Can Aerie Continue To Lead Revenue Growth For American Eagle Outfitters In 2019?

American Eagle Outfitters (NYSE: AEO) has seen solid growth in recent years. Strong digital sales and an increasing focus on women’s apparel have been the primary reasons behind the company’s growth. The company continued its good showing in fiscal 2018 (ended February 2, 2019), with revenue growing by more than 6% driven by higher digital sales and strong growth in its Aerie brand. And we expect Aerie to remain the key driver of growth for American Eagle going forward.

Trefis captures trends in American Eagle Outfitters’ Revenues over recent years in an interactive dashboard along with our forecast for the current year. We expect the company to achieve steady revenue growth and add more than $270 million to its top line in FY’19. You can view the Trefis interactive dashboard to better understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues.

A Quick Look at American Eagle Outfitters’ Revenues

AEO reported $4 billion in Total Revenues in Fiscal 2018. This included 3 revenue streams:

• Women’s Apparel and Accessories (excluding Aerie): $2.1 billion in FY 2018 (52% of Total Revenues). This segment contains the American Eagle and Tailgate brands and includes sales related to only women’s apparel and accessories.
• Men’s Apparel and Accessories: $1.3 billion in FY 2018 (32% of Total Revenues). This segment contains the American Eagle, Tailgate and Todd Snyder brands and includes sales related to only men’s apparel and accessories.
• Aerie: $646 million in FY 2018 (16% of Total Revenues). Aerie is a women’s lifestyle brand and its assortment include intimates, apparel, activewear and swim collections.

How Has American Eagle’s Revenue Trended Historically? 

• American Eagle has added more than $500 Million to total revenue since 2015 at an average annual rate of 4.6% driven by robust growth in women’s apparel business
• Aerie has been the largest growth driver, accounting for more than 60% of the company’s growth during the last four years.
• Going forward, we expect American Eagle’s revenues to increase by 6.7% and cross $4.3 billion in FY 2019.

A Detailed Look At American Eagle’s segment performance and revenue change over the years:

1. Approximately Two-Third Of AEO’s Total Growth Since 2015 Has Come Through Aerie

• Aerie has achieved robust growth in the last few years, with revenues increasing from around $310 million in 2015 to almost $650 million in FY 2018 at an average annual rate of 27%.
• We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 24% to more than $800 million in FY 2019.
• Aerie is expected to achieve significant growth from both the digital channel and retail stores, as the company plans to increase its exclusive Aerie stores in fiscal 2019. Moreover, the brand has continued to increase its footprint on social media – aiding the brand in increasing its retention ratio and also providing a boost to digital sales
• The segment’s contribution to total revenues has significantly increased over the years, which is expected to continue in the foreseeable future.

2. Women’s Apparel and Accessories (Excluding Aerie) Business Has Achieved Steady Revenue Growth

3. Men’s Apparel and Accessories Revenues Have Stagnated Over The Last Few Years

Additional details about how revenues for American Eagle’s Women’s Apparel and Accessories and Men’s Apparel and Accessories segment have changed over recent years is available in our interactive dashboard.

Based on our forecast, American Eagle’s adjusted EPS for fiscal 2019 is likely to be around $1.56. Using this figure with our estimated P/E ratio of 15x works out to a price estimate of $23 for American Eagle Outfitters’ stock, which is roughly 40% ahead of the current market price.

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