American Eagle Disappoints in 2Q - Analyst Blog
August 25 2011 - 10:30AM
Zacks
American Eagle Outfitters Inc. (AEO) recently
reported second-quarter 2011 results. Earnings in the second
quarter decreased to 10 cents per share from the year-ago earnings
of 13 cents per share and missed the Zacks Consensus Estimate of 11
cents a share.
Quarterly Review
During the quarter, American Eagle’s net sales went up 4.0% year
over year to $676.0 million, still below the Zacks Consensus
Estimate of $770 million. Same-store sales came in flat for the
quarter. In the relevant quarter, the company opened 2 American
Eagle (AE) stores, 1 aerie and 6 77kids stores, and remodelled 22
stores. The company closed 2 AE stores in the quarter.
American Eagle’s gross profit slipped 3.3% to $232 million,
while gross margin contracted 250 basis points (bps) to 34.3%.
Merchandise margins recorded an increase attributable to lower
markdowns.
Selling, general and administrative (SG&A) expenses
increased 1% to $167 million as savings from continuous cost
cuts were fully offset by higher investments in opening new stores.
The rise in the SG&A line resulted in operating income dropping
sharply 23.7% year over year to $29 million while operating margin
shrunk 160 bps to 4.3%.
Financial Position
American Eagle ended the quarter with cash and cash equivalents
of $389.3 million, compared with $425.5 million in the year-ago
period. For the six months period of fiscal 2011, cash used for
operating activities came in at $84.9 million. The company also
deployed $38 million toward capital expenditures including $28
million on opening of new stores and remodelling of old ones.
The company expects to incur capital expenditures in the range
of $90 million to $100 million for fiscal 2011.
Guidance
In the third quarter of fiscal 2011, the company expects to earn
in the range of 22 cents to 27 cents per share.
For fiscal year 2011, the company expects earnings to be between
85 cents and 95 cents per share.
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 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 #4 Rank ('Sell') 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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