Here's Why American Eagle (AEO) is Rallying Ahead of Industry
American Eagle Outfitters, Inc. AEO appears a promising pick now, thanks to its digital endeavors and other robust strategies including the Real Power Real Growth Plan. The company is gaining from brand strength and solid demand for its products that resonate well with customers. Undoubtedly, management is focused on creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses.
Recently, the company posted sturdy holiday results. The company said that fourth quarter-to-date revenues, through Saturday, Dec 30, 2023, increased roughly 8%, with American Eagle rising in high-single digits and Aerie growing in the low teens. American Eagle is experiencing growth across its brands. Moving into 2024, management is confident about delivering solid earnings growth and operating rate improvement with inventory and promotional discipline, expense control prioritization and gain from profit-improvement initiatives.
As a result, management projected fourth-quarter revenues to rise in low-double digits, including a four-point contribution from the 53rd week. It estimated operating profit of about $130 million, higher than the earlier guided range of $105-$115 million.
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American Eagle is on track with its Real Power Real Growth value-creation plan, which has been aiding the company’s performance for a while now. The plan is driving profitability through real estate and inventory-optimization efforts, omnichannel and customer focus, and investments to improve the supply chain. As part of the aforesaid initiative, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a wider customer base. Management also expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
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American Eagle’s Aerie brand has also been exhibiting momentum for quite some time now. Sturdy demand in its core apparel, activewear extension, strength in the OFFLINE brand and renewed momentum in intimates have been boosting the brand’s growth. Strength in its core apparel collection, particularly in fleece, bottoms and tops, is acting as a major growth driver. Also, its activewear extension, OFFLINE by Aerie, bodes well on the back of tops, sports bras, active shorts and fashion items.
The Aerie brand is a key growth engine for American Eagle and remains on track to reach the next brand milestone of $2 billion in sales. Further, the company’s profit-improvement endeavors have been paying off.
Analysts also seem quite optimistic about Aerie’s parent company. The Zacks Consensus Estimate for fiscal 2023 sales and earnings per share (EPS) is currently pegged at $5.2 billion and $1.37, respectively. These estimates show corresponding growth of 4.6% and 41.2% year over year. The consensus mark for the next fiscal year’s sales and EPS is $5.4 billion and $1.42, respectively, reflecting a year-over-year increase of 2.6% and 4.3%.
Buoyed by such strengths, shares of this apparel and footwear dealer have surged a whopping 73% compared with the industry’s 30.4% growth in the six-month time frame. A VGM Score of A further adds strength to this current Zacks Rank #2 (Buy) company. Given all the positives, American Eagle stock seems to deserve a place in your investment portfolio.
Eye These Solid Picks Too
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch ANF, Hibbett HIBB and Gap GPS.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 13.3% from the year-ago reported figure. ANF delivered an earnings surprise of 713% in the last reported quarter.
Gap, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 137.9%, on average.
The Zacks Consensus Estimate for Gap’s current financial-year EPS suggests growth of 387.5%, from the year-ago reported figure.
Hibbett, the key sporting goods retailer, currently sports a Zacks Rank of 1. HIBB delivered an earnings surprise of 24.2% in the trailing four quarters.
The Zacks Consensus Estimate for Hibbett’s current financial-year sales suggests growth of 1.7% from the year-ago reported figure.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
Hibbett, Inc. (HIBB) : Free Stock Analysis Report
