American Eagle (AEO) will report second quarter results tomorrow morning (usually at 8:00) and host a call at 9:00.
The apparel retailer guided for second quarter EPS of $0.15-0.17 vs. $0.23 last year with comparable store sales in the range of flat to a low single-digit decline. Expectations are for EPS at the midpoint of guidance with comps slightly negative. Last quarter, earnings came in at $0.16/share, in-line with $0.15-0.17 guidance as comps grew 2%, which compared favorably to guidance for a flat to a low single digit decline.
American Eagle is doing well relative to publicly traded peers like the defunct Aeropostale, Abercrombie & Fitch and Express (EXPR), but the company is not immune to the same primary headwind that its peers face: lower traffic at malls. American Eagle has taken share in recent years but the market has become more fragmented as online competition increases and brands increasingly go direct-to-consumer.
Stepping back, earnings are expected to fall ~12% year-over-year with comps up 1% for the year. Last year, comp growth slowed to +3%, while EPS hit a four-year high at $1.25/share.
The stock trades at 10.4x earnings estimates for the year and the $1.8 billion enterprise value is ~4x EBITDA estimates. Retailers have had a tough go of things this year.
The decline in the sector seems more secular than cyclical as online competition increases and mall traffic dissipates.The retail ETF (XRT) is down ~13% year-to-date vs. a 10% increase in the S&P 500. Meanwhile the elephant in the room, that continues to take market share and weigh on traffic, Amazon (AMZN) is up 29% year-to-date.
AEO is down 25% YTD and ~12% of AEO's float is sold short. The stock hit a three-year low yesterday after struggling to hold support near the $11 level for most of the summer.