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Category: Stock Market and American Eagle
Date: 14 December 2019 Stock Price: $14.46 We take a look at the 3rd quarter earnings for their 2019 fiscal year of American Eagle Outfitters, the speciality retailer in clothing, accessories and personal care items. The group lowered their guidance for the holiday season and mentioned greater markdowns
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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
Overview of American Eagle Outfitters's 3rd quarter 2019 earnings report
The data below refers to the latest quarter unless specified otherwise
- Total net revenue increased $63 million, or 6% to a record $1.07 billion compared to $1.00 billion last year.
- Consolidated comparable sales increased 5%, following an 8% comparable sales increase last year, and were positive across both store and digital channels.
- By brand, American Eagle’s comparable sales increased 2%, following a 5% increase last year. Aerie’s comparable sales increased 20%, building on a 32% increase last year and marking the 20th consecutive quarter of double-digit sales growth.
- Gross profit rose 2% to $407 million from $399 million. The gross margin rate of 38.2% compared to 39.8% last year. The decline primarily reflected increased markdowns.
- Selling, general and administrative expense of $259 million increased 4% from $248 million last year, reflecting higher store salaries and professional fees, partly offset by lower incentive expense. As a rate to revenue, SG&A improved to 24.3% compared to 24.8% last year.
- Depreciation expense increased 6% to $45 million from $42 million last year and was 4.2% as a rate to revenue, flat to last year.
- Operating income of $103 million compared to $109 million last year. As a rate to revenue, operating income of 9.7% compared to 10.8% last year.
- Other income of $3 million compared to $4 million last year. The decrease is primarily attributable to a benefit from a vendor settlement recorded last year.
- Earnings per share (EPS) of $0.48 was flat to last year.
- Diluted number of shares in issue: 168.693 million (down from 178.122 million for the same quarter of the previous year)
- Cash and cash equivalents: $214.514 million
- Cash and cash equivalents per share: $1.27
- Cash and cash equivalents makes up 8.7% of the group's current market capital
- Merchandise inventory: $647.329 million (up from $591.671 million for the same quarter of the previous year)
- Merchandise inventories makes up 18.7% of American Eagle Outfitters total assets
- Merchandise inventories for American Eagle Outfitters grew by 9.4% over the last year
- Stockholder equity in American Eagle Outfitters: $1.260 billion
- Stockholders equity per share: $7.46
- American Eagle Outfitters is trading at 1.93 times its stockholders equity which is just outside the expected range of between 2 and 4 times that most firms tend to trade at.
- Current ratio: 1.33
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 $0.48 for the quarter ended November 2, 2019, compared to $0.48 for the quarter ended November 3, 2018.
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “Strong top line performance across brands and channels led to our 19th consecutive quarter of comparable sales growth and record third quarter revenue. In a tough environment, we reported EPS in line with our guidance. We continued to deliver on our strategic pillars, with Aerie and American Eagle Jeans demonstrating strong sales and profit growth. Softer demand in certain AE apparel categories led to higher markdowns and has persisted into the fourth quarter. The team has been working hard to quickly course correct, and our focus is squarely on continuing to capitalize on the strength of our brands, accelerating the growth of Aerie, and creating shareholder value.”
Jay Schottenstein, AEO’s Chairman and Chief Executive Officer commented, “Strong top line performance across brands and channels led to our 19th consecutive quarter of comparable sales growth and record third quarter revenue. In a tough environment, we reported EPS in line with our guidance. We continued to deliver on our strategic pillars, with Aerie and American Eagle Jeans demonstrating strong sales and profit growth. Softer demand in certain AE apparel categories led to higher markdowns and has persisted into the fourth quarter. The team has been working hard to quickly course correct, and our focus is squarely on continuing to capitalize on the strength of our brands, accelerating the growth of Aerie, and creating shareholder value.”
Inventory
Total ending inventories at cost increased 9% to $647 million. The increase largely reflects inventory to support strong demand for AE Jeans, including new styles and expanded sizes. New store openings, primarily for Aerie, also contributed to the increase.
Capital Expenditures
In the third quarter, capital expenditures totaled $58 million, primarily related to store remodeling projects and new openings, with the balance to support the digital business and corporate IT. On a year-to-date basis, capital expenditures have totaled $150 million. We continue to expect annual capital expenditures to be in the range of $200 to $215 million.
