Apparel retailer American Eagle Outfitters, Inc. (AEO) is a specialty retail company that offers clothing, accessories, and personal care products under the American Eagle and Aerie brand names. The company’s offerings include specialty apparel for men and women, activewear and swim collections, accessories, and personal care products for women.

Recently, the AEO brand Unsubscribed expanded to New York City. The company’s high-end label, launched in the summer of 2020, is now expanding to Manhattan’s Upper East Side. The brand first opened its store in East Hampton, followed by Palm Beach, Westport, and Greenwich in Connecticut. The company intends to meet its financial goals through its expansionary policies.

However, AEO’s stock has declined 59.3% over the past year and 47.4% year-to-date to close Friday’s trading session at $13.32. It has declined 13.8% over the past month.

Mixed Financials

For the fiscal fourth quarter ended January 29, AEO’s total net revenue increased 16.7% year-over-year to $1.51 billion. Gross profit rose 11.1% from the prior-year quarter to $488.69 million. However, its non-GAAP net income and non-GAAP earnings per common share decreased 5.4% and 10.3% from the same period the prior year to $71.65 million and $0.35.

Mixed Analyst Expectations

The Consensus EPS estimates of $0.25, $0.39, and $1.99 for the quarter ended April 2022, the quarter ending July 2022, and the fiscal year 2023 indicate a 47.9%, 35%, and 9.1% year-over-year decrease. However, Street EPS estimate for fiscal 2024 of $2.48 reflects a rise of 24.6% from the prior year. Its EPS is expected to increase 8.4% per annum over the next five years.

The consensus revenue estimates for fiscal 2023 and fiscal 2024 of $5.66 billion and $6 billion indicate 12.9% and 6% year-over-year increases.

Mixed Profit Margins

AEO’s trailing 12-month ROE, ROTC, and ROA of 33.43%, 12.41%, and 11.08% are 90.8%, 67%, and 82.9% higher than their respective industry averages of 17.52%, 7.43%, and 6.06%.

On the other hand, the stock’s trailing 12-month levered FCF margin of 0.82% is 78.1% lower than the industry average of 3.75%.

Mixed Past Growth

AEO’s revenue, net income, and EPS have grown at a CAGR of 7.5%, 17%, and 11.4% over the past three years. However, its tangible book value and levered FCF have declined at a CAGR of 5.1% and 42.1% over the past three years.

POWR Ratings

AEO has an overall rating of C, which equates to Neutral in our proprietary POWR Rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a Value grade of B, in sync with its forward P/E multiple of 6.62, which is 43.6% lower than the industry average of 11.74. In terms of its forward Price/Sales, it is trading at 0.40x, 53.9% lower than the industry average of 0.86x.

On the other hand, AEO has a D grade for Stability, consistent with its five-year monthly beta of 1.32.

The stock has a Quality grade of C, which is justified by its mixed profitability margins.

In the 68-stock Fashion & Luxury industry, AEO is ranked #60. The industry is rated A.

Click here to see the additional POWR Ratings for AEO (Growth, Momentum, and Sentiment).

View all the top stocks in the Fashion & Luxury industry here.

Bottom Line

The recent expansion of the company’s high-end brand might propel growth. However, the company’s bleak bottom line in the last reported quarter and analysts expecting a further decline in its EPS this year make its near-term prospects look uncertain. Hence, I think it might be wise to wait for a better entry point in the stock.

How Does American Eagle Outfitters, Inc. (AEO) Stack Up Against its Peers?

While AEO has an overall POWR Rating of C, one might consider looking at its industry peers, J.Jill, Inc. (JILL) and Caleres, Inc. (CAL), which have an overall A (Strong Buy) rating, and Chico’s FAS, Inc. (CHS) and PVH Corp. (PVH), which have an overall B (Buy) rating.

AEO shares were unchanged in after-hours trading Monday. Year-to-date, AEO has declined -48.42%, versus a -16.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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