Bear of the Day: American Eagle Outfitters (AEO)

American Eagle Outfitters (AEO) is a mall-based retailer that specializes in causal apparel, accessories, and footwear for men and women. AEO also operates popular lifestyle brand Aerie, which is known for their undergarments, loungewear, athleisure products, and swimsuits.

How AEO is Dealing With Coronavirus

Shares of American Eagle plunged nearly 40% last month as the apparel retailer began to deal with the negative impacts of the coronavirus pandemic.

AEO has had to temporarily shutter its stores and the company withdrew its fiscal 2020 first-quarter guidance. It has also furloughed employees, suspended its share repurchase program, and deferred the payment of its Q1 dividend.

The company, though, is making some moves to try and stem the impact.

AEO is now offering curbside pickup so that customers can get their order the same day without entering a store. It’s boosted its bond offering too, raising the possible total issue to $500 million.

And because its furloughed workers and deferred its dividend, along with reducing inventory and capital expenditures, AEO has been able to bring its current cash load to about $490 million.

As we’ve come to see, retail has now become one of the hardest hit industries during the outbreak, along with travel, hospitality, and restaurants. AEO is not only grappling with decreased store sales and store traffic, but its supply chain—it sources some of its goods and products from China—has been dealing with disruption since the crisis started earlier this year.

Even though shoppers can still order AEO product online, the majority of people are buying food and household essentials, not clothes.

Bottom Line

AEO is now a Zacks Rank #5 (Strong Sell). Eight analysts have cut their full year earnings outlook, and the consensus estimate has fallen 63 cents from $1.46 to $0.83 a share.

Up until the crisis, AEO had reported 20 consecutive quarters of revenue growth, and sales at its Aerie brand jumped 26% in Q4 2019.

The real damage from the coronavirus is still uncertain. American Eagle’s future revenue, earnings, and cash flow can’t be determined until the number of new cases begins to flatten and/or decline, and the length of the outbreak is figured out. It’s probably best to avoid consumer discretionary stocks like AEO for the time being.

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