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American Eagle's (AEO) Digital Sales High Amid Coronavirus

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Shares of American Eagle Outfitters, Inc. AEO gained 31.5% in the past three months, outperforming the industry and the Retail-Wholesale sector’s growth of 20% and 23.2%, respectively. The stock’s bullish run on the bourses resulted from strong digital demand as the ongoing pandemic forced in-store shoppers to shift to online shopping.

Keeping in these lines, management is banking on digital acceleration in the current scenario. In doing so, it ramped up e-commerce promotions and offered major discounts in a bid to increase customer engagement and boost sales. Also, the company tied up with social media influencers to attract more customers online.

As a result, American Eagle’s digital demand, as measured by ordered sales, was up 33% in the first quarter of fiscal 2020. After stores closed, demand accelerated to nearly 70% as new online customers more than doubled for both American Eagle and Aerie. This led to strong, consolidated digital sales growth of 9%, with a 75% increase for Aerie and 15% for AE.

Other major retailers that have been treading the same path include Abercrombie & Fitch ANF, Skechers SKX and V.F. Corp. VFC. While Abercrombie’s sales declined 34% in first-quarter fiscal 2020, digital sales grew 25% year over year. Moreover, Skechers’ top line declined 2.7% in the last reported quarter, while e-commerce sales increased more than 70% in the first quarter and crossed 250% in April. Also, sales for V.F. Corp. fell about 11% year over year in fourth-quarter fiscal 2020. However, its digital revenues were up 8%, with 9% growth in constant dollars during the fiscal fourth quarter, driven by double-digit growth in Vans, The North Face, Dickies and other emerging brands.

American Eagle is also benefiting from sales from reopened stores, improved inventory and cost-reduction efforts. As of Jun 3, the company reopened 556 stores. Notably, these stores are achieving nearly 95% of last year’s sales productivity. Even though stores are reopening gradually, the company has managed to maintain the robust digital sales momentum.

Further, inventory clearance positions the Aerie and AE brands for new back-to-school collections in late July, followed by the fall season in late September. The company expects inventory optimization initiatives, currently in place, to streamline assortments, provide greater alignment of inventory to sales plans and better utilize supply-chain strengths to chase product demand.

Apart from these, the company has undertaken certain preventive measures to stay afloat amid the uncertain coronavirus situation. In this regard, it has suspended the share repurchase program, deferred its first-quarter fiscal 2020 dividend payment, cut operating expenses, furloughed employees and reduced capital expenditure. Additionally, management withdrew $330 million from its revolving credit facility and raised $406 million from convertible bonds. This ensured liquidity of $886 million at the end of the fiscal first quarter.

However, extended store closures due to the coronavirus outbreak and aggressive inventory liquidation efforts led to drab first-quarter fiscal 2020 results, wherein the company reported a loss. Moreover, management withdrew the fiscal 2020 view citing uncertain impacts related to coronavirus that are yet to be assessed.

Wrapping Up

All said, we believe that this Zacks Rank #3 (Hold) company’s decision to go ahead with investments in digital and distribution centers, driven by robust online demand, will help rebound sales in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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V.F. Corporation (VFC) : Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
Abercrombie Fitch Company (ANF) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
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