American Eagle Outfitters Inc. AEO stock has been consistent with its performance, courtesy of its robust sales trend, solid comparable store sales (comps) growth, focus on omni-channel and healthy balance sheet.
This led to an upsurge in the stock price, which also hovers close to its 52-week high. In the last three months, this Zacks Rank #3 (Hold) company has increased 14%, outperforming the industry’s 7.5% rise. Additionally, the Pittsburgh, PA-based specialty retailer has gained 6.1% since May 31, following the robust first-quarter fiscal 2018 results and solid second-quarter fiscal 2018.
Notably, the momentum of the stock has been intact after American Eagle reported excellent first-quarter fiscal 2018, characterized by accelerated sales, continued sequential margin improvement and EPS growth. Additionally, the company witnessed solid comps growth benefiting from strategic initiatives and ability to boost market share through strong brands and compelling merchandise. Notably, first-quarter fiscal 2018 marked the company’s fourth sales beat in the last five quarters alongside 13th straight quarter of positive comps.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise | American Eagle Outfitters, Inc. Quote
Estimates Trend Up
Driven by the robust fiscal first-quarter and second-quarter view, analysts remain optimistic on the stock. This is quite evident from the uptrend in earnings estimates over the last 30 days. The Zacks Consensus Estimate of 29 cents and $1.51 for second-quarter and fiscal 2018 moved north by a penny each. Management envisions earnings per share of 27-29 cents for the fiscal second quarter compared with 19 cents earned in the prior-year quarter. Comps are anticipated to increase in mid-single digit.
Strategies Supporting American Eagle’s Growth
American Eagle is striving to develop its omni-channel platform to reach customers in every possible way. For this, the company is not only enhancing its digital presence but also investing in its store fleet. Evidently, digital sales improved 20% in first-quarter fiscal 2018, contributing about 29% to net sales. In fact, this was the company’s 13th straight quarter of double-digit e-commerce growth.
Moreover, trends in brick-and-mortar stores improved as both AE and Aerie stores reported positive in-store comps, increasing in mid-single digit. This makes it clear that a winning marketing strategy in retail is providing the best combination of digital and physical store experiences.
In fiscal 2018, management intends to open 15-20 new AE outlets and 35-40 Aerie stores, including 10-15 standalone stores and balance side-by-side Aerie locations. Also, the company expects to shut down 10-15 AE stores and 5-10 old format Aerie stores.
American Eagle enjoys a strong financial status as well. The company had a debt-free balance sheet with cash and cash equivalents of $289.7 million as of May 5, where it also generated healthy cash flows. These cash flows help the company to make capital investments alongside returning excess cash to shareholders via dividends and share buybacks.
Backed by its strong cash position, positive free cash flow and gains from the tax reform, the company returned nearly $69 million to shareholders in the fiscal first quarter by paying dividends of $24 million and buying back 2.3 million shares for $45 million.
For fiscal 2018, management anticipates capital expenditures in the range of $180-$190 million, of which roughly 50% will be spent on store openings and refurbishment. The balance will be invested in omni-channel and digital projects as well as general corporate maintenance. This clearly underscores American Eagle’s commitment toward boosting shareholder value.
Based on the above-mentioned factors, we believe that American Eagle has significant growth potential in the days ahead. This is also evident from the company’s Momentum Score of B and a long-term earnings growth rate of 7%.
Looking for More Trending Picks? Look at These
Some better-ranked stocks in the same industry are Shoe Carnival Inc. SCVL, Urban Outfitters Inc. URBN and The Buckle Inc. BKE, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shoe Carnival has gained 37.2% in the last three months. The company has long-term earnings growth rate of 12%.
Urban Outfitters has long-term EPS growth rate of 12%. Further, the stock has gained 20.4% in the last three months.
Buckle has grown nearly 14.8% in the last three months. Moreover, the company delivered an average positive earnings surprise of 9.7% in the trailing four quarters.
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