American Eagle Outfitters Inc.
) has gained nearly 58.0% since mid-January, thanks to the
company's focus on improving the direct-to-customer experience,
technological advancements such as the e-commerce business,
international expansion and its strategy of shutting down
underperforming stores. Moreover, this fashion retailer currently
enjoys a healthy dividend yield of 2.1%.
The surge in shares for this Zacks #2 Rank (Buy) stock was further
amplified when newly appointed CEO Robert Hanson announced plans to
exit its 77kids store concept on May 18, describing it as an
underperforming division. This growth was underscored by the
company's strong fiscal first quarter 2012 results on May 23, which
included a 25% year-over-year rise in earnings and a solid
Fiscal 2012 First-Quarter
American Eagle reported fiscal first-quarter 2012 earnings of 20
cents per share, in line with the Zacks Consensus Estimate and up
from the prior-year's 16 cents. The robust quarterly performance
was primarily driven by solid top-line growth and an improved
During the quarter, American Eagle's net sales went up 18% year
over year to $708.7 million, but marginally missed the Zacks
Consensus Estimate of $711 million. Growth in revenue was driven by
a 17% increase in comparable store sales, compared with a decline
of 7% in the year-ago quarter. During the period, the company's AE
Brand, aerie and AEO Direct segments reported growth of 17%, 20%
and 22%, respectively, in comparable store sales.
American Eagle is now forecasting fiscal 2012 earnings per share
between $1.16 and $1.22, representing year-over-year growth of 19%
to 26%. Comparable-store sales for the period are expected at a
mid-single-digit growth. For fiscal second-quarter 2012, American
Eagle expects to earn in the range of 13 cents to 15 cents per
share, compared with 13 cents in the prior-year period. Moreover,
the company still projects to incur a capital expenditure of $100
million in fiscal 2012.
Estimates for American Eagle have shown a considerable upside in
the last 60 days. The Zacks Consensus Estimate for fiscal 2012
moved up 5.1% to $1.23, indicating a year-over-year growth of
42.7%. For fiscal 2013, the estimate increased 5.2% over the same
timeframe to $1.41 per share, representing a projected
year-over-year growth of nearly 15.2%.
Good Dividend Prospects
American Eagle last raised its quarterly dividend in June 2010 by
10% to 11 cents per share and has been consistently paying the same
amount ever since. This affirms a healthy yield of 2.1% and a solid
payout ratio of 53.0%. In contrast, the average dividend yield of
the industry is 0.6%.
Valuation of American Eagle looks reasonable. The current forward
P/E of 16.8x implies an attractive premium of 24.4% to the peer
group average of 13.5x. On a price-to-book basis, shares are
currently trading at 2.7x, a 28.6% premium to the peer group
average of 2.1x. Given the company's compelling fundamentals, the
premium valuation is justified and well supported by its long-term
estimated EPS growth rate of 13.4%.
The stock has been consistently trading above its 200-day moving
average since January 18, 2012. It has also remained above the
50-day moving average since February 15, 2012. Average volume is
decent at 5,138K.
American Eagle, which competes with Abercrombie & Fitch Co. (
) and Gap Inc. (
), has also outperformed the S&P 500 since September 22, 2011.
The year-to-date return for the stock is roughly 33.8% compared
with the S&P 500's return of 7.1%.
American Eagle's management, under the leadership of CEO Robert
Hanson (appointed in November 2011), has opted to divest its
non-performing brands and concentrate on its core brands. With the
announcement of the company's intention to exit its 77kids store
chain, the company plans to shift focus on growing its flagship
American Eagle stores as well as its aerie women's intimates store
concept. The company will be closing down over 20 77kids stores in
both the fiscal second and third quarters. The company also plans
to increase its focus on merchandise assortments, adding more
compelling brands, managing inventory level much more diligently
and augmenting the e-commerce business.
Furthermore, American Eagle's ongoing initiatives to reduce cost
through supply chain efficiencies and updated product-allocation
system should boost its bottom line.
Founded in 1977 and headquartered in Pittsburgh, Pennsylvania,
American Eagle is a leading retailer that operates under the
American Eagle Outfitters, "aerie" and 77Kids 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 15 to 25-year old men
and women. Apart from this, the company offers Dormwear, intimates,
and personal care products for girls under the aerie brand; and
clothing and accessories for kids aged between 2 to 14 under the
AMER EAGLE OUTF (AEO): Free Stock Analysis
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