American Eagle Outfitters (NYSE: AEO), which sells men’s and women’s apparel and accessories under the American Eagle, Tailgate, Todd Snyder, and Aerie brands, is scheduled to report its fiscal first-quarter results on Thursday, May 26. In the upcoming Q1, we expect the company’s stock to likely trade lower with revenues and earnings missing consensus, due to a macro environment that remains challenging. AEO’s major retail sector peers Abercrombie & Fitch (NYSE: ANF), Walmart (NYSE: WMT), and Target (NYSE: TGT) saw shifting shopper behavior and rising costs in their first-quarter report. The combination of these trends convinced these companies to lower their earning outlook for 2022. We expect a similar pattern to follow for AEO as well, given that the company’s business is sensitive to any shift away from consumer discretionary categories such as apparel in the current inflationary environment.
AEO will see a decline in earnings for the first half of 2022 as a result of lapping the stimulus benefit of the first half of 2021, which resulted in an exceptional spring season last year. Continued freight pressure is also a factor in that outlook for an earnings drop. Although recovery is seen for the second half of the year, as AEO laps elevated air freight due to factory closures and inventory flow challenges.
Our forecast indicates that American Eagle Outfitters’ valuation is around $12 a share, which is slightly lower than the current market price. Look at our interactive dashboard analysis of American Eagle Outfitters Earnings Preview: What To Expect in Q1? for more details.
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1) Revenues expected to be slightly below consensus estimates
Trefis estimates AEO’s FQ1 2022 revenues to be $1.49 Bil, slightly below the consensus estimate. American Eagle Outfitters had sales of $1.51 billion in the fourth quarter of 2021, up 17% year-over-year (y-o-y). Notably, its consolidated store revenue increased by 32% and total digital revenue declined by 3% y-o-y. For the full year, we expect American Eagle Outfitters’ revenues to grow 14% y-o-y to $5.7 billion.
The company’s Aerie brand contributed considerable growth and its once-struggling American Eagle brand is now steadily profitable as of fiscal 2021. Going forward, we expect Aerie to continue its growth trajectory, with revenues likely increasing to $1.7 billion for the full year FY 2022. As such, the women’s intimate wear market of $16 billion is a huge opportunity for Aerie to expand further.
(2) EPS likely to miss consensus estimates comfortably
AEO’s FQ1 2022 earnings per share (EPS) is expected to be 33 cents per Trefis analysis, missing the consensus estimate. AEO’s fourth-quarter earnings per share came in at 30 cents compared to mere 2 cents a year ago. Going forward, the company anticipates operating profit to be in the range of $550 million to $600 million for the full year vs. adjusted operating profit of $603 million in 2021.
(3) Stock price estimate lower than the current market price
Going by our American Eagle Outfitters’ Valuation, with an EPS estimate of around $2.05 and a P/E multiple of 5.8x in fiscal 2022, this translates into a price of around $12, which is marginally lower than the current market price.
It is helpful to see how its peers stack up. AEO Peers shows how American Eagle Outfitters’ stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-5%||-17%||76%|
|Trefis Multi-Strategy Portfolio||-8%||-23%||201%|
 Month-to-date and year-to-date as of 5/25/2022
 Cumulative total returns since the end of 2016