American Eagle Outfitters, Inc.
) lowered its second-quarter fiscal 2013 earnings per share
guidance to nearly 10 cents, compared with 21 cents delivered in
the prior year. The company is slated to announce the results on
Aug 21, 2013.
The company at its last earnings call had forecasted earnings
between 19 cents to 21 cents a share. We would also witness a
downward revision in the Zack Consensus Estimate, which currently
stands at 21 cents.
The downward revision for the second quarter was mainly driven by
lower-than anticipated sales. Sales were negatively impacted by
dismal performance of women's collections and comparatively lower
traffic. Further, an intensified promotional retail atmosphere
dampened the quarterly sales figures.
While total net revenue dropped about 2% in the quarter, total
comparable sales, including AEO Direct, declined 7% against an
increase of 8% in the prior-year period.
The company had also reported disappointing first-quarter 2013
results, mainly due to weak sales trends in seasonal merchandise
owing to cooler-than-usual weather conditions and higher
operating expenses. Moreover, the company's conservative guidance
has stalled the positive outlook of investors.
However, we believe that American Eagle's focus on its Direct
business, AEO men's business, aerie, factory stores and overseas
markets and sustained efforts to improve women's business segment
are likely to augment its results in the long term.
Further, we are impressed by American Eagle's rewards program,
strategic store expansion, and emphasis on inventory control that
position the company well for future growth. Moreover, we believe
that the company's cost-saving initiatives and long-term growth
strategy will not only provide financial flexibility, but will
help drive the stock's value as well.
However, the apparel retail industry is a consumer-driven one and
hence very sensitive to the health of economy. Spending on
apparel and accessories is heavily dependent on the personal
disposable income of consumers. The current macroeconomic
challenges such as high household debt and unemployment levels
may restrain customers' spending on these items.
Currently, American Eagle carries a Zacks Rank #3 (Hold). Other
stocks in the retail sector that are worth a look include
The Children's Place
Citi Trends, Inc.
). All of them carry a Zacks Rank #2 (Buy).
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