American Eagle Outfitters, Inc. AEO has encountered a notable resistance level, prompting caution among investors from a technical standpoint. AEO has been trading below both the 200-day and 50-day simple moving averages (SMAs) for quite some time now, suggesting a bearish trend.
AEO Trades Below 200 & 50-Day SMA
Image Source: Zacks Investment Research
Currently, at $15.78, AEO remains below its 200-day and 50-day SMAs of $19.85 and $17.04, respectively, indicating a possible sustained downward trend.
AEO struggled recently, facing company-specific challenges that led it to underperform the Zacks Retail - Apparel and Shoes industry. In the past three months, AEO’s shares have declined by 17.2%, compared to the industry's growth of 13.2%, highlighting company-specific challenges. AEO has lagged behind the broader Retail-Wholesale and S&P 500 growth of 2% and 9.3%, respectively.
AEO Stock's Past Three Months Performance
Image Source: Zacks Investment Research
Factors Behind AEO’s Stock Decline
The decline in the AEO stock is driven by the fact that the apparel retail industry is consumer-driven and highly sensitive to the health of the economy. Spending on apparel and accessories is closely tied to the personal disposable income of consumers. An increasingly competitive environment, along with early signs of recovery in a key competitor, has also contributed to the shift. Furthermore, a more challenging competitive landscape is emerging, particularly in the intimates and apparel sectors.
AEO witnessed soft margin performance in third-quarter fiscal 2024, primarily due to increased markdowns. Gross profit declined year over year, with the gross margin rate contracting. While initial merchandise margins remained relatively flat, higher markdowns, along with a deleverage in buying, occupancy, and warehouse costs due to lower revenues from the retail calendar shift, pressured overall profitability.
Do AEO’s Strategic Initiatives Hold Potential?
Despite challenges, American Eagle is actively executing its strategic initiatives aimed at driving long-term growth, enhancing operational efficiency and improving agility. The company is on track with its Powering Profitable Growth plan. American Eagle continues to benefit from strong brand performance and solid demand, particularly for its Aerie and American Eagle brands, which resonate well with customers.
The company witnessed record sales in December, benefiting from great product assortments and engaging customer experiences. Management raised its view for the fourth quarter of fiscal 2024 on robust trends seen across brands and holiday results. The company said that fourth quarter-to-date comparable sales (comps) through Jan. 4, 2025, increased in the low single digits, well ahead of its earlier outlook of being positive 1%. Management now envisions fourth-quarter operating profit to be nearly $135 million, up from the earlier guidance of $125-$130 million and our estimate of $134.9 million.
American Eagle has seen strong growth in its Aerie brand, driven by strength in apparel and the offline active sub-brand. The company is focused on building brand awareness and expanding into new categories, with momentum in Soft Dressing and OFFLINE Activewear serving as key long-term growth drivers. Soft Apparel’s growth, particularly in sleepwear, dresses, tees and sweaters, has been promising, and management sees potential in both Soft Apparel and Activewear moving forward.
Final Words on AEO Stock
American Eagle faces a critical moment as it navigates the challenges of weak technical indicators and recent stock underperformance warranting a cautious approach for potential investors. While the company’s growth story remains compelling, the sharp decline in its share price reflects diminished investor confidence. However, its robust strategies and long-term growth potential remain encouraging. Potential investors may wait for a more opportune entry point while existing shareholders might consider holding their positions. Currently, AEO has a Zacks Rank #3 (Hold).
Don’t Miss These Solid Bets
We have highlighted three better-ranked stocks in the broader sector, namely Deckers Outdoor DECK, Urban Outfitters Inc. URBN and Nordstrom, Inc. JWN.
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank #1 (Strong Buy). DECK delivered an earnings surprise of 36.8% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Deckers’ fiscal 2024 sales and earnings indicates growth of 15.3% and 20.6%, respectively, from the year-ago reported figures.
Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It sports a Zacks Rank #1 at present.
The Zacks Consensus Estimate for Urban Outfitters’ fiscal 2025 earnings and sales indicates growth of 20.6% and 7.5%, respectively, from the fiscal 2024 reported levels. URBN delivered a trailing four-quarter average earnings surprise of 22.8%.
Nordstrom, a fashion retailer, provides apparel, shoes, beauty, accessories and home goods for women, men, young adults and children, currently flaunts a Zacks Rank of 1. JWN delivered an earnings surprise of 30.3% in the last reported quarter.
The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 2.02% from the year-ago period’s reported figures.
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Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
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Today, See These 5 Potential Home Runs >>American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
