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American Eagle (AEO) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

American Eagle Outfitters Inc. AEO is slated to release fourth-quarter fiscal 2018 results on Mar 6. The company delivered a positive earnings surprise in three of the trailing four quarters. Further, it recorded average earnings beat of 4.1% in the last four quarters.

The Zacks Consensus Estimate for earnings in the fiscal fourth quarter is pegged at 42 cents, reflecting a year-over-year decline of about 4.6%. Estimates have remained unchanged over the past 30 days. Management envisions adjusted earnings per share of 40-42 cents for the fiscal fourth quarter.

American Eagle Outfitters, Inc. Price and EPS Surprise

American Eagle Outfitters, Inc. Price and EPS Surprise | American Eagle Outfitters, Inc. Quote

Let’s see how things are shaping up prior to the earnings announcement.

Factors Likely to Influence Q4

American Eagle is benefiting from its efforts, including robust omni-channel endeavors and initiatives to strengthen brands. The company is striving to develop the omni-channel platform by enhancing digital portals while also investing in store fleet. This is boosting sales performance in stores as well as for digital channels. In the fiscal third quarter, digital business contributed about 27% to sales while in-store comps improved 6%.

Further, the Aerie brand continues to witness spectacular growth, driven by the company’s focus on strengthening brands. Notably, the Aerie brand delivered double-digit comps growth for 16 straight quarters, reflecting significant momentum across all areas of the business.

After the success of its core intimate offerings, the brand is rapidly gaining share in the innovative apparel market with the body positive movement. The Aerie brand is key growth engine for American Eagle and remains on track to reach the next brand milestone of $1 billion in sales.

These positive trends have led the company to post solid comps performances in the last few quarters. Notably, it recently reported solid comps for fourth-quarter fiscal 2018 through Jan 14, driven by gains from robust holiday season. Comps grew 6% for the period, driven by robust merchandising offerings and solid momentum at its AE and Aerie brands. In fact, the company witnessed impressive performance across brands and channels, reflecting strong momentum in its overall business.

The company posted comps growth of 8% in the fiscal third quarter, which marked the 16th straight quarter of positive comps. All these positives point toward robust fiscal fourth-quarter results for American Eagle on Mar 6. The Zacks Consensus Estimate for revenues in the fiscal fourth quarter stands at $1,267 million, reflecting 3.1% growth year over year.

Despite a favorable outlook, the company’s fiscal fourth-quarter guidance includes impacts of the additional 53rd week in fiscal 2017. This should result in a revenue decline of about $60 million and a decrease in earnings of 7 cents per share from the prior year. Furthermore, SG&A deleverage due to higher investments in brands and customer experience as well as higher store payroll, wages, and increased incentive expenses and advertising can weigh on the operating margin.

Zacks Model

Our proven model does not conclusively show that American Eagle is likely to beat earnings estimates in the fiscal fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Eagle currently has a Zacks Rank #3 but the company’s Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Zumiez Inc. ZUMZ has an Earnings ESP of +0.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Company ANF has an Earnings ESP of +2.28% and a Zacks Rank #2.

The Kroger Co. KR has an Earnings ESP of +3.42% and a Zacks Rank #3.

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