An healthy year-to-date return of 25.3%, robust third-quarter
fiscal 2013 performance and rising estimates have helped
American Eagle Outfitters Inc.
) to achieve a Zacks #1 Rank (Strong Buy) status on December 27.
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This Pennsylvania-based fashion retailer has surpassed the Zacks
Consensus Estimate in 2 of the trailing 4 quarters, while met in
other 2. Positive earnings momentum, solid dividend prospects as
well as a robust stock performance make American Eagle an
attractive option for investors.
The Rank Driver
Strong top-line growth, escalating operating profit margin,
better cost management, admirable financial power and solid cash
flows are the rank drivers for this stock.
On November 28, 2012, American Eagle, which competes with
), posted third-quarter earnings per share of 41 cents,
surpassing the Zacks Consensus Estimate by 5.1%.
Net sales rose 11% year over year to $910 million, beating the
Zacks Consensus Estimate of $873 million. Growth in revenue was
driven by a 10% increase in comparable-store sales compared with
a rise of 7% registered in the year-ago quarter. The online sales
for the company jumped 27% year over year from the 21% rise in
the prior year.
Adjusted gross profit increased 21% to $379 million, while gross
margin improved 350 basis points (bps) to 41.6%. The
year-over-year increase in gross profit and margin was primarily
driven by strong top-line performance along with lower cost of
goods sold and a benefit of 60 bps, rising from leveraged buying,
occupancy and warehousing expenses.
Adjusted operating income soared 39% to $129 million. Moreover,
adjusted operating margin expanded 290 bps to 14.1%, primarily
due to increased sales along with improved margins.
On December 4, the company declared a regular quarterly dividend
of 11 cents per share and speeded up the payment of its first
quarter dividend of 11 cents, which is usually paid in April. The
total cash dividend of 22 cents per share will be paid on
December 28 to stockholders with record as of December 19.
Earnings Estimate Revisions
The Zacks Consensus Estimate for fiscal 2012 climbed 2.2% to
$1.40 per share in the past 30 days, as 19 of 22 estimates were
revised upwards. This represents a year-over-year surge of 63.0%.
The Zacks Consensus Estimate for fiscal 2013 grew 2.6% to $1.58
over the same time frame as 13 of 22 estimates were raised,
reflecting a year-over-year increase of 12.5%.
The current forward P/E of 14.8x implies a premium of 12.1% to
the peer group average of 13.2x. On a price-to-book basis, shares
are currently trading at 3.2x, a 45.5% premium to the peer group
average of 2.2x. Given the company's compelling fundamentals, the
premium valuation is justified and well supported by its
long-term estimated EPS growth rate of 11.8%.
About the Company
Founded in 1977 and headquartered in Pittsburgh, Pennsylvania,
American Eagle is a leading retailer that operates under the
American Eagle Outfitters and "aerie" brands. The offerings of
the company's core American Eagle Outfitters brand includes
jeans, cargo pants, and graphic T-shirts, as well as a collection
of accessories, outerwear, and footwear for people ranging
between the ages of 15 - 25. The company operates more than 1,000
stores in North America, and ships to 77 countries worldwide
through its websites.