American Eagle Outfitters Stock Plummets After Weak Earnings Report

American Eagle Outfitters shares fell significantly after the company reported disappointing earnings, missing both revenue and gross margin expectations. With a cautious forecast for the holiday quarter, investors are left questioning the brand's future performance amidst a challenging retail environment.

Date: 07-12-2024

AI Rating: 4

American Eagle Outfitters (AEO) has demonstrated a significant drop in its stock price, falling 13% after hours, which hints at substantial investor concern. The reported performance in Q3 revealed a revenue decline of 1% year-over-year to $1.3 billion and earnings per share (EPS) of 41 cents, down 9% year-over-year. Notably, the adjusted profit of 48 cents excluding one-time charges is a critical figure reflecting the company's struggles in maintaining profitability.

The company's gross margin decreased by 90 basis points to 40.9%, attributed to a combination of promotional markdowns and changes in retail scheduling. Such a decline in gross margin could point towards pressure on profitability, which is a red flag for investors assessing the health of AEO.

AEO has issued a cautious outlook regarding future performance, forecasting a mere 1% growth in comparable sales for the holiday quarter and an overall sales decline of 4%. For the full year, the comparable sales growth expectation has been reduced from 4% to 3%, signaling potential weakness.

Despite these challenges, it’s worth mentioning that the Aerie brand demonstrated growth of 4% year-over-year and same-store sales increased by 5%. This indicates a positive inflection point, albeit amidst overall performance difficulties. The American Eagle core brand, however, saw revenues fall by 3%, with a better-than-expected 3% increase in comparable sales following last year's figures.

The current stock valuation at $20, in line with Trefis' estimate, coupled with an expected EPS of $1.78, aligns with a 11.6x P/E multiple for fiscal year 2024. With projected revenues up marginally to $5.3 billion for fiscal 2024, investors may weigh these forecasts against the backdrop of consistent underperformance, especially when considering the volatile stock returns over the years.

In summary, AEO's current situation presents a complex picture for investors. Sales performance, a cautious forecast, and a reduction in growth expectations could all serve as significant detractors for stock performance in the near term.

Stocks: AEO ANF