We upgraded our long-term recommendation on
American Eagle Outfitters Inc.
) to Outperform based on the company's robust first-quarter 2012
earnings and fiscal year 2012 guidance.
Driven by solid top-line performance along with improved
operating margin, American Eagle's adjusted earnings of $0.22 per
share for first-quarter 2012 climbed 37.5% from the prior-year
period earnings of $0.16, handily beating the Zacks Consensus
Estimate of $0.20. Moreover, during the quarter, American Eagle's
adjusted net sales went up 18% year over year to $708.7 million,
primarily driven by a 17% rise in comparable store sales.
Looking ahead into fiscal 2012, the company expects adjusted
earnings to be between $1.16 and $1.22 per share, an increase of
19% - 26% from the previous fiscal adjusted earnings of $0.97 per
share on the back of mid-single-digit growth in comparable store
sales. However, for second-quarter 2012, the company expects
earnings in the range of $0.13 to $0.15 per share compared with
$0.13 per share in the prior-year period.
Further, 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 augment its
top-line performance as well as enhance gross margin.
American Eagle now plans to focus more on merchandise
assortments, adding more compelling brands, managing inventory
level much diligently and augmenting e-commerce business. Moreover,
it remains committed to enhance store sales productivity by closing
underperforming stores. Further, in order to emphasize more on core
business while generating the best possible return for
shareholders, American Eagle has decided to exit from its children
s brand, 77Kids.
Moreover, we believe American Eagle's cost-saving initiatives
and long-term growth strategy will not only provide financial
flexibility, but will also help to drive value proposition. In a
drive to boost its bottom line, the company is relentlessly
focusing on initiatives to cut down costs through supply chain
efficiencies and updated product allocation system. On the other
hand, the company's long-term growth strategies remain hooked to
opening stores in the Middle East and developing economies like
India and China.
Nevertheless, operating in the highly fragmented specialty
retail sector, American Eagle faces intense competition from other
teen-focused retailers, such as
Abercrombie & Fitch Co.
). Currently, the company carries Zacks #1 Rank, which translates
into a short-term 'Strong Buy' rating, in sync with our long-term
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