A month has gone by since the last earnings report for American Eagle Outfitters (AEO). Shares have lost about 2.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
American Eagle Beats on Q3 Earnings, Stock Falls on Weak Holiday View
American Eagle reported third-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate while revenues lagged the same. Both the bottom and top lines declined year over year.
The company’s earnings beat demonstrated effective progress on its Powering Profitable Growth strategy. A strong back-to-school season helped achieve robust comparable sales (comps) growth across brands and channels and aided adjusted operating income at the high end of its guidance.
The company’s adjusted earnings of 48 cents per share declined 2% compared with 49 cents earned in the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate of 46 cents per quarter.
Quarterly Revenues Details
Net revenues of $1.29 billion fell 1% year over year and missed the Zacks Consensus Estimate of $1.31 billion. The decrease can be primarily attributed to a $45 million headwind tied to the retail calendar shift. Consolidated comps improved 3% compared with 5% growth registered in the year-ago quarter.
Brand-wise, revenues declined 3% year over year to $832 million at the American Eagle brand. However, comps for the brand rose 3%. Revenues jumped 4.4% year over year to $410.4 million for the Aerie brand. However, comps for the brand were up 5%. Sturdy demand for its core apparel and strength in the Soft Dressing and OFFLINE Activewear brands aided growth.
An Insight Into Margins & Expenses
Gross profit decreased 3% year over year to $527 million. The gross margin contracted 90 basis points (bps) to 40.9%. The decrease was driven by higher markdowns and expense deleverage stemming from the retail calendar shift.
Selling, general, and administrative (SG&A) expenses fell 3% year over year to $351 million. As a percentage of sales, SG&A expenses decreased 50 bps to 27.3%. The decline in SG&A expenses was driven by lower compensation costs, including incentive pay, with reduced professional fees, services and maintenance costs. This was partly negated by elevated advertising expenses.
Adjusted operating income of $124 million was down 1.4% from the year-ago quarter, driven by the impact of the retail calendar shift to the tune of around $20 million.
Financial Health Snapshot
American Eagle ended the fiscal third quarter with cash and cash equivalents of $160.2 million, with no outstanding debt. Total shareholders’ equity as of Nov. 2, 2024, was $1.75 billion. Inventory rose 5% year over year to $804 million at the end of the reported quarter.
Capital expenditure was $61 million in the fiscal third quarter. The company expects capital expenditure of $225-$245 million for fiscal 2024.
In the fiscal third quarter, the company returned $24 million to its shareholders through dividends and share repurchases. In the first half of fiscal 2024, the company bought back 6 million shares for $131 million. Additionally, it paid out a quarterly dividend of 12.5 cents per share, reflecting a total dividend payout of $73 million in the year-to-date period. As of Nov. 2, 2024, the company had 24 million shares remaining under its current share repurchase authorization.
What to Expect in Q4 & FY24?
For the fourth quarter of fiscal 2024, American Eagle expects comps growth of 1%. Total revenues are estimated to decline 4% in the fiscal fourth quarter, including an impact of $85 million from the combination of the retail calendar shift and one less selling week.
The management anticipates operating income of $125-$130 million for the fiscal fourth quarter, representing currency pressure from the recent strengthening in the U.S. dollar, along with a $20 million drag from the retail calendar shift. SG&A is likely to leverage, owing to the efficiencies in key focus areas.
For fiscal 2024, the company expects comps to improve 3%. Total revenues are expected to increase 1%, including the impact of one less selling week. Management expects adjusted operating income of $428-$433 million in fiscal 2024 compared with $375 million in fiscal 2023, suggesting a mid-teens improvement year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -19.06% due to these changes.
VGM Scores
At this time, American Eagle has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise American Eagle has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
American Eagle is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Abercrombie & Fitch (ANF), a stock from the same industry, has gained 2.2%. The company reported its results for the quarter ended October 2024 more than a month ago.
Abercrombie reported revenues of $1.21 billion in the last reported quarter, representing a year-over-year change of +14.4%. EPS of $2.50 for the same period compares with $1.83 a year ago.
For the current quarter, Abercrombie is expected to post earnings of $3.50 per share, indicating a change of +17.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Abercrombie. Also, the stock has a VGM Score of B.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpAmerican Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
