Earnings Scorecard: American Eagle - Analyst Blog


American Eagle Outfitters Inc. ( AEO ), a specialty retailer of casual apparel, accessories, and footwear for men and women, recently posted its fourth-quarter 2011 results. The Street analysts had nearly a week to ponder the news. In the paragraphs that follow, we will cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

On March 7, 2012, American Eagle reported its fourth-quarter 2011 earnings of 35 cents per share, beating the Zacks Consensus Estimate of 34 cents. However, it was lower than the previous-period earnings of 44 cents per share.

During the quarter, American Eagle's net sales went up 14% year over year to $1,042.7 million, almost in line with the Zacks Consensus Estimate of $1,042.0 million. Growth in revenue was driven by a 10% increase in comparable store sales. During the period, the company's AE Brand, aerie and AEO Direct segments reported a growth of 10%, 6% and 18%, respectively, in comparable store sales.

Outlook for 2012

Looking ahead into 2012, the company sees a modest rise in sales and slight improvement in margin. The company expects margins to be under pressure in the first half of fiscal 2012 due to higher product costs. On a positive note, lower product costs are expected to benefit margins in the second half. The company expects to provide fiscal 2012 earnings per share guidance with its first quarter results in May.

On the other hand, the company pointed out that it began the first quarter of fiscal 2012 on a strong note with positive February comps, which are driven by well-balanced selling of spring product and clearance. The company expects first-quarter EPS to come in the range of 8 cents to 10 cents, driven by higher product costs, higher markdowns and the potential for increased promotions.

(Read our full coverage on this earnings report: American Eagle 4Q Beats, Sales In Line )

Agreement of Analysts

Estimate revision trend for the upcoming first-quarter 2012 portrayed negative sentiments among most of the analysts covering the stock. Over the last 7 days, 11 out of 26 analysts revisited their estimates, of which 7 analysts downgraded their estimates while 4 analysts upgraded the same for first-quarter 2012.

However, for the second quarter of fiscal 2012, analysts have positive sentiments on the stock. Over the last 7 days, 8 analysts revisited their estimates for second-quarter 2012, of which 5 have upgraded while 3 have downgraded the same.

For fiscal 2012, estimate revision trends portrayed a positive sentiment among most of the analysts covering the stock. Over the last 7 days, 11 out of 26 analysts following the stock revisited their estimates, of which 7 analysts adjusted it in upward direction while the remaining analysts adjusted it in the opposite direction for fiscal 2012. Three out of 6 analysts have upgraded while 3 have downgraded their estimates for fiscal 2013 in the last 7 days.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for American Eagle depicts a pessimistic outlook for first-quarter 2012 and optimistic outlook for second-quarter 2012. Over the last 7 days, estimated earnings for the first quarter moved down by a penny to 9 cents per share, while for second-quarter it moved up by a penny to 10 cents per share.

The magnitude of estimate revision depicts an optimistic outlook for fiscals 2012 and 2013. Over the last 7 days, estimated earnings for fiscals 2012 and 2013 have been increased by a penny to $1.07 and $1.22 per share, respectively.

Our Take

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 its target customers.

We remain impressed with the company's continued momentum in denim along with improved merchandise assortments in the women's business segment, which will likely lead to a turnaround in its top line as well as a rebound in gross margin.

Moreover, in a drive to boost its bottom line, American Eagle is continuously taking initiatives to reduce cost through supply chain efficiencies and updated product-allocation system. We believe that these initiatives along with long-term growth strategy of opening stores in Middle East and developing economies like India and China will also help to drive value proposition.

The company operates in a highly fragmented specialty retail sector and faces intense competition from other teenage-focused retailers, such as Abercrombie & Fitch Co. ( ANF ) and Gap Inc. ( GPS ).

We currently have a short-term Zacks #3 Rank (Hold) and a long-term Outperform recommendation on the stock.

About Zacks Earnings Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at  http://www.zacks.com/education/

AMER EAGLE OUTF ( AEO ): Free Stock Analysis Report
ABERCROMBIE ( ANF ): Free Stock Analysis Report

GAP INC ( GPS ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AEO , ANF , GPS



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