American Eagle's Mixed Quarter: Analysts Speak Up

American Eagle Outfitters AEO reported better-than-expected fourth-quarter earnings, but the stock fell after fourth-quarter revenue and first-quarter profit guidance missing consensus expectations.

Fourth-quarter earnings of 43 cents per share were down 17.3 percent from a year ago, but beat analyst expectations of 42 cents. Revenue was up 1.2 percent to $1.244, slightly below analyst expectations of $1.26 billion. Same-store sales were up 6 percent.

Looking ahead, American Eagle guided for first-quarter profit of between 19 cents and 21 cents per share, shy of analyst expectations of 24 cents.

Several analysts have weighed in on American Eagle following the report. Here’s a sampling of what they’ve had to say.

Profit Headwinds

Bank of America analyst David Buckley said decelerating same-store sales could be a headwind for profit growth in 2019.

“As the AE brand still accounts for 80%- 85% of sales, a low single digit AE brand comp could make it challenging for the total company to generate mid-single digit comp growth,” Buckley wrote in a note.

Bank of America projects fiscal 2019 same-store sales growth of just 3 percent, and its full-year EPS estimate of $1.50 is below Wall Street consensus by about 15 percent.

Markdown Improvements

Wedbush analyst Jen Redding said healthy markdown trends in the fourth quarter are a bullish sign for the spring shopping season. She said investors should be looking to buy the earnings dip.

“For shares of a quality retailer with high brand equity to trade at discount of 9% to their 5-year historical P/E is a bargain, even considering a late but better-than-expected Spring Season ahead,” Redding wrote.

RBC analyst Kate Fitzsimons said in-store and direct sales were strong in the fourth quarter, and improvements in markdowns suggest American Eagle’s core business fundamentals are strong.

“With +MSD top line in 2019 (+LSD comps and +LSD footage) and opex leverage in 2Q-4Q, AEO's valuation appears reasonable for a base case +HSD EPS grower, especially considering a 1-2x boost from aerie as its growth steps up in 2019,” Fitzsimons wrote.

She said the soft guidance is a reflection of broad weakness in the mall retail industry to start the year, but American Eagle continues to gain market share from competitors.

Ratings And Price Targets

• Bank of America has an Underperform rating and $16 target.
• Wedbush has an Outperform rating and $25 target.
• RBC has an Outperform rating and $24 target.

The stock traded around $20.80 per share at time of publication, down 2.6 percent.

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