Despite a strong brand image and positive customer response to its product assortments, American Eagle Outfitters (NYSE:AEO) might see a slow spring season. Even with the timely launch of the spring collection and appealing marketing, the store traffic has remained low. This can be partly attributed to unfavorable weather conditions and higher fuel prices.  As a result, the company’s stock price has declined by 10% since February. Although this may weigh on the retailer’s first quarter results, its fundamental outlook remains strong in our view.
American Eagle Outfitters’ Preparations For The Spring Season
Although the spring 2013 season might not live up to American Eagle Outfitters’ expectations, the retailer is trying hard to get the best out of it. It launched bright-colored palettes such as indigo washed navy, lifeguard red, nautical yellow and sailcloth white inspired by vintage nautical flags of World War II.  For its women’s merchandise segment, the retailer launched a wide range of trends such as ballet to barbie pinks, mint to seafoam, ultra feminine lilacs and lilacs in a variety of fabrics and silhouettes.  The company also stated that the customer response to these trends was encouraging. 
To support the spring collection, American Eagle came out with its spring campaign – “Project Live Your Life”.  The campaign features 12 non-model people from different professions showing off their favorite products from the collection. These are successful people chosen on the basis of their peers’ votes. The campaign will help the retailer promote its products across various fields such as music, rugby, origami, dance, photography, golf and others. 
Adding more appeal to its brand image, the company introduced an advertisement featuring models with spray painted legs and referring to them as skinny jeans.  The ad has been a hit on YouTube and has driven significant traffic to the company’s website.  American Eagle’s management stated that the idea was not to sell the actual product but to enhance customer engagement in an amusing way. 
However, The Efforts May Not Be Enough
According to American Eagle Outfitters despite being well-positioned in terms of product assortments, the store traffic in the spring season so far has been disappointing. The timely launch of the spring collection didn’t help as the prolonged cold weather in the U.S. prevented spring clothing sales. 
In addition to this, buyers continue to remain conscious about their spending due to the increase in payroll taxes and fuel prices. Due to lower customer traffic, American Eagle might face an inventory hangover that can impact the launch of its summer collection. Also, it may sell its products at heavy discounts to clear its inventory, which will bring down its comparable store sales. Either way, the company’s first quarter results are likely to get affected. However, these issues are not company-specific, and we remain optimistic about the retailer’s long-term outlook.
Our price estimate for American Eagle Outfitters stands at $27, implying a premium of about 40% to the market price.Notes:
- American Eagle Outfitters Sees Spring Slowdown Coming, Post-Gazette, March 7 2013 [↩] [↩]
- Spring 2013 Designer Inspiration, American Eagle Outfitters, Jan 18 2013 [↩] [↩]
- American Eagle Outfitters’ Q4 fiscal 2012 earnings transcript, March 6 2013 [↩]
- American Eagle Outfitters Features Real People In Spring 2013 “Project Live Your Life” Campaign, American Eagle Outfitters, Feb 28 2013 [↩] [↩]
- American Eagle Outfitters Skinny Skinny Jeans Prank, College Humor [↩]
- American Eagle Spray On Jeans: Marketing VP Bob Holobinko Talks ‘Skinny Skinny’ Video; Can You Buy Them?, The Latin Times, March 22 2013 [↩] [↩]