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American Eagle & GGB Sign Agreement to Sell CBD Products

Zacks Equity Research

American Eagle Outfitters AEO signed a distribution agreement with Green Growth Brands (GGB) to sell hemp-derived cannabidiol (CBD)-infused personal care products. These products are exclusively developed for American Eagle and will be available in roughly 500 stores as well as online. 

Per the deal, these products include a wide range of CBD-infused personal care items such as lotions, muscle balms and aromatherapy, all of which will be sold from October 2019. These products come with the GGB’ expertise that helped in the formulation and packaging of this unique product line. GGB is known to use licensed hemp processors that meet the requirements of the 2018 Farm Bill.

Prior to this, DSW DSW, Abercrombie & Fitch ANF and Simon Property SPG have collaborated with GGB to sell CBD products across United States. Additionally, retailers like Rite Aid and Vitamin Shoppe have also introduced CBD products in their stores. With American Eagle joining the trend, it looks like the CBD business is on a roll, which, per sources, might reach $22 billion in sales by 2022. 

We expect this deal to enable the company to boost traffic in the near term. This should contribute significantly to this Zacks Rank #3 (Hold) company’s already robust comparable sales (comps) trend. Consolidated comps grew 6% in first-quarter fiscal 2019, marking the company’s 17th straight quarter of positive comps. Comps growth was backed by gains from initiatives, and the company’s ability to boost market share through strong brands and compelling merchandise. You can see the complete list of today’s Zacks #1 Rank stocks here.

In fact, the company’s brick-and-mortar stores are consistently performing well, backed by positive in-store comps at both AE and Aerie stores. Notably, in the last reported quarter, the company reported positive in-store comps for the sixth straight time. 

Despite impressive comps trend, management issued a soft earnings view for second-quarter fiscal 2019. Adjusted earnings for the fiscal second quarter are envisioned to be 30-32 cents. This guidance is also lower than the adjusted earnings of 34 cents reported in the year-ago quarter. This may be the reason behind the stock’s dismal run on the bourses. Notably, shares of the company have lost 23.6% in the past three months, underperforming the industry’s decline of 19.6%.

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