American Eagle Outfitters Stock Plunges: What's Going On?

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American Eagle Outfitters reported flat Q3 earnings and downgraded Q4 guidance, citing revenue challenges and margin pressures.
Analysts downgraded the stock, highlighting concerns over weak holiday sales forecasts and consumer uncertainty.
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American Eagle Outfitters, Inc. AEO shares are trading lower Thursday. The company reported mixed third-quarter earnings and provided weak guidance for the holiday season. There have also been some analyst updates. Here’s what you need to know.

What To Know: The retailer reported earnings per share of 48 cents. Revenue came in at $1.28 billion, down 1% year-over-year and below the prior-year figure of $1.3 billion. The decline was attributed to a $45 million negative impact from a retail calendar shift. Comparable sales rose by 3%, slower than the 5% growth reported in the same quarter last year according to Benzinga Pro.

Aerie also posted a 5% increase in comparable sales, following a 12% rise in the prior year, while the American Eagle brand saw a 3% uptick, slightly improving from last year's 2% growth. Gross profit dipped 3% to $527 million, with gross margin declining to 40.9% from 41.8% due to higher markdown activity and expense deleverage linked to the calendar adjustment.

CEO Jay Schottenstein emphasized the positive momentum from the company’s “Powering Profitable Growth Plan,” citing a robust back-to-school season. However, he acknowledged significant challenges for the fourth quarter, including an anticipated 4% revenue decline and a modest 1% increase in comparable sales.

Analyst Update: JP Morgan analyst Matthew Boss downgraded American Eagle's stock from Overweight to Neutral, slashing the price target from $27 to $23. He noted that the third quarter revealed a “core miss,” flagging increased markdown pressures and unfavorable foreign exchange impacts as key risks. Boss also pointed to uneven consumer demand as a lingering concern, adding to the headwinds the retailer faces during the critical holiday season.

Bank of America and Telsey Advisory Group also joined in cutting price targets, now set at $21 and $20, respectively.

Outlook: The company's fourth-quarter guidance projected earnings of 46 cents per share, significantly below the consensus estimate of 59 cents. Management cited an $85 million revenue headwind from the retail calendar shift and persistent demand uncertainty as primary challenges.

AEO Price Action: American Eagle Outfitters shares were down 13.7% at $17.68 at the time of writing, according to Benzinga Pro.