In a bid to boost shareholders’ return, American Eagle Outfitters Inc. (AEO) recently announced a special cash dividend of $1.50 per share along with its regular quarterly cash dividend of 11 cents per share. The company has a long track record of consistently paying quarterly dividend for more than 8 years.
Both the dividend will be paid on October 10, 2012 to the shareholders of record as of September 26, 2012. This will bring the annualized dividend yield to approximately 8.3%.
The announcement of special cash dividend was primarily aided by the company’s strong balance sheet position and ability to generate excessive free cash flow. Moreover, this clearly signifies its potential to improve continuously in the long term. The company remains focused on maximizing its profits by constantly enhancing its merchandise assortments and improving customer offerings.
Going ahead in 2012, the company expects its profits to grow continually, given the right mix of products and marketing plans.
The company lately reported a very encouraging second quarter fiscal 2012 financial results, with earnings surging nearly 62% to 21 cents per share from 13 cents earned in the year-ago quarter. The year-over-year growth in earnings was driven by a double-digit growth in top line, coupled with lower input and operating expenses. Further, during the quarter, American Eagle's net sales went up 11% year over year to $739.7 million, primarily driven by a 9% increase in comparable store sales.
Further, American Eagle ended the quarter with cash and short-term investments of $702 million compared with $514 million in the year-ago period. During the first six months of fiscal 2012, the company generated $47.7 million cash from operating activities while it deployed $48.2 million toward capital expenditure.
Encouraged by strong second quarter fiscal 2012 results, the company raised its earnings guidance range to $1.33 – $1.36 per share from $1.16 – $1.22 forecasted earlier. The current Zacks Consensus Estimate stands at $1.36 per share. The improved guidance range is based on the company’s expectation of mid-single-digit and low-sing-digit growth in comparable store sales for third and fourth quarters of fiscal 2012.
Our Recommendation
American Eagle now plans to focus more on merchandise assortments, adding more compelling brands, managing inventory level much diligently and augmenting the e-commerce business. Further, in order to emphasize more on the core business, while generating the best possible return for shareholders, the company has decided to exit its children’s brand, 77Kids.
We remain impressed with the company’s continued momentum in denim along with improved merchandise assortments in the women’s business segment, which will likely augment its top-line performance as well as enhance the gross margin.
Moreover, we believe that American Eagle’s cost-saving initiatives and long-term growth strategy will not only provide financial flexibility, but also will help to drive value proposition. In an effort to boost its bottom line, the company is relentlessly focusing on initiatives to cut down costs through supply chain efficiencies and updated product allocation system.
American Eagle, which competes with Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS), carries a Zacks #1 Rank, translating into short-term Strong Buy rating for the next 1-3 months. Moreover, we maintain our long-term ‘Outperform’ recommendation on the stock.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
ABERCROMBIE (ANF): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
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