American Eagle Outfitters Q2 Earnings: What Are We Watching?

American Eagle Outfitters (NYSE: AEO), which sells men’s and women’s apparel and accessories under the American Eagle, Tailgate, Todd Snyder, and Aerie brands, is scheduled to report its fiscal second-quarter results on Thursday, August 29. We expect the stock to see little to no movement with both revenues and earnings matching expectations in the upcoming second-quarter results. AEO stock has increased 7% from around $21 to $23 since the beginning of this year, outperforming the broader indices, with the S&P growing 18% over the same period. In sharp contrast, AEO’s peer Abercrombie & Fitch’s stock (NYSE: ANF) has seen its stock rise 92% over the same period.

AEO stock has shown strong gains of 25% from levels of $20 in early January 2021 to around $23 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in AEO stock has been far from consistent. Returns for the stock were 26% in 2021, -45% in 2022, and 52% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that AEO underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including H, WMG, and AMZN, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with elevated interest rates, could AEO face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that American Eagle Outfitters’ valuation is around $23 per share, which is in line with the current market price. Look at our interactive dashboard analysis of American Eagle Outfitters Earnings Preview: What To Expect in Q2? for more details.

1) Revenues expected to match consensus estimates

Trefis estimates AEO’s FQ2 2024 revenues to be $1.3 Bil, slightly below the consensus estimate. In Q1, the apparel retailer’s revenue grew 6% y-o-y to $1.1 billion. Aerie brand rose 4% y-o-y (with same-store sales up by 6%) to $373 million and the American Eagle core brand grew 8% y-o-y (7% for comp store sales) to $724 million in Q1. In addition, AEO’s store revenue was 4% higher, and digital revenue was up 12%. The retailer’s gross margin increased to 40.6% in Q1 2024, up 240 basis points y-o-y. This margin expansion was driven by strong demand, lower product and freight costs, and continued benefits from the lower markdowns and leverage on distribution, rent, and delivery. Looking ahead, American Eagle expects FY’24 revenue to increase by 2% to 4% and for Q2 revenue to be up high-single-digits.

AEO also unveiled its new Powering Profitable Growth plan recently with the aim to deliver mid-to-high teens annual operating income expansion on 3% to 5% annual revenue growth over the next three years, and an approximate 10% operating margin. A few strategies mentioned were growing American Eagle and powering market leadership in denim. AEO will also look to fuel Aerie’s expansion and accelerate the activewear opportunity.

(2) EPS likely to come in line with consensus estimates 

AEO’s FQ2 2024 earnings per share (EPS) is expected to be 38 cents per Trefis analysis, beating the consensus estimate. In Q1, AEO’s earnings came in at $0.34 per share, up from $0.09 in the same quarter a year ago,

(3) Stock price estimate aligns with the current market price

Going by our American Eagle Outfitters’ Valuation, with an EPS estimate of around $1.78 and a P/E multiple of 12.9x in fiscal 2024, this translates into a price of around $23, which is in line with the current market price.