American Eagle Outfitters Inc. (AEO), a
specialty retailer of casual apparel, accessories, and footwear for
men and women, recently posted its fourth-quarter 2011 results. The
Street analysts had nearly a week to ponder the news. In the
paragraphs that follow, we will cover the recent earnings
announcement, analysts’ estimate revisions as well as the Zacks
Rank and long-term recommendation on the stock.
Quarterly Review
On March 7, 2012, American Eagle reported its fourth-quarter
2011 earnings of 35 cents per share, beating the Zacks Consensus
Estimate of 34 cents. However, it was lower than the
previous-period earnings of 44 cents per share.
During the quarter, American Eagle’s net sales went up 14% year
over year to $1,042.7 million, almost in line with the Zacks
Consensus Estimate of $1,042.0 million. Growth in revenue was
driven by a 10% increase in comparable store sales. During the
period, the company’s AE Brand, aerie and AEO Direct segments
reported a growth of 10%, 6% and 18%, respectively, in comparable
store sales.
Outlook for 2012
Looking ahead into 2012, the company sees a modest rise in sales
and slight improvement in margin. The company expects margins to be
under pressure in the first half of fiscal 2012 due to higher
product costs. On a positive note, lower product costs are expected
to benefit margins in the second half. The company expects to
provide fiscal 2012 earnings per share guidance with its first
quarter results in May.
On the other hand, the company pointed out that it began the
first quarter of fiscal 2012 on a strong note with positive
February comps, which are driven by well-balanced selling of spring
product and clearance. The company expects first-quarter EPS to
come in the range of 8 cents to 10 cents, driven by higher product
costs, higher markdowns and the potential for increased
promotions.
(Read our full coverage on this earnings report: American Eagle
4Q Beats, Sales In Line)
Agreement of Analysts
Estimate revision trend for the upcoming first-quarter 2012
portrayed negative sentiments among most of the analysts covering
the stock. Over the last 7 days, 11 out of 26 analysts revisited
their estimates, of which 7 analysts downgraded their estimates
while 4 analysts upgraded the same for first-quarter 2012.
However, for the second quarter of fiscal 2012, analysts have
positive sentiments on the stock. Over the last 7 days, 8 analysts
revisited their estimates for second-quarter 2012, of which 5 have
upgraded while 3 have downgraded the same.
For fiscal 2012, estimate revision trends portrayed a positive
sentiment among most of the analysts covering the stock. Over the
last 7 days, 11 out of 26 analysts following the stock revisited
their estimates, of which 7 analysts adjusted it in upward
direction while the remaining analysts adjusted it in the opposite
direction for fiscal 2012. Three out of 6 analysts have upgraded
while 3 have downgraded their estimates for fiscal 2013 in the last
7 days.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for American Eagle depicts a
pessimistic outlook for first-quarter 2012 and optimistic outlook
for second-quarter 2012. Over the last 7 days, estimated earnings
for the first quarter moved down by a penny to 9 cents per share,
while for second-quarter it moved up by a penny to 10 cents per
share.
The magnitude of estimate revision depicts an optimistic outlook
for fiscals 2012 and 2013. Over the last 7 days, estimated earnings
for fiscals 2012 and 2013 have been increased by a penny to $1.07
and $1.22 per share, respectively.
Our Take
American Eagle is one of the leading specialty retailers of
fashionable and stylish apparels and accessories in the United
States and Canada. The company has a strong portfolio of
well-established brands, each of which is focused on the unique
characteristics and rapidly changing preferences of its target
customers.
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 its top
line as well as a rebound in gross margin.
Moreover, in a drive to boost its bottom line, American Eagle is
continuously taking initiatives to reduce cost through supply chain
efficiencies and updated product-allocation system. We believe that
these initiatives along with long-term growth strategy of opening
stores in Middle East and developing economies like India and China
will also help to drive value proposition.
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) and a
long-term Outperform recommendation on the stock.
About Zacks Earnings Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two of
the most celebrating stock rating systems in use today. The Zacks
Rank for stock trading in a 1 to 3 month time horizon and the Zacks
Recommendation for long-term investing (6+ months). These “Earnings
Estimate Scorecard” articles help analyze the important aspects of
estimate revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our proven
stock ratings at
http://www.zacks.com/education/
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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