American Eagle Outfitters Inc.'s (AEO) strong first-quarter 2012 results brought this specialty retailer near its 52-week high. Furthermore, AEO became a Zacks #1 Rank (Strong Buy) on May 30, just seven days after the announcement.
Fabulous First Quarter
American Eagle Outfitters posted fiscal first-quarter 2012 earnings of 20 cents per share on May 23, matching the Zacks Consensus Estimate and increasing substantially from 14 cents in the prior-year quarter. Solid top-line performance and improved operating margin fueled the growth.
Net sales rose 18% to $719.1 million. The growth was powered by a 17% increase in comparable-store sales. Operating income increased 46% to $64.3 million, whereas operating margin expanded 180 basis points to 9.1%.
The company now wants to focus more on merchandise assortments, add more compelling brands, manage inventory levels more diligently and augment the e-commerce business, while enhancing store sales productivity by exiting underperforming stores.
Management now foresees mid single-digit comparable-store sales growth in the second quarter and low to mid single-digit growth for fiscal 2012. Earnings are projected between 13 cents and 15 cents for the second quarter and $1.16 to $1.22 for fiscal 2012.
Estimates Flying High
In the past 30 days, the Zacks Consensus Estimate for the fiscal year ending January 2013 rose 13% to $1.22 on the back of upward revisions in all 18 estimates. The current estimate, which is exactly at the upper end of the company's guidance range, reflects a year-over-year growth of 25.8%.
For the fiscal year ending January 2014, the Zacks Consensus Estimate is $1.40 per share, reflecting an increase of 13.8% in the last 30 days, aided by 19 upward revisions out of 22 total estimates. This suggests year-over-year profit growth of nearly 15%.
Valuation Stretched, Yet Lucrative
American Eagle Outfitters currently trades at a forward P/E of 16.1x, reflecting a 13.7% premium to the peer group average of 14.1x. Also, on a price-to-book basis, shares trade at 2.6x, an 18.1% premium to the peer group average of 2.2x. Given the company's compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 13.4%.
With respect to return on assets (:ROA), the stock looks attractive. It has a 12-month ROA of 9.4%, which is above its peer group average of 8.9%. This implies that the company is utilizing its assets more efficiently than its peer group in generating earnings.
Chart Showing Strength
Shares of American Eagle Outfitters have been trading in the range of $15.72 to $17.89 for the period between January 3 and May 1, 2012. It broke that range on May 2 and started inching closer to its 52-week high of $21.13. Moreover, the stock's current price of $19.62 is above the 50 and 200-day moving averages, which stand at $18.78 and $15.79, respectively. In fact, the stock has been consistently trading above its 200-day moving average since January 19, 2012. Also, it has remained above the 50-day moving average since February 15, 2012.
Volume is fairly strong, averaging roughly 5,783K daily.AEO, which competes with Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS), has outperformed the S&P 500 over the past three months. The year-to-date return for the stock is 28.3% compared with the S&P 500's return of 4.4%.
Founded in 1977 and headquartered in Pittsburgh, Pennsylvania, American Eagle Outfitters is a specialty retailer of apparel, accessories and personal care products under the brand names of American Eagle Outfitters, Aerie and 77kids. The company currently operates 1,090 outlets in North America.
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