Yahoo Finance American Eagle's (AEO) Real Power Real Growth Looks Promising
American Eagle Outfitters Inc. AEO has been well-placed on the back of cost-reduction efforts, strength in Aerie and a solid online show. Its Real Power Real Growth value creation plan bodes well. The plan is driving profitability through real estate and inventory-optimization efforts, omni-channel and customer focus, and investments to improve the supply chain.
As part of the Real Power Real Growth plan, American Eagle will continue to pursue opportunities to grow the Aerie brand through expansion into newer markets, innovation and a growing customer base. The company’s efforts under the plan have aided the recovery of the American Eagle brand. Going forward, it expects to undertake initiatives to deliver growth and sustained profitability for the American Eagle brand.
Driven by the trends and progress on its growth plan, American Eagle raised its 2023 financial targets. The company expects to achieve an operating income of $800 million in fiscal 2023. It expects revenues of $5.8 billion for fiscal 2023, up from the earlier mentioned $5.5 billion. The operating income is estimated to be $800 million, with the operating margin expanding to 13.5% by 2023. Previously, the operating income and the operating margin were anticipated to be $550 million and 10%, respectively. Earlier, the company expected revenues for the Aerie brand to reach $2.2 billion by 2023, seeing more than a 20% compound annual growth rate from fiscal 2019. The American Eagle brand is envisioned to grow slightly from fiscal 2019, with $3.6 billion in revenues.
Although the stock has declined 9% in the past year, it compares favorably with the industry’s decline of 11.3%.
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An uptrend in the Zacks Consensus Estimate for the Zacks Rank #2 (Buy) company echoes a positive sentiment. The Zacks Consensus Estimate for American Eagle’s fiscal 2023 sales and EPS suggests growth of 1.4% and 15.5%, respectively, from the year-ago period’s reported numbers.
Additionally, American Eagle has been witnessing strong digital demand on the shift in consumers’ shopping preferences. Although the company’s total digital revenues were down 9% year over year, the same advanced 19% from the pre-pandemic levels (fourth-quarter fiscal 2019). Digital revenues accounted for 36% of the total revenues, driven by its mobile app, which is now the largest source of revenues in the digital channel. The mobile app business contributed 40% of the total digital spending, driven by a strong engagement across both brands.
American Eagle has been witnessing spectacular growth for its Aerie brand for quite some time now. Sales rose 8% to $464 million for Aerie in fourth-quarter fiscal 2022. The brand reached $1.5 billion in revenues in 2022, driven by store expansion. Strength across core apparel, positive growth in fleece as well as the best sweater season in the brand's history acted as major growth drivers. Also, its activewear extension, OFFLINE by Aerie, performed well on the back of the Leggings franchise stemming from customer acquisitions. Management previously launched its largest integrated marketing campaign, namely Voices of AerieREAL.
Management revealed plans to open 25 stores. The Aerie brand is a key growth engine for American Eagle and has been on track to reach the next brand milestone of $2 billion in sales, out of which it has already achieved $1.5 billion in revenues.
Other Solid Picks in Retail
We have highlighted three other top-ranked stocks, namely Tecnoglass TGLS, The TJX Companies TJX and The Kroger Co. KR.
Tecnoglass, selling architectural glass and windows, and aluminum products for the residential and commercial construction industries, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and EPS suggests growth of 18.1% and 23.8%, respectively, from the year-ago reported figures. TGLS delivered an earnings surprise of 22.7% in the trailing four quarters.
TJX Companies, a leading off-price retailer of apparel and home fashions in the United States and worldwide, currently carries a Zacks Rank #2. TJX delivered an earnings surprise of 6% in the last reported quarter.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and EPS suggests growth of 6.4% and 12.9%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 10.5%.
Kroger, which operates in the grocery industry, currently carries a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 6%.
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