American Eagle's Comparables Fall - Analyst Blog

American Eagle Outfitters Inc.'s (AEO) comparable-store sales for December plummeted 11.0% against a 7.0% increase in the year-earlier period. Total sales for the five weeks ended January 1, 2011, dropped 6% to $499 million from $531 million for the five weeks ended January 2, 2010.

Year to date, comparable-store sales dropped 1.0% versus a 5.0% decline in the same period last year. Total sales for the period came in at $2.82 billion, which represents an increase of 1.0% from $2.78 billion a year ago.

The company hinted that although men's and women's denim and the direct-to-consumer business performed well in the month, sales declined from the encouraging levels seen in November. Additionally, American Eagle pointed out that effective inventory management and cost containment efforts are helping in alleviating the pressure on earnings.   

American Eagle reduced its expectation for fourth quarter earnings from continuing operations to a band of 41 cents to 43 cents per share from the prior range of 43 cents to 46 cents per share. The Zacks Consensus Estimate of 42 cents is in consonance with the guidance range.

We remain impressed with the company's continued momentum in denim along with improved merchandise assortments in the women's business segment, which will likely lead to a turnaround in top-line momentum as well as a rebound in gross margin.

The company operates in a highly fragmented specialty retail sector and faces intense competition from other teenage-focused retailers, such as Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS).

American Eagle's shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold' recommendation. Our long-term recommendation on the stock remains ‘Neutral'.

 
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
 
ABERCROMBIE (ANF): Free Stock Analysis Report
 
GAP INC (GPS): Free Stock Analysis Report
 
Zacks Investment Research