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Category: Stock Market and American Eagle
Date: 17 June 2020 Stock Price: $12.10 We take a look at the 1st quarter 2020 earnings report of American Eagle Outfitters, an on-trend clothing, accessories and personal care products company. Their 1st quarter 2020 earnings declined by -38% compared to the same quarter of the previous year due to the Covid-19 pandemic.
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- In the midst of this unprecedented crisis, the strong character of our company and associates has been apparent. I’m extremely proud of the team’s agility and humanity as we have taken immediate actions to ensure the health and safety of our people, preserve financial strength and prepare AEO for a new future - Jay Schottenstein, AEO’s Chairman and Chief Executive Officer"
About American Eagle Outfitters
American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle Outfitters® and Aerie® brands. The company operates more than 1,000 stores in the United States, Canada, Mexico, China and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at more than 200 international locations operated by licensees in 25 countries
Overview of American Eagle Outfitters Q1 2020 earnings report
The data below refers to the latest quarter unless specified otherwise
- Total net revenue for the 13 weeks ended May 2, 2020 decreased $335 million, or 38% to $552 million compared to $886 million for the 13 weeks ended May 4, 2019.
- By brand, American Eagle revenue decreased 45%, following a 5% increase last year. Aerie’s revenue decreased 2%, following a 28% increase last year.
- The company’s digital demand, as measured by ordered sales, increased 33%. Aerie rose 75% and AE increased 15%. First quarter digital reported revenue was up 9%, reflecting strong demand, partly offset by temporary delays in fulfillment that led to higher than normal DC backlogs. The company has since reduced backlogs from mid-April peaks.
- Gross profit of $28 million compared to $325 million last year. The gross margin rate of 5.1% compared to 36.7% last year. The gross profit dollar decline primarily reflected the reduction in store revenue, markdowns and promotions to clear through AE spring and summer goods, and $60 million in inventory provisions. The company also experienced buying, occupancy and warehousing pressure as a rate to revenue, due to the sales decline.
- Selling, general and administrative expense of $188 million decreased $43 million from $231 million last year, primarily due to lower store operating expenses during closures.
- Depreciation and amortization expense of $43 million decreased $2 million from $45 million last year.
- Operating loss of $358 million compared to income of $48 million last year. Adjusted operating loss of $203 million this year excluded $156 million of impairment and restructuring charges and compared to adjusted operating income of $49 million last year, which excluded $1.5 million of restructuring charges.
- EPS of ($1.54) compared to EPS of $0.23 last year. Adjusted EPS of ($0.84) excluded $0.70 of impairment and restructuring costs and compared to adjusted EPS of $0.24 last year, which excluded $0.01 of restructuring costs
- Diluted number of shares in issue: 167.881 million (down from 174.073 million for the same quarter of the previous year)
- Cash and cash equivalents: $855.769 million
- Cash and cash equivalents per share: $5.09
- Cash and cash equivalents makes up 42.1% of the group's current market capital
- Merchandise inventory: $421.729 million (down from $456.160 million for the same quarter of the previous year)
- Merchandise inventories makes up 11.6% of American Eagle Outfitters total assets
- Merchandise inventories for American Eagle Outfitters declined by -7.5% over the last year
- Stockholder equity in American Eagle Outfitters: $996.983 million
- Stockholders equity per share: $5.93
- American Eagle Outfitters is trading at 2.04times its stockholders equity which is just outside the expected range of between 2 and 4 times that most firms tend to trade at.
- The average price to book value of firms in the S&P 500 is 3.7
Management commentary on their Q1 2020 earnings report
PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS of ($1.54) for the 13 weeks ended May 2, 2020. This compared to $0.23 for the 13 weeks ended May 4, 2019. Adjusted EPS of ($0.84) this year excluded $0.70 of impairment and restructuring charges discussed below and compared to adjusted EPS of $0.24 last year, which excluded $0.01 of restructuring costs.
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “In the midst of this unprecedented crisis, the strong character of our company and associates has been apparent. I’m extremely proud of the team’s agility and humanity as we have taken immediate actions to ensure the health and safety of our people, preserve financial strength and prepare AEO for a new future. Store closures and aggressive inventory liquidation had a significant impact on our 1st quarter financials. Yet customer engagement remained high and digital demand accelerated, well-exceeding our expectations. Aerie’s performance was truly exceptional despite store closures.”
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “In the midst of this unprecedented crisis, the strong character of our company and associates has been apparent. I’m extremely proud of the team’s agility and humanity as we have taken immediate actions to ensure the health and safety of our people, preserve financial strength and prepare AEO for a new future. Store closures and aggressive inventory liquidation had a significant impact on our 1st quarter financials. Yet customer engagement remained high and digital demand accelerated, well-exceeding our expectations. Aerie’s performance was truly exceptional despite store closures.”
