American Eagle’s Stock Falls Over Poor Quarter And Weak Guidance

American Eagle Outfitters (NYSE:AEO) posted its fourth quarter and financial year (ended January 2017) earnings on March 1, 2017, wherein the company reported revenues of $1.1 billion, down almost 1% year-on-year, and earnings of  30 cents a share, down by nearly 30% over the previous year. On an adjusted basis, the earnings of $0.39 per share beat consensus estimates by a penny. However, in 2016 American Eagle was among the few in specialty apparel to deliver positive financial results. But this wasn’t enough, as the stock price tanked nearly 10% in the aftermath of the results. What seems to have impacted the market more than the results was the guidance the company provided for the quarter ahead. In the first quarter, AEO estimates an EPS of $0.15 to $0.17, implying a 27% decline year-on-year, with comparable store sales expected to be flat or slightly negative.

Strong Growth In Aerie Continues

The fourth quarter was another period of solid growth for the brand, posting a 17% growth in the comps. This represented the 12th consecutive quarter of double-digit growth, driven by strength in the digital business. The ability to incorporate the latest trends and best fabrics have helped the company to build a strong foundation, ensuring that the company continues to attract new Aerie customers. Going forward, the company’s sports and yoga line – Chill. Play. Move. – launched in 2016, as well as a new swimwear line, to be released in the next several weeks, will continue to drive growth for the brand. Aerie currently operates approximately 190 stores in 13 states, including the recent expansions into new markets of Denver and Hawaii. The company sees an opportunity to increase this number to 300 plus stores over time.

Company To Assess Store Locations

During FY 2016, the company opened 12 AE stores, 13 Aerie stand-alone stores, and 21 Aerie side-by-side stores, in addition to three Tailgate stores, and one Todd Snyder store. AEO meanwhile continued to close underperforming stores, including 18 AE stores and eight old format Aerie stores. American Eagle is undertaking an analytic review of its store fleet, to seek opportunities to consolidate markets where it makes sense, and undertake closures of unprofitable locations. The company currently estimates just 46 stores which were not profitable at year end, 26 of which come up for lease renewal or expiration within two years. Furthermore, in its entire portfolio of 1,050 stores, 580 come up for lease expiration in the next three years, giving the company the flexibility to implement its aggressive store closure plans.

This need arises from the significant channel shifts seen in the retail industry, with a move to online shopping plaguing a number of brick-and-mortar stores. This lends credence to the company’s decision to continue its investment into its digital infrastructure to improve the personalization and overall performance of the site. The digital side contributes a significant percentage of the business at roughly 27%. Mobile also continues to form an immense portion of the revenues, with a 35% increase in mobile penetration seen within the site. Hence, the company will also optimize and enhance its mobile capabilities going forward.

Have more questions about American Eagle Outfitters? See the links below:

• Retail Companies Get A Boost Amid Border Tax Reform Complications
• Investors Overlooking American Eagle’s Growth Potential
• Why Has American Eagle’s Stock Price Fallen Despite Meeting Consensus Estimates?
• What Is American Eagle Doing To Bolster Its Direct Business?
• How Has the Digital Age Affected Apparel Retailers?

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