American Eagle Outfitters Inc. (AEO) is one of the major specialty retailers of fashionable apparels and accessories in the U.S. and Canada. The company has a strong portfolio of well-established brands, each focused on the unique characteristics and rapidly changing preferences of target customers.
We believe American Eagle’s initiatives to strengthen its product assortments, store rationalization plans, diligent inventory management and e-Commerce upgrade hint at strong long-term growth. In order to boost its bottom line, American Eagle is continuously adopting strategies to reduce cost through supply chain efficiencies and updated product allocation system.
Additionally, we perceive that the company’s plan to widen its international footprint, together with omni-channel growth, provides it with a significant opportunity to expand business and efficiently cater to global demand. Of late, the company has been seeing strong profitability in its overseas licensed stores, with little capital requirements. Currently, American Eagle has seven partners with operations in 13 countries and plans to add more partners by the end of the year to explore new markets.
With regard to e-Commerce growth, the company is striving to develop its omni-channel platform in order to reach customers in every possible way. Hence, it is working toward enhancing the customers’ shopping experience on the web as well as on mobile by upgrading its website and mobile app. The company is also gaining from its pilot programs like “buy online, ship from store” that have resulted in incremental sales and efficient use of inventory.
However, this Zacks Rank #3 (Hold) company’s third-quarter fiscal 2014 results, characterized by a fall in sales and weak comparable-store sales, were a letdown. Though American Eagle’s earnings per share for third-quarter grew year over year, sales declined compared with the prior-year quarter. Moreover, comparable-store sales fell considerably due to the ongoing softness in mall traffic as well as a challenging and highly competitive retail environment.
Further, the company remains skeptical about its fourth-quarter performance as the aforementioned trends in traffic and the retail sector are expected to continue. The softness in sales results and a disappointing outlook have triggered a downtrend in the Zacks Consensus Estimate for the upcoming quarter and fiscal 2014 over the last 30 days.
The Zacks Consensus Estimate for fourth quarter rolled down 5.9% to 32 cents per share while for fiscal 2014 it declined 4.8% to 59 cents per share.
Further, the company’s declining comps trend, since the beginning of fiscal 2013, along with a sluggish macroeconomic recovery and its dependence on outside suppliers remain a concern.
Other Stocks to Consider
Better-ranked stocks in the same industry include Pacific Sunwear of California Inc. (PSUN), Shoe Carnival Inc. (SCVL) and Foot Locker Inc. (FL). While Pacific Sunwear and Shoe Carnival carry a Zacks Rank #1 (Strong Buy), Foot Locker holds a Zacks Rank #2 (Buy).
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