Pennsylvania-based American Eagle Outfitters Inc. (AEO) fell 4.7% on the index as it posted a 2% decline in its consolidated comparable sales (comps) for the 9-week period ended Jan 4, 2014.
However, total sales over the holiday period inched up 1% year over year to $893 million, despite management’s conservative fourth-quarter outlook on grounds of weak store traffic and a highly competitive retail backdrop.
We observe that the company successfully battled the challenging retail environment by efficiently managing inventories and offering fewer discounts, leading to better-than-expected margins.
Although overall comps for the holiday period slipped, the company delivered positive comps for December on the back of lesser promotions and its fresh assortments which were embraced well by customers. Moreover, analysts believe that December comps gained from a fall in oil prices and an improvement in unemployment rate, which boosted consumer spending.
Following its better-than-expected holiday sales results, American Eagle upgraded its earnings projection for the fourth quarter. Management now envisions earnings to range from 32–34 cents a share, up from 30–33 cents forecasted earlier. This guidance represents growth of 19%–26% over last year’s earnings of 27 cents.
The holiday shopping season this year has been an uplifting one for most retailers, with many of them reporting solid sales numbers for the combined November and December months. Some of these retailers, with solid comps results include Macy's Inc. (M), J. C. Penney Company Inc. (JCP) and Aeropostale Inc. (ARO).
Overall, this Zacks Rank #3 (Hold) company remains pleased with its holiday sales results. American Eagle remains focused on strengthening its product assortments, undertaking store rationalization plans, diligently managing inventories and upgrading its eCommerce network. Further, the company is continuously adopting strategies to reduce costs through supply chain efficiencies and an updated product allocation system.
These undertakings are likely to take American Eagle forward on its growth path, driving its top and bottom lines, and maximizing shareholder value.
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