Why Is American Eagle (AEO) Down 13.1% Since Last Earnings Report?
A month has gone by since the last earnings report for American Eagle Outfitters (AEO). Shares have lost about 13.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Eagle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
American Eagle Q4 Earnings In Line, Freight Costs Hurt
American Eagle reported fourth-quarter fiscal 2021 results, wherein the bottom line was in line with the Zacks Consensus Estimate, while the top line lagged the same. Results gained from robust holiday demand, brand strength and the execution of the “Real Power. Real Growth.” plan. The company also highlighted that it reached $5 billion in revenues for fiscal 2021. However, supply-chain disruptions and elevated freight costs acted as deterrents.
Q4 Details
Adjusted earnings of 35 cents per share were in line with the Zacks Consensus Estimate. The bottom line declined 10.3% from earnings of 39 cents reported in fourth-quarter fiscal 2020.
Total net revenues of $1,508 million increased 17% year over year but lagged the Zacks Consensus Estimate of $1,515 million. Revenue growth was driven by sustained momentum across its brands and channels.
Brand-wise, revenues increased 11% to $1,043.3 million for AE, while it advanced 27% to $428.4 million for Aerie. This marked the 29th consecutive quarter of double-digit revenue growth for Aerie, driven by solid demand across apparel, intimates and off-line activewear categories.
The company’s digital revenues were down 3% year over year, while the same advanced 31% from fourth-quarter fiscal 2019. Store revenues improved 32% year over year, owing to increased store traffic. Store sales were up 4% from fourth-quarter fiscal 2019.
Gross profit improved 11% year over year to $489 million, while the gross margin contracted 160 basis points (bps) to 32.4%. This mainly resulted from $80 million of freight costs, out of which $60 million was from air freight expenses. On the flip side, strong demand, customer delivery efficiencies, higher full-priced sales, reduced promotions and better inventory levels remained upsides.
Selling, general and administrative (SG&A) expenses rose 19.7% year over year to $349.7 million. As a percentage of sales, S&A expenses expanded 60 bps to 23.2% due to a rise in store wages and variable selling expenses.
Adjusted operating income in the fiscal fourth quarter was $92 million, down 13.2% from $106 million in the year-ago quarter. Adjusted operating income for the Aerie brand was $22.7 million compared with an operating loss of $87.3 million. The AE brand reported growth of 25%. The operating margin contracted 210 bps to 6.1% from fourth-quarter fiscal 2020 adjusted operating margin levels.
Other Financial Details
American Eagle ended fiscal 2021 with cash and cash equivalents of $434.8 million. Total shareholders’ equity as of Jan 29, 2022, was $1,423.7 million. AEO paid out dividends worth $30 million in the fiscal fourth quarter. The company’s capital expenditure was $90 million in the reported quarter. Concurrent to the earnings release, the company declared a quarterly cash dividend of 18 cents per share. The dividend is payable on Mar 24 to shareholders of record as of Mar 11.
Store Update
In fourth-quarter fiscal 2021, American Eagle inaugurated eight AE, 31 Aerie stand-alone stores and two Todd Snyder stores, while it closed 26 AE and three Aerie stand-alone stores. The company remodeled and refurbished nine stores in the fiscal fourth quarter. At the end of the quarter, American Eagle operated 1,133 stores, comprising 880 AE, 244 Aerie stand-alone, 197 Aerie side-by-side and five Todd Synder stores. Additionally, it operated 248 international license outlets.
Guidance
For fiscal 2022, management anticipates operating profit of $550-$600 million compared with $603 million reported in the prior year. Also, earnings are expected to decline in the first half of fiscal 2022 due to continued freight pressures, followed by a potential recovery in the second half.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -42.13% due to these changes.
VGM Scores
At this time, American Eagle has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Eagle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
To read this article on Zacks.com click here.