“I’m very pleased to see stores re-opening strong, supported by industry-leading health and sanitization measures to ensure safe and secure stores for our associates and customers. American Eagle and Aerie will be well positioned for the back-to-school and fall seasons. We will oer compelling new collections and deliver the best customer experiences. AEO entered this crisis with a strong balance sheet and two of the most recognized, trusted and loved brands. Recent liquidity measures will protect our financial strength and enable us to continue to invest in our business, further solidifying our competitive position. We view this moment as an inflection point to accelerate strategies to emerge stronger, leaner, and more agile to effectively win in a post-COVID-19 world.”
American Eagle Outfitters (NYSE: AEO) stock price history
The image below, obtained from Google shows the stock price history of American Eagle Outfitters for the last 5 years. And the stock hasn't done much in terms of returns offers to investors over the last 5 years. 5 years ago the stock of American Eagle Outfitters was trading around $17.50 and its currently trading at $12.10. That's a loss of -31.3% suffered by American Eagle Outfitters over the last 5 years.
The stock of American Eagle Outfitters (AEO) is trading at a lot closer to its 52 week low of $6.54 than it is to its 52 week high of $18.42 which to us is a clear indication that the short term momentum and sentiment of American Eagle Outfitters stock is negative at this point in time.
The stock of American Eagle Outfitters (AEO) is trading at a lot closer to its 52 week low of $6.54 than it is to its 52 week high of $18.42 which to us is a clear indication that the short term momentum and sentiment of American Eagle Outfitters stock is negative at this point in time.
American Eagle Outfitters (AEO) stock vs Buckle (BKE) stock
The image below shows the stock price performance of American Eagle Outfitters (AEO) and Buckle (BKE) over the last 3 years. The trends of the two clothing firms are very similar. However the stock of AEO has been harder hit in recent times that than of Buckle. As the declines of American Eagle stock has been far more severe since Q3 2018. However over the full three year period the stock of American Eagle Outfitters declined by -1.06% while the stock of Buckle (BKE) declined by -13.35% over the three year period.
Recent coverage of American Eagle Outfitters
The extract below covers the latest regarding American Eagle Outfitters as obtained from Fool.com (10 June 2020)
While some apparel and footwear companies saw their profits, revenues, and stock prices hammered deep into negative territory by the COVID-19 pandemic, a handful of others, including American Eagle Outfitters (NYSE:AEO) managed to outperform. American Eagle's resilience comes mostly from its online sales, which popped 33% during the first quarter of 2020, and rose even more once the coronavirus effectively shut down retail.
According to Zacks, American Eagle's e-commerce strength allowed its stock value to rise more than 30% between mid-March and now, outpacing the apparel sector's 20% rebound. Morgan Stanley analysis pointed out that the company's 77% digital sales growth in May continued at levels seen in April, suggesting the online boom is ongoing even after American Eagle started reopening its brick-and-mortar stores.
Read the full article here
While some apparel and footwear companies saw their profits, revenues, and stock prices hammered deep into negative territory by the COVID-19 pandemic, a handful of others, including American Eagle Outfitters (NYSE:AEO) managed to outperform. American Eagle's resilience comes mostly from its online sales, which popped 33% during the first quarter of 2020, and rose even more once the coronavirus effectively shut down retail.
According to Zacks, American Eagle's e-commerce strength allowed its stock value to rise more than 30% between mid-March and now, outpacing the apparel sector's 20% rebound. Morgan Stanley analysis pointed out that the company's 77% digital sales growth in May continued at levels seen in April, suggesting the online boom is ongoing even after American Eagle started reopening its brick-and-mortar stores.
Read the full article here
American Eagle Outfitters (NYSE: AEO) latest stock valuation
So based on American Eagle Outfitters latest earnings report what do we value the stock price at? Based on the group's latest earnings report our valuation model provides a target price (full value price) for American Eagle Outfitters at $17.40 a stock. We therefore believe American Eagle Outfitters stock is undervalued and we expect the stock price to tick upwards in coming weeks and months.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $17.40. A good entry point into the stock of American Eagle Outfitters would therefore be at $15.70 or below.
Since the stock of American Eagle Outfitters is trading at well below our suggested entry point into the stock we rate the stock of American Eagle Outfitters as a buy.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $17.40. A good entry point into the stock of American Eagle Outfitters would therefore be at $15.70 or below.
Since the stock of American Eagle Outfitters is trading at well below our suggested entry point into the stock we rate the stock of American Eagle Outfitters as a buy.