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Things to Know Before American Eagle's (AEO) Q2 Earnings

Zacks Equity Research

American Eagle Outfitters Inc. AEO is slated to release second-quarter fiscal 2019 results on Sep 4. The company delivered a positive earnings surprise in the trailing four quarters, the average beat being 7.1%.

The Zacks Consensus Estimate for the company’s earnings in the fiscal second quarter is pegged at 32 cents, suggesting a decline of about 5.9% from the year-ago reported figure. Estimates have remained unchanged over the past 30 days.

American Eagle Outfitters, Inc. Price and EPS Surprise

 

American Eagle Outfitters, Inc. Price and EPS Surprise

American Eagle Outfitters, Inc. price-eps-surprise | American Eagle Outfitters, Inc. Quote

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

Factors Likely to Influence Q2

American Eagle has been delivering robust top and bottom-line surprises, and comparable store sales (comps) trend over the past several quarters, owing to gains from strategic initiatives and ability to boost market share through strong brands and compelling merchandise. Notably, strength in the company’s American Eagle (AE) and Aerie brands as well as solid growth across stores and digital channels has been contributing meaningfully to its robust results. In the fiscal second quarter and ahead, it expects to maintain this momentum and brand strength to drive growth and deliver solid returns to shareholders.

The company’s comps in digital and in-store businesses are poised to reflect significant gains from improved quality of sales as well as increases in store traffic, conversion rate and transactions. Apparently, AE and Aerie brands outpaced mall traffic in the last reported quarter, which is anticipated to continue in the fiscal second quarter. Driven by positive traffic trends across channels and robust assortments, the company expects comps to grow in a low-single digit in second-quarter fiscal 2019.

As part of its omni-channel endeavors, the company is focused on enhancing digital portals while also investing in store fleet. Notably, it has been witnessing increases in app and mobile channels, which represent more than 50% of the company’s digital business. Additionally, trends in brick-and-mortar stores continued to improve as AE and Aerie stores reported positive in-store comps.

In fiscal 2019, management intends to open 15-20 AE outlets and 35-40 Aerie stand-alone stores. This makes it clear that a winning marketing strategy in retail is providing the best combination of digital and physical store experiences. Backed by this strategy, the company is likely to reflect positive momentum in stores as well the digital business, which should result in robust top-line and comps growth in the fiscal second quarter.

Despite these positives, American Eagle issued unimpressive earnings outlook for the fiscal second quarter, which was short of analysts’ expectations. Adjusted earnings for the fiscal second quarter are envisioned to be 30-32 cents. The guided range is lower than adjusted earnings of 34 cents earned in the year-ago quarter.

Furthermore, the company continues to display soft margins trend, owing to higher markdowns and increased expenses. Notably, higher markdowns, delivery expenses and SG&A expenses hurt gross and operating margin in the fiscal first quarter. Rise in SG&A was attributed to higher compensation expenses on higher investments in store organization that started mid-way through fiscal 2018. Moreover, higher advertising costs and professional services resulted in increased SG&A expenses. Persistence of these costs might hurt the company’s overall profitability in the fiscal second quarter.

Zacks Model

Our proven model does not conclusively predict that American Eagle is likely to beat earnings estimates in the fiscal second quarter. This is because a stock needs to have — 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 (Hold) and an Earnings ESP of 0.00%. While the company has a positive Zacks Rank, 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:

Caseys General Stores, Inc. CASY has an Earnings ESP of +8.43% and a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. BURL currently has an Earnings ESP of +0.17% and a Zacks Rank #2.

Dollar General DG presently has an Earnings ESP of +2.64% and a Zacks Rank #3.

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American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
 
Caseys General Stores, Inc. (CASY) : Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL) : Free Stock Analysis Report
 
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