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 second-quarter results on Wednesday, September 7. In the upcoming Q2, we expect the company’s stock to likely trade higher with revenues and earnings beating consensus. AEO’s stock is down almost 56% year-to-date, largely due to anxiety over a possible recession, rising material costs, a difficult labor market, and sky-high inflation. To add to this continued supply chain headwinds have weighed on its Q1 margins, and we expect further margin pressure in Q2 as the company clears through its excess Q1 inventory. However, the company is still a growth story when compared to its pre-pandemic levels, driven by Aerie’s growth, optimized American Eagle (AE) brand footprint, and higher digital penetration (36%).
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 7% higher than the current market price. Look at our interactive dashboard analysis of American Eagle Outfitters Earnings Preview: What To Expect in Q2? for more details.
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1) Revenues expected to be slightly above consensus estimates
Trefis estimates AEO’s FQ2 2022 revenues to be $1.24 Bil, slightly above the consensus estimate. American Eagle Outfitters had sales of $1.06 billion in the first quarter of 2022, up only 2% year-over-year (y-o-y), driven by a shifting macro environment and weak consumer demand for clothing. While Aerie continued its impressive growth (up 8% y-o-y and more than doubled vs. Q1 2019 levels), its core AE brand saw its sales decline 6% y-o-y. It should be noted that Aerie’s revenue CAGR over the last three years is nearly 27%, which is more than offsetting the barely negative revenue growth for AE. Going forward, we expect Aerie to continue its growth trajectory, with revenues likely increasing to $1.5 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.
For the full year, we expect American Eagle Outfitters’ revenues to grow 4% y-o-y to $5.2 billion.
(2) EPS likely to beat consensus estimates comfortably
AEO’s FQ2 2022 earnings per share (EPS) is expected to be 15 cents per Trefis analysis, comfortably beating the consensus estimate. AEO’s first-quarter earnings per share came in at 16 cents, down 65% y-o-y. The company’s gross margins were cut down by over 500 basis points to 36.8% in Q1, pressured by higher freight costs. In addition, the retailer’s operating margins also took a hit from higher selling, general, and administrative expenses. We expect these margin pressures to continue into Q2 as AEO will clear through excess spring goods with painful markdowns in the quarter.
(3) Stock price estimate higher than the current market price
Going by our American Eagle Outfitters’ Valuation, with an EPS estimate of around $1.40 and a P/E multiple of 8.9x in fiscal 2022, this translates into a price of around $12, which is 7% higher 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.
With inflation rising and the Fed raising interest rates, AEO has fallen 56% this year. Can it drop more? See how low can American Eagle Outfitters stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||-1%||-18%||75%|
|Trefis Multi-Strategy Portfolio||-2%||-17%||228%|
 Month-to-date and year-to-date as of 9/6/2022
 Cumulative total returns since the end of 2016