American Eagle (AEO) has pared gains despite reporting strong third quarter results and fourth quarter guidance this morning.
Third quarter EPS was $0.37 including a $0.05/share write-off of a receivable. The company had guided for EPS of $0.36-0.38 versus $0.41 last year.
Comparable store sales grew 3% versus guidance for flat to low single digit growth and a 2% gain last year. The company saw record sales in the ‘bottoms' category for men and women. American Eagle said it is the destination for jeans in the mall. Management sees the bottoms business growing in Q4 and next year.
Gross margin fell 120 basis points year-over-year to 39.0% due to higher promotions and increased shipping costs associated with a strong digital business.
American Eagle guided for fourth quarter EPS of $0.42-0.44, above estimates, and called for mid-single digit comp growth.
American Eagle continues to execute in a challenging environment. Jay Schottenstein, Chief Executive Officer commented, "The third quarter produced record sales, sequential margin improvement and marked eleven straight quarters of comp sales growth. Digital sales continued to grow at a rapid pace, while we also saw store sales strengthen. These results validate our investments in product leadership, innovation, quality and brand equity. I'm very pleased to see strong momentum continue into the fourth quarter, positioning us well for the next few critical weeks of the holiday season."
The stock trades at ~14x earnings with a $2.8 billion valuation. It appears the stock was due for a breather after rising more than 50% from the lows in August.