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Category: Stock Market and American Eagle
Date: 4 September 2019 Stock Price: $16.27 We take a look at the 2nd quarter earnings for their 2019 fiscal year of American Eagle Outfitters, the speciality retailer in clothing, accessories and personal care items
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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
Financial overview of American Eagle Outfitters's latest earnings report
The numbers we are interested in (for the quarter):
- Total net revenue increased $76 million, or 8% to a record $1.04 billion compared to $965 million last year. Included in total net revenue this year was $40 million for Japan license royalties.
- Consolidated comparable sales increased 2%, following a 9% comparable sales increase last year.
- By brand, American Eagle’s comparable sales decreased 1%, following a 7% increase last year. Aerie’s comparable sales increased 16%, building on a 27% increase last year and marking the 19th consecutive quarter of double-digit growth.
- Gross profit rose 8% to $383 million from $353 million. The gross margin rate of 36.7% compared to 36.6% last year. Flow through from the Japan license royalties drove the increase in margin rate and dollars, which was offset by increased markdowns and delivery expense.
- Selling, general and administrative expense of $253 million increased 8% from $234 million last year. The dollar increase reflects compensation expense, primarily due to strategic investments in the stores organization that began midway through 2018, as well as professional services. As a rate to revenue, SG&A was 24.3%, flat to last year.
- Operating income of $82 million, which included approximately $3 million of restructuring charges, compared to $76 million last year. Excluding the restructuring charges, adjusted operating income was $85 million and the adjusted operating margin of 8.1% compared to 7.9% last year. Both operating income and adjusted operating income included approximately $34 million from the Japan license royalties.
- Other income of $4 million compared to $1 million last year. The increase primarily consisted of interest income, as well as foreign currency fluctuations.
- EPS of $0.38 compared to $0.34 last year. Excluding restructuring charges of $0.01, the company’s adjusted EPS increased to $0.39. EPS included $0.15 related to the Japan license royalties.
- Cash and cash equivalents: $267.166million
- Cash and cash equivalents per share: $1.56
- Cash and cash equivalents makes up 9.59% of the group's current market capital
- Weighted average common shares outstanding - diluted: 171,1 million ( down from 178.505 million for the same quarter of the previous year)
- Merchandise inventory: $534.762 million
- Merchandise inventories makes up 15.9% of the group's total assets
- Merchandise inventories for American Eagle Outfitters grew by 14.6% over the last year
- Merchandise inventories makes up 15.9% of the group's total assets
American Eagle Outfitters's management commentary on the results and earnings guidance
PITTSBURGH--(BUSINESS WIRE)-- American Eagle Outfitters, Inc. (NYSE: AEO) today reported EPS of $0.38 for the quarter ended August 3, 2019, compared to $0.34 for the quarter ended August 4, 2018. Excluding restructuring charges of $0.01, the company’s adjusted EPS was $0.39. Second quarter total net revenue included $40 million recognized for license royalties from a third-party operator of AE stores in Japan, which contributed $0.15 of EPS in the second quarter.
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “We had a number of wins and accomplishments in the second quarter, yet we were disappointed to report operating results below our expectations. We faced challenges largely stemming from underperformance in certain seasonal categories and a delayed start to back-to-school. Despite this, we delivered our 18th consecutive quarter of positive consolidated comparable sales growth. We were also encouraged to see many areas of the business perform well, including continued strong momentum in AE Jeans, Aerie and our digital channel — all major growth priorities. The AE team has taken quick action to strengthen the business and we are pleased to see an improvement in third quarter-to-date sales. Our brands remain strong and we are well-positioned to continue to grow and gain market share.”
Third Quarter Outlook
Based on an anticipated comparable sales increase in the low to mid single digits, management expects third quarter 2019 EPS to be approximately $0.47 to $0.49. This guidance excludes potential asset impairment and restructuring charges. Last year the company reported EPS of $0.48 for the third quarter.
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “We had a number of wins and accomplishments in the second quarter, yet we were disappointed to report operating results below our expectations. We faced challenges largely stemming from underperformance in certain seasonal categories and a delayed start to back-to-school. Despite this, we delivered our 18th consecutive quarter of positive consolidated comparable sales growth. We were also encouraged to see many areas of the business perform well, including continued strong momentum in AE Jeans, Aerie and our digital channel — all major growth priorities. The AE team has taken quick action to strengthen the business and we are pleased to see an improvement in third quarter-to-date sales. Our brands remain strong and we are well-positioned to continue to grow and gain market share.”
Third Quarter Outlook
Based on an anticipated comparable sales increase in the low to mid single digits, management expects third quarter 2019 EPS to be approximately $0.47 to $0.49. This guidance excludes potential asset impairment and restructuring charges. Last year the company reported EPS of $0.48 for the third quarter.
American Eagle Outfitters (NYSE: AEO) stock price history
The image below 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, with the price increasing from around $13 to just over $16 its trading at right now. It has seen major ups and downs over the 5 year period but in all hasn't changed much over a 5 year period. It is also trading at a lot close to its 52 week low than it is to its 52 week high which signals to us that recent sentiment towards the stock has been negative.
American Eagle Outfitters (NYSE: AEO) latest stock valuation
So based on AEO's earnings report what do we value the stock price at? Is there value to be had in the share? Based on the group's latest earnings report our valuation models provides a target price on American Eagle Outfitters of $24.00 a share. We therefore believe American Eagle Outfitter's stock is undervalued and we expect the stock price to tick upwards towards its 52 week high