American Eagle Outfitters (AEO) is trading higher today after reporting impressive Q2 (Jul) earnings/guidance this morning despite a difficult retail environment. In case you're not familiar, American Eagle Outfitters is an apparel retailer that also sells accessories and personal care products.
AEO focuses on the affordable segment of the market. AEO operates under two brand names: American Eagle Outfitters (AE) and aerie. The American Eagle Outfitters brand targets 15 to 25 year old men and women. The company operates more than 1,000 stores in the US, Canada, Mexico, China, Hong Kong and the United Kingdom. Its merchandise also is available at more than 170 international locations operated by licensees.
Denim is the cornerstone of the American Eagle Outfitters product assortment, which is complemented by other key categories including pants, shorts, sweaters, fleece, outerwear, graphic t-shirts, footwear and accessories. The aerie brand is a collection of intimates and personal care products for women.
Turning to the JulQ results, non-GAAP EPS fell 17% YoY to $0.19, which was a good bit above prior guidance of $0.15-0.17. Revenue rose 2.7% year/year to $844.6 mln, which was above market expectations. While the JulQ results were quite good, the guidance for Q3 (Oct) was in-line. Management said it expects OctQ non-GAAP EPS of $0.36-0.38.
Turning to same store comps, which is always a critical operating metric for retailers, it came in at +2% which was identical to the +2% in Q1 (Apr). It was better than prior guidance of "flat to a low single digit decline." Breaking it down by brand, American Eagle comps came in at flat while aerie was +26%. In terms of guidance, AEO expects OctQ comps of flat to up low single digits.
AEO says it was able to achieve sales and earnings above expectations in JulQ despite a challenging retail environment and sluggish mall traffic. The company saw continued growth in jeans, bottoms, women's apparel and Aerie, with encouraging signs in men's tops beginning to emerge. AEO says it's optimistic as it enters the second half of the fiscal year.
The balance sheet remains in good shape with $193 million in cash/inv, or $1.08/sh, with no LT debt. And AEO is good about returning cash to shareholders. It pays a healthy dividend yield of 4.2% and it is good about repurchasing shares. Over the past 12 months, AEO returned $88 mln in share buybacks, $90 mln in dividends and invested $187 mln in cap-ex.
In sum, investors appear to be quite pleased with the JulQ earnings report. There was nice upside on EPS and the +2% comps were better than expected as well. Also, last quarter the company guided lower which caused the stock to sell off. But this time they guided generally in-line and the comp guidance was pretty positive as well. That was a nice improvement.
With that said, the stock has been trending lower for much of the past year on generally disappointing results. The retail environment generally, especially for mall brands, has been quite weak. With that said, AEO did fairly well in JulQ. Perhaps their focus on the value end of the spectrum is helping them.