We issued an updated research report on
American Eagle Outfitters Inc.
) after the company's first-quarter fiscal 2014 results.
American Eagle reported lackluster results for the first quarter of
fiscal 2014, wherein its top and bottom lines declined from the
prior-year numbers. Results were affected by lower sales and
increased markdowns. Battered by the dismal results, the company
came up with a bleak outlook for the second quarter of fiscal 2014.
The softness in results and a disappointing outlook have triggered
a downtrend in the Zacks Consensus Estimate for the upcoming
quarter and for fiscal 2014 and 2015 over the last 60 days. The
Zacks Consensus Estimate for second-quarter fiscal 2014 declined 5
cents to break-even, while estimate for fiscal 2014 fell nearly
10.9% to 57 cents per share over the last 60 days. For fiscal 2015
too, most of the estimates were revised downward over the same time
frame with the Zacks Consensus Estimate falling 11% to 73 cents per
Moreover, we remain concerned over the company's declining comps
performance. The company posted negative comps along with declining
sales results for all the four quarters of fiscal 2013. This trend
continued in the first quarter of fiscal 2014 with comps and sales
declining 10% and 4.9%, respectively. Further, the company projects
a high single-digit decline in comps for the second quarter.
We believe a turnaround in the company's top line is largely
dependent on the revival of its merchandise assortments, especially
in the women's collection, which has lost its popularity with the
Though the company's earnings results and near term outlook failed
to woo us, we remain impressed by its transformation plans focused
on strengthening product assortments, store rationalization,
diligent inventory management and e-Commerce growth. Further, we
believe the company's international expansion plans together with
its omni-channel growth provides significant opportunity to expand
its business and cater to the worldwide demand for its brands.
After deliberate review of its store fleet due to the changing
industry dynamics and increased pressure on brick and mortar
stores, the company recently announced plans to shutter 150 stores
in North America over the next three years, including about 100 AE
stores. In fiscal 2014, the company targets to reduce its North
American store count by closing nearly 50 AE and 20 aerie stores
upon lease expiration.
Moreover, with the start of fiscal 2015, the company expects to
register annual after-tax savings of nearly $10-$15 million
resulting from these store closures. The company has also
identified another 300 stores the leases of which will expire over
the next three years and plans to assess these individually for
Currently, American Eagle carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks worth considering in the sector include
Citi Trends Inc.
Foot Locker Inc.
Christopher & Banks Corp.
). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot
Locker and Christopher & Banks have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
AMER EAGLE OUTF (AEO): Free Stock Analysis
FOOT LOCKER INC (FL): Free Stock Analysis
CITI TRENDS INC (CTRN): Free Stock Analysis
CHRISTOPHER&BNK (CBK): Free Stock Analysis
To read this article on Zacks.com click here.