American Eagle Outfitters (AEO 19.11, +0.08, +0.42%) pared early losses
this morning after the company narrowly missed third quarter same store sales
estimates and guided fourth quarter earnings just below consensus last night. The
stock opened lower this morning after missing some headline numbers, but has
since recovered as market participants bought the dip, helped by strength in
the broader market.
American Eagle is a leading mall-based apparel retailer that operates more than 1,000 stores in the United States, Canada, Mexico, China, and Hong Kong, and ships to 81 countries worldwide through its websites. With a $3.4 billion valuation , the stock trades at ~13x EPS, which is just below the average retailer but just above the average mall-based specialty retailer.
Third quarter results were quite strong overall. Earnings per share grew 30% to $0.48 and comparable store sales grew 8% on top of 3% growth last year. The company had guided for EPS of $0.45-0.47 with high-single digit comp sales growth. EPS was in-line with analyst estimates but comp sales missed by roughly 40 basis points. Gross margins increased 80 basis points to 39.8%, helped by lower markdowns and rent leverage, which were slightly offset by increased delivery costs.
American Eagle guided for fourth quarter EPS of $0.40-0.42 with mid-single digit comp sales growth. The EPS forecast was just below Wall Street estimates, but the sales forecast was mostly above estimates.
American Eagle continues to gain market share, having emerged as a winner among mall-based apparel retailers focused on teens and young adults. The company has reported positive comp sales fifteen quarters in a row. Next year, American Eagle (and all retailers) will start to face more difficult comparisons. The company's same store sales growth is expected to get cut in half next year from just north of 7% this year.
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