American Eagle Reports Stellar Q3 Beat; Shares Up 4.8%


Shares of American Eagle Outfitters, Inc. (AEO) jumped 4.8% on November 23 to close at $28.79, after the company delivered a blowout third-quarter results topping both earnings and revenue estimates.The company also witnessed solid margin expansion driven by robust demand, inventory optimization and supply chain initiatives.American Eagle Outfitters is a leading global lifestyle, clothing, and accessories retailer. It sells high-quality, on-trend clothing, accessories, and personal care products at affordable prices. The company is more than 40 years old and operates under its American Eagle and Aerie brands.

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Q3 Beat and Margin Expansion

In Q3, adjusted earnings more than doubled year-over-year at $0.76 per share, significantly exceeding the consensus estimate of $0.60 per share. The company reported earnings of $0.32 per share in the prior-year period.

Furthermore, revenues jumped 24% year-over-year to $1.27 billion and exceeded consensus estimates of $1.22 billion. The increase in revenues reflects a surge in Aerie revenue and American Eagle revenue, growing 28% to $315 million and 21% to $941 million, respectively.

Similarly, gross margin improved 410 bps year-over-year to 44.3%, the highest since 2007. The increase was driven by robust product demand, controlled costs, more full-priced sales, lesser promotions, and inventory optimization initiatives which offset higher freight costs.

Further, operating margin expanded 720 bps to 16.5% against 9.3% recorded in the prior-year quarter.

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Management Weighs In

AEO CEO, Jay Schottenstein, commented on the recently announced acquisition and said, “This quarter, we took an important next step in our supply chain transformation with the planned acquisition of Quiet Logistics to ensure ongoing efficiencies and procure a state-of-the-art logistics platform with meaningful growth potential.”

He further added, “With our customer-first focus, the teams did a great job bringing in goods to meet strong demand this holiday season. I am extremely proud of the team’s ability to execute with precision at a time of volatility and am confident that we will exceed $600 million of operating income for the year, well above the $550 million 2023 target.”

Wall Street’s Take/ Analysts Recommendation

Consensus among analysts is a Moderate Buy based on 3 Buys and 3 Holds. The average American Eagle price target of $36.67 implies 27.37% upside potential to current levels.

AEO scores a 6 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market expectations.

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