Why American Eagle Outfitters Shares Flew Today

By
A A A

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of American Eagle Outfitters closed up nearly 12% Wednesday after the teen-oriented apparel company posted better-than-expected results for the second quarter.

So what: American Eagle shares have been battered over the past year on slumping sales, but today's Q2 beat -- EPS of $0.03 on revenue of $711 million versus the consensus of breakeven and $689 million, respectively -- suggests the worst may be behind it. And although same-store sales slumped 7%, they were also ahead of Wall Street's forecast for an 8% decline.

Perhaps the most positive news today, however, is regarding the company's current inventory position: Excluding the change in ownership terms, inventory at cost per foot declined in the mid single digits. More important, clearance units were well below last year, indicating that the pressure on its gross margins is starting to let up.

So, while American Eagle didn't deliver a blowout quarter by any means, there are definitely signs that management's merchandising initiatives are gaining a bit of traction. Of course, the company is still in the process of trying to find a permanent CEO while trying to negotiate this significant turnaround, so its longer-term competitive position remains highly uncertain.

Now what: Based on a mid-single-digit decrease in same-store sales, management now sees EPS of $0.17 to $0.19 in the third quarter, bracketing the average analyst estimate of $0.18. "We successfully cleared through spring and summer merchandise and entered the second half of the year in a good inventory position. We made progress on merchandise improvements, which will ramp up through the holiday season," said Interim CEO Jay Schottenstein. "We remain vigilant on expense management, while pursuing strategic initiatives crucial to our future success. We are confident that these efforts will position AEO to achieve stronger operating results and deliver increasing shareholder value."

Of course, given the uncertainty still surrounding American Eagle's merchandise turnaround and its ongoing search for a CEO, I'd be apprehensive about chasing today's big run-up.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks  that should be in any income investor's portfolio. To see our free report on these stocks, just click here now .

The article Why American Eagle Outfitters Shares Flew Today originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .



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 , Stocks

Referenced Stocks: AEO

Motley Fool

Motley Fool

More from Motley Fool:

Related Videos

Stocks

Referenced

77%

Most Active by Volume

74,282,785
  • $10.84 ▲ 11.64%
60,794,128
  • $17.12 ▲ 0.71%
55,628,662
  • $35.59 ▼ 1.00%
55,306,290
  • $116.47 ▲ 0.14%
55,118,241
  • $39.75 ▼ 0.43%
53,597,648
  • $9.41 ▲ 8.29%
41,889,990
  • $47.98 ▼ 1.48%
35,692,375
  • $97.34 ▼ 0.57%
As of 11/21/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com