Can American Eagle (AEO) Beat on Q1 Earnings Despite Woes?

American Eagle Outfitters Inc. AEO is slated to release first-quarter fiscal 2019 results on Jun 5. The company delivered a positive earnings surprise in the trailing four quarters. It recorded average earnings beat of 4.7% in the last four quarters.

The Zacks Consensus Estimate for earnings in the fiscal first quarter is pegged at 21 cents, suggesting a decline of about 8.7% from the year-ago reported figure. Estimates have remained unchanged over the past 30 days.

American Eagle Outfitters, Inc. Price and EPS Surprise


American Eagle Outfitters, Inc. Price and EPS Surprise

American Eagle Outfitters, Inc. price-eps-surprise | American Eagle Outfitters, Inc. Quote

Let’s see how things are shaping up prior to the earnings announcement.

Factors Likely to Influence Q1

American Eagle is benefiting from its efforts, including robust omni-channel endeavors and initiatives to strengthen brands. The company is striving to develop the omni-channel platform by enhancing digital portals while investing in store fleet. This is boosting sales performance in stores as well as for digital channels. Its digital and in-store businesses contributed to solid comp growth in fourth-quarter fiscal 2018. Further, comps are anticipated to grow in a low-single digit in first-quarter fiscal 2019.

Further, the Aerie brand continues to witness spectacular growth, driven by the company’s focus on strengthening brands. Notably, the Aerie brand delivered double-digit comp growth for 17 straight quarters, reflecting significant momentum across all areas of the business. After the success of its core intimate offerings, the Aerie brand is rapidly gaining share in the innovative apparel market with the body positivity movement.
Going forward, it projects to maintain this momentum and brand strength to drive growth and deliver solid returns to shareholders.

These positive trends led the company to post solid comp performances in the last few quarters. Comp growth in the fiscal fourth quarter was backed by strong gains from initiatives and the ability to boost its market share through strong brands and compelling merchandise. The company is also witnessing healthy sales due to positive store conversion and marginal rise in average unit retail price and transaction value. It expects these factors to continue driving comps in the fiscal first quarter.

Despite a favorable comps outlook, American Eagle issued a bleak earnings outlook for first-quarter fiscal 2019, which was shy of analysts’ expectations. Earnings for the fiscal first quarter are envisioned to be 19-21 cents, excluding the potential asset impairment and restructuring costs. This guidance is also lower than adjusted earnings of 23 cents earned in the year-ago quarter.

Furthermore, the company should continue witnessing SG&A deleverage due to stronger investments in brands and customer experience, higher store payroll, wages and increased incentive expenses, and advertising, which is weighing on the operating margin.

Zacks Model

Our proven model does not conclusively predict that American Eagle is likely to beat earnings estimates in the fiscal first quarter. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Eagle currently has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.47%. While the company has a positive Earnings ESP, a negative Zacks Rank makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Abercrombie & Fitch Co. ANF has an Earnings ESP of +0.26% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General DG currently has an Earnings ESP of +2.13% and a Zacks Rank #2.

Costco Wholesale Corporation COST presently has an Earnings ESP of +2.10% and a Zacks Rank #3.

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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 Nasdaq, Inc.

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