American Eagle Meets Estimate - Analyst Blog
May 26 2011 - 4:00AM
Zacks
American Eagle Outfitters
Inc.(AEO) recently reported first-quarter 2011 results.
Earnings in the first quarter decreased to 14 cents per share from
the year-ago earnings of 17 cents per share, however, in line with
the Zacks Consensus Estimate.
Quarterly
Review
During the quarter, American
Eagle’s net sales went down 6.0% year over year to $610.0 million,
below the Zacks Consensus Estimate of $642 million. Same-store
sales reported a decrease of 8.0%. In the relevant quarter, the
company opened three American Eagle (AE) stores, two aerie and six
77kids stores, and remodeled 32 stores. The company closed 1 AE
store in the quarter.
American Eagle’s gross profit
plummeted 10.1% to $232 million, while gross margin contracted 170
basis points (bps) to 38.0%. Merchandise margins recorded an
increase of 70 basis points.
Selling, general and administrative
expenses fell 6% to $158 million due to the company’s continuous
effort to reduce expenses and lower incentive compensation. Despite
a fall in selling, general and administrative expenses, operating
income plunged 29.6% year over year to $38 million, while operating
margin contracted 190 bps to 6.3%.
Financial
Position
American Eagle ended the year with
cash and cash equivalents of $474.7 million, compared with $535.2
million in the year-ago period. In first quarter of 2011, cash used
for operating activities came in at $39.2 million. The company also
deployed $38 million toward capital expenditures including $28
million on opening of new stores and remodeling old stores.
The company expects to incur
capital expenditures in the range of $90 million to $100 million in
fiscal 2011.
Guidance
In the second quarter of fiscal
2011, the company expects to earn in the range of 10 cents to 13
cents per share.
For fiscal year 2011, the company
expects earnings to be at par with $1.02 per share reported in
fiscal 2010.
Conclusion
We remain impressed with the
company’s continued momentum in denim along with improved
merchandise assortments in the women’s business segment, which will
likely lead to a turnaround in top-line momentum as well as a
rebound in gross margin.
The company operates in a highly
fragmented specialty retail sector and faces intense competition
from other teenage-focused retailers, such as Abercrombie
& Fitch Co. (ANF) and Gap Inc.
(GPS).
We currently have a short-term
Zacks #3 Rank ('Hold') rating and a long-term Neutral
recommendation on the company.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
ABERCROMBIE (ANF): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
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