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Find Out What's Behind American Eagle's (AEO) Recent Rally

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American Eagle Outfitters Inc. (AEO - Free Report) is on a bull run lately backed by a solid comparable store sales (comps) trend. Also, a robust holiday season performance driven by record sales and strong momentum at its AE and Aerie brands is bolstering the stock.

In the last three months, shares of American Eagle have rallied 36.4% outperforming the industry’s gain of 17.2%. Let’s analyze the factors underscoring this Zacks Rank #2 (Buy) company’s performance.

Robust Comps Trend & Solid Holiday Show

American Eagle’s robust comps trend marked the 11th straight quarter of positive comps in third-quarter fiscal 2017. The key factors driving this trend include solid online sales, strength in both American Eagle (AE) and Aerie brands, improved in-store traffic and favorable product mix. Notably, Aerie delivered comps growth for 14 consecutive quarters.

The company maintained this solid comps trend in the holiday period as well. In fact, it delivered comps growth of 8% in the fourth quarter through December-end period, which mainly reflects the holiday season. The uptick can be attributed to record sales and strong momentum at its AE and Aerie brands.  Further, the company benefited from solid online and in-store traffic as customers responded positively to its merchandising offerings.

Robust Outlook Drives Estimates

Following the solid holiday season, American Eagle reiterated its strong guidance for fourth-quarter fiscal 2017. It envisions comps for the fiscal fourth quarter to increase mid single-digits. This is likely to result in earnings per share of 42-44 cents compared with 39 cents in the prior-year quarter.

Driven by the robust outlook for the fourth quarter and expectations to close the fiscal year on a strong note, the company’s Zacks Consensus Estimate have been witnessing an uptrend. Estimate for fiscal 2017 moved up by 1 cent to $1.16 per share in the last 30 days.

Enhancing Omni-Channel Capacities

American Eagle remains keen on strengthening omni-channel presence by improving its websites and mobile app. Backed by these efforts and efficient digital marketing endeavors, American Eagle’s e-commerce sales contributed about 25% to total revenues in third-quarter fiscal 2017. Strong online sales at both brands also aided in comps growth. This is likely to provide significant opportunities to American Eagle for expanding its business and cater to the incredible global demand for its products.

Strategic Initiatives Augur Well

American Eagle is focused on improving its product assortments by adding more compelling brands, managing inventory levels diligently and improving e-commerce business. Additionally, it remains committed toward enhancing store sales by rationalizing its brick and mortar store fleet that includes closing underperforming stores and expanding the profitable ones.

Meanwhile, the company continues to build customer base as evident from a 13% increase in loyalty members in the third quarter. It also remains on track to convert more than 15 million current metrics and attract new customers through its revamped loyalty program, which provides a seamless overall experience. Moreover, in order to boost its bottom line, American Eagle is continuously undertaking initiatives to reduce costs through supply chain efficiencies and its updated product allocation system.

Do Apparel Stocks Grab Your Attention? Check These

Investors interested in this space may consider Zumiez Inc. (ZUMZ - Free Report) , Chico’s FAS Inc. and Gap Inc. . While Zumiez sports a Zacks Rank #1 (Strong Buy), Chico’s and Gap carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Sports delivered an average positive earnings surprise of 22.2% in the trailing four quarters. It has a long-term earnings growth rate of 18%.

Chico’s FAS pulled off an average positive earnings surprise of 31.3% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 10%.

Gap delivered an average positive earnings surprise of 10.3% in the trailing four quarters. It has a long-term earnings growth rate of 8%.

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