We are upgrading our long-term recommendation on American Eagle Outfitters (AEO) to Outperform as the company's first quarter 2012 earnings of $0.22 per share beat the Zacks Consensus Estimate of $0.20 and climbed 37.5% from the prior-year period. The robust quarterly performance was primarily driven by an 18% increase in the top line, along with improved operating margin.
The company now expects earnings to be between $1.16 and $1.22 per share in fiscal 2012, reflecting year-over-year growth of 19% - 26%. 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 augment its top line performance as well as enhance gross margin.
Moreover, we believe the company's cost-saving initiatives and long-term growth strategy will not only provide financial flexibility, but will also help to drive value proposition. Shares of AEO were upgraded to a Zacks #1 Rank on May 30, 2012.
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