On Dec 19, we upgraded the leading teen apparel retailer,
American Eagle Outfitters, Inc.
) to Neutral with a target price of $15.00.
Why the Upgrade?
American Eagle is one of the major 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 that the company's cost-saving
initiatives and long-term growth strategy will not only provide
financial flexibility but help drive value proposition as
However, we are not completely optimistic about the stock due
to disappointing third-quarter fiscal 2013 results due to
soft sales and lower merchandise margins. Sales during the
quarter declined 5.8%.
The dismal results in the recent quarter resulted in a
conservative outlook for the fourth quarter. This triggered a
downward movement in the Zacks Consensus Estimate. For fiscal
2013 and 2014, the Zacks Consensus Estimate earnings per share
moved down by 11.8% to 75 cents and 13.2% to 92 cents 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 include
G-III Apparel Group Inc.
, all of which carry a Zacks Rank #1 (Strong Buy).
AMER EAGLE OUTF (AEO): Free Stock Analysis
CONNS INC (CONN): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
To read this article on Zacks.com click here.