American Eagle Outfitters Inc.
), the leading teen apparel retailer, remains on our Neutral list
with a target price of $20.
Why the Reiteration?
American Eagle is one of the leading specialty retailers of
fashionable and stylish apparels and accessories in the United
States and Canada. The company has a strong portfolio of
well-established brands, each of which is focused on the unique
characteristics and rapidly changing preferences of the target
We are impressed by American Eagle's AE's rewards program,
strategic store expansion, and emphasis on inventory control that
position the company for future growth. Further, we see continued
momentum in the Denim category along with improved merchandise
assortments in the women's business segment, which will likely
augment its top-line performance.
Moreover, we believe the company's cost-saving initiatives and
long-term growth strategy will not only provide financial
flexibility, but will help drive value proposition.
Looking at the recent quarter, American Eagle posted a
disappointing first-quarter 2013 with sales and earnings
declining year over year. The decline was mainly driven by weak
sales trends in seasonal merchandise due to cooler-than-usual
weather conditions and higher operating expenses.
The dismal results in the recent quarter resulted in a
conservative outlook for the second quarter and the full year.
This triggered a negative movement in the Zacks Consensus
Estimate, which marked a downward trend over the last 30 days.
For fiscal 2013 and 2014, the Zacks Consensus Estimate earnings
per share moved down by 3.4% to $1.44 and 1.8% to $1.63 per share
in the last 30 days, respectively.
Moreover, the apparel retail industry is a consumer-driven
industry and hence is very sensitive to the health of economy. We
remain skeptical regarding the company's future performance given
the current macroeconomic challenges such as high household debt
and unemployment levels, which may restrain consumers' spending
power and in turn affect the company's top and bottom lines.
Other Stocks Worth Considering
American Eagle currently holds a Zacks Rank #3 (Hold). Other
stocks worth considering in the apparel retail industry are
Stein Mart Inc.
Pacific Sunwear of California Inc.
), all of which carry a Zacks Rank #2 (Buy).
AMER EAGLE OUTF (AEO): Free Stock Analysis
GAP INC (GPS): Free Stock Analysis Report
PAC SUNWEAR CAL (PSUN): Free Stock Analysis
STEIN MART INC (SMRT): Free Stock Analysis
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