American Eagle Outfitters, Inc. (AEO) lowered its second-quarter fiscal 2013 earnings per share guidance to nearly 10 cents, compared with 21 cents delivered in the prior year. The company is slated to announce the results on Aug 21, 2013.
The company at its last earnings call had forecasted earnings between 19 cents to 21 cents a share. We would also witness a downward revision in the Zack Consensus Estimate, which currently stands at 21 cents.
The downward revision for the second quarter was mainly driven by lower-than anticipated sales. Sales were negatively impacted by dismal performance of women's collections and comparatively lower traffic. Further, an intensified promotional retail atmosphere dampened the quarterly sales figures.
While total net revenue dropped about 2% in the quarter, total comparable sales, including AEO Direct, declined 7% against an increase of 8% in the prior-year period.
The company had also reported disappointing first-quarter 2013 results, mainly due to weak sales trends in seasonal merchandise owing to cooler-than-usual weather conditions and higher operating expenses. Moreover, the company’s conservative guidance has stalled the positive outlook of investors.
However, we believe that American Eagle’s focus on its Direct business, AEO men’s business, aerie, factory stores and overseas markets and sustained efforts to improve women’s business segment are likely to augment its results in the long term.
Further, we are impressed by American Eagle’s rewards program, strategic store expansion, and emphasis on inventory control that position the company well for future growth. Moreover, we believe that the company’s cost-saving initiatives and long-term growth strategy will not only provide financial flexibility, but will help drive the stock’s value as well.
However, the apparel retail industry is a consumer-driven one and hence very sensitive to the health of economy. Spending on apparel and accessories is heavily dependent on the personal disposable income of consumers. The current macroeconomic challenges such as high household debt and unemployment levels may restrain customers’ spending on these items.
Currently, American Eagle carries a Zacks Rank #3 (Hold). Other stocks in the retail sector that are worth a look include The Children's Place (PLCE), Citi Trends, Inc. (CTRN) and DSW Inc. (DSW). All of them carry a Zacks Rank #2 (Buy).
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