American Eagle Outfitters: A Mixed Bag of Earnings and Insight

Published on March 4, 2020

Fourth Quarter Results: A Closer Look

American Eagle Outfitters, Inc. (NYSE: AEO) has reported its fourth-quarter earnings, and the numbers are as intriguing as a well-worn pair of jeans. The company posted an EPS of $0.03 for the 13 weeks ended February 1, 2020. This is a notable drop from last year's $0.43, largely due to $0.34 in impairment and restructuring costs. Adjusted EPS of $0.37 still falls short of the EPS consensus forecasts, leaving analysts scratching their heads over what went wrong.

Revenue Forecast: A Silver Lining?

Total net revenue for the quarter reached $1.31 billion, a 6% increase compared to $1.24 billion in the previous year. Consolidated comparable sales rose 2%, marking the 20th consecutive quarter of growth. This news might suggest a solid footing, but the question remains: is this growth sustainable, or merely a seasonal uptick?

Brand Performance: A Tale of Two Brands

Breaking down the numbers by brand reveals a fascinating dichotomy. American Eagle's comparable sales took a hit, falling 3% compared to a 3% increase last year. Meanwhile, Aerie continued to soar high with a 26% increase in comparable sales, following a remarkable 23% rise last year. It seems Aerie has found its groove, while American Eagle may need to rethink its strategy.

Margin Pressures: The Cost of Doing Business

Gross profit took a hit, decreasing by $23 million or 5%, with the gross margin rate dropping from 34.6% to 31.0%. Higher markdowns and increased distribution costs were the culprits. Despite these challenges, selling, general and administrative expenses remained stable, leveraging 130 basis points to 21.8%. This indicates some level of operational efficiency?kudos to the management team for that.

Looking Ahead: Navigating Challenges

Jay Schottenstein, AEO?s Chairman and CEO, expressed a cautious optimism about the company's trajectory. Despite facing challenges in 2019, he noted progress on strategic growth pillars and strong customer engagement. However, the company must address its underperforming areas and focus on strengthening profit margins. With a healthy balance sheet and a clear strategy, AEO is well-positioned to tackle these challenges head-on.

Conclusion: What Lies Ahead for AEO?

As American Eagle Outfitters navigates through its earnings report, investors will be keenly watching how the company addresses its challenges and capitalizes on its strengths, particularly with Aerie's exceptional growth. The retail landscape is ever-changing, and while AEO has shown resilience, the path forward will require agility and innovation. Will they be able to turn the tide and surprise investors in the next quarter? Only time will tell.