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Can American Eagle (AEO) Progress on Solid Growth Path?

Zacks Equity Research
Updated

American Eagle Outfitters, Inc. AEO has been riding on the back of multiple growth initiatives and solid earnings history, along with its spectacular recently reported first-quarter fiscal 2016 results. Notably, shares of the company have surged 19.5% since the earnings release.

Buoyed by attractive assortments, strategic investments and effective execution in each department, American Eagle’s first-quarter top- and bottom-line results improved year over year and also exceeded the Zacks Consensus Estimate. In fact, this marked the company’s sixth consecutive earnings beat, underscoring its strong history.

Following a solid quarter, the company also provided a favorable outlook for the second quarter of fiscal 2016, highlighting management’s confidence in its future prospects.

American Eagle boasts a strong portfolio of well-established brands, each focused on the unique characteristics and rapidly changing preferences of target customers. The company plans to concentrate on solidifying its product assortments by adding more compelling brands, managing inventory levels diligently and improving eCommerce business.

Also, the company has been strengthening its global presence for some time now after witnessing strong profitability at its overseas licensed stores, with little capital requirements. Apart from this, American Eagle is striving to develop its omni-channel platform to reach customers in every possible way. Hence, the company has been improving its website as well as mobile app.

We believe these plans for international expansion, together with its omni-channel growth, provide American Eagle with significant opportunities to expand its business and cater to the incredible global demand for its products.

However, the company’s attempt to grow globally also exposes it to adverse currency movements and other international risks, which pose concerns. Moreover, high dependence on external suppliers and macroeconomic headwinds may dampen results.

Zacks Rank

American Eagle currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include The Children's Place, Inc. PLCE, with a Zacks Rank #1 (Strong Buy) and Abercrombie & Fitch Co. ANF, with a Zacks Rank #2 (Buy). Another well-ranked stock in the related textile-apparel space is Delta Apparel Inc. DLA, with a Zacks Rank #2.

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ABERCROMBIE (ANF): Free Stock Analysis Report
 
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CHILDRENS PLACE (PLCE): Free Stock Analysis Report
 
DELTA APPAREL (DLA): Free Stock Analysis Report
 
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Zacks Investment Research