American Eagle Outfitters Faces Slower Q1 After Strong Holidays, Analyst Trims Forecast

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of American Eagle Outfitters Inc AEO and lowered the price target from $18 to $12.

The company’s quarterly performance was driven by stronger expense control and a favorable gross margin, with sales falling 4.4% to $1.605 billion, slightly better than the expected 4.6% decline, noted the analyst.

The gross margin remained flat at 37.3%, surpassing expectations, and SG&A improved due to lower compensation expenses. Operating income of $142.3 million exceeded consensus and guidance.

The quarter’s operating income was the highest in over a decade, reflecting progress in the Powering Profitable Growth strategy.

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According to the analyst, AEO’s FY25 outlook is weaker than expected, with a low single-digit revenue decline projected, falling short of the prior consensus for a 3% increase.

The company cited slower demand and cold weather in first-quarter FY25 but anticipates improvement by spring.

Sales have softened in first-quarter due to a weaker consumer and unfavorable weather, with limited visibility for improvement amid a challenging macro environment.

Gross margin is expected to decline, and SG&A is projected to contract. Operating income is guided between $360 million – $375 million, significantly lower than the consensus of $454 million.

While management is taking steps to boost sales and reduce costs, both FY25 and first-quarter guidance are well below prior expectations.

Despite confidence in a recovery, the uncertain macro backdrop remains a significant hurdle. AEO’s strong performance during peak periods contrasts with challenges in the slower periods, concluded the analyst.

Price Action: AEO shares are trading lower by 4.19% at $10.97 at last check Thursday.

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