We have downgraded our recommendation to Neutral on leading
teen apparel retailer,
American Eagle Outfitters Inc.
), on Mar 18, on account of the company's soft outlook based on
weak consumer spending driven by higher payroll taxes and adverse
weather conditions in February.
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We are impressed with American Eagle's consistent earnings
performance, strong revenue growth and strategic initiatives to
expand and control costs. However, we remain slightly cautious
due to the company's soft guidance based on a weak consumer
Looking at its earnings surprise history, American Eagle has
either met or beaten the Zacks Consensus Estimates in the past 6
quarters. The average positive surprise in the trailing 6
quarters comes to 1.3%.
The most recently reported earnings of 55 cents per share for
fourth-quarter fiscal 2012, was in line with the Zacks Consensus
Estimate, while surging over 41% from the prior-year comparable
quarter. The year-over-year improvement was driven by robust
top-line growth coupled with lower input cost and favorable
markdowns. Revenues and comparable-store sales increased by 9%
and 4%, respectively.
American Eagle is relentlessly focusing on initiatives to cut
down costs through supply chain efficiencies and is updating
product allocation systems to boost its bottom line.
Additionally, the company's fundamentals remain strong given its
AE's rewards program and strategic store expansion plan. We
believe that American Eagle's cost-saving initiatives and
long-term growth strategy have not only provided financial
flexibility, but helped drive value proposition.
However, we remain cautious on the stock given a soft
first-quarter fiscal 2013 outlook driven by adverse weather
conditions in February and some macroeconomic challenges. The
company projects earnings for the quarter to come between $0.16
and $0.19 per share compared with 22 cents reported in the first
quarter of fiscal 2012.
Other Stocks Worth Considering
American Eagle currently has a Zacks Rank #4 (Sell) rating. Other
stocks worth considering in the retail space are
), which has a Zacks Rank #1 (Strong Buy),
New York & Company
), both of which hold a Zacks Rank #2 (Buy).