns and a tough macro landscape, including evolving consumer spending patterns. American Eagle has been grappling with soft margins for a while due to increased markdowns.

Impacts from the retail calendar shift are expected to hurt the company’s overall revenues, reflecting an $85-million impact in the fourth quarter and $60 million in fiscal 2024. In addition, stiff competition in the industry is concerning.

How to Play the American Eagle Stock?

Reflecting the near-term headwinds from softer earnings and muted guidance raises concerns about the AEO stock's near-term growth potential. While its long-term strategies provide a foundation for recovery, concerns around a declining gross margin, elevated promotional activities and reduced earnings forecasts suggest caution.

For now, investors may want to wait for signs of stabilization in earnings and margin trends before considering a position in AEO. American Eagle currently carries a Zacks Rank #5 (Strong Sell).

Three Picks You Can't Miss

We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) , Deckers Outdoor (DECK Quick QuoteDECK - Free Report) and Urban Outfitters (URBN Quick QuoteURBN - Free Report) .

Abercrombie, a leading casual apparel retailer, currently flaunts a Zacks Rank #1 (Strong Buy). Abercrombie has a trailing four-quarter earnings surprise of 14.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ANF’s fiscal 2024 sales and earnings indicates growth of 15.1% and 69.3%, respectively, from the year-ago reported figures.

Deckers, a footwear and accessories dealer, presently sports a Zacks Rank #1. DECK delivered an earnings surprise of 41.1% in the trailing four quarters, on average.

The Zacks Consensus Estimate for Deckers’ fiscal 2024 sales and earnings indicates growth of 14.1% and 14.4%, respectively, from the year-ago reported figures.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for Urban Outfitters’ fiscal 2024 sales and earnings indicates growth of 7.3% and 20%, respectively, from the year-ago quarter’s reported numbers. URBN has a trailing four-quarter earnings surprise of 22.8%, on average.