Shareholder Returns, Cash and Investments
During the third quarter, the company returned $55 million to shareholders through cash dividends and share repurchases. We paid cash dividends of $23 million and repurchased 2.0 million shares for $32 million. Year to date, we have repurchased a total of 6.3 million shares for a total of $112 million and have 35.4 million shares remaining under the current authorization. We ended the third quarter with total cash and investments of $265 million.
Store Information
During the quarter, the company opened 6 American Eagle stores, ending with 945 American Eagle stores, including 170 Aerie side-by-side locations. Additionally, the company opened 12 Aerie stand-alone stores and closed 1, ending with 142 Aerie stand-alone stores. Internationally, the company ended the quarter with 241 licensed stores compared to 223 last year. For additional store information, see the accompanying table.
Fourth Quarter Outlook
Management expects fourth quarter 2019 EPS to be in the range of $0.34 to $0.36, with comparable sales approximately flat. This guidance excludes potential asset impairment and restructuring charges. Last year, the company reported EPS of $0.43 for the fourth quarter.
Total ending inventories at cost increased 9% to $647 million. The increase largely reflects inventory to support strong demand for AE Jeans, including new styles and expanded sizes. New store openings, primarily for Aerie, also contributed to the increase.
Capital Expenditures
In the third quarter, capital expenditures totaled $58 million, primarily related to store remodeling projects and new openings, with the balance to support the digital business and corporate IT. On a year-to-date basis, capital expenditures have totaled $150 million. We continue to expect annual capital expenditures to be in the range of $200 to $215 million.
Shareholder Returns, Cash and Investments
During the third quarter, the company returned $55 million to shareholders through cash dividends and share repurchases. We paid cash dividends of $23 million and repurchased 2.0 million shares for $32 million. Year to date, we have repurchased a total of 6.3 million shares for a total of $112 million and have 35.4 million shares remaining under the current authorization. We ended the third quarter with total cash and investments of $265 million.
Store Information
During the quarter, the company opened 6 American Eagle stores, ending with 945 American Eagle stores, including 170 Aerie side-by-side locations. Additionally, the company opened 12 Aerie stand-alone stores and closed 1, ending with 142 Aerie stand-alone stores. Internationally, the company ended the quarter with 241 licensed stores compared to 223 last year. For additional store information, see the accompanying table.
Fourth Quarter Outlook
Management expects fourth quarter 2019 EPS to be in the range of $0.34 to $0.36, with comparable sales approximately flat. This guidance excludes potential asset impairment and restructuring charges. Last year, the company reported EPS of $0.43 for the fourth quarter.
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 American Eagle Outfitters were trading at $13.30 and its currently trading at $14.46. While the stock has seen major ups and downs over the last 5 years is overall move over the last 5 years has basically been sideways.Over the last 5 years the stock has increased by 8.7%
The stock of American Eagle Outfitters is trading at a lot closer to its 52 week low of $13.66 than it is to its 52 week high of $24.30 which to us is a clear indication that the short term sentiment and momentum of American Eagle Outfitters stock is negative.
The stock of American Eagle Outfitters is trading at a lot closer to its 52 week low of $13.66 than it is to its 52 week high of $24.30 which to us is a clear indication that the short term sentiment and momentum of American Eagle Outfitters stock is negative.
Recent coverage of American Eagle Outfitters
The extract below covers the latest regarding American Eagle Outfitters as obtained from TheStreet,com
Shares of American Eagle Outfitters (AEO) - Get Report plunged Wednesday after the teen fashion retailer significantly lowered its guidance for the all-important holiday season. American Eagle's stock price dropped 6.58% to $14.13 a share after the retailer forecast fourth-quarter sales and earnings well below market expectations.
American Eagle now expects earnings to ring in at 34 cents to 36 cents a share during the last three months of 2019, compared with the estimate of 46 cents a share of analysts surveyed by FactSet. The teen fashion retailer also lowered its sales forecast, now expecting flat same-store sales for the fourth quarter, compared to the more than 4% increase predicted by FactSet. That's compared to earnings of 43 cents a share during the fourth quarter of 2018.
Jay Schottenstein, the company's CEO, cited "softer demand" in certain "apparel categories" and "higher markdowns," noting the trends have extended into the fourth quarter and the holiday shopping season.
Read the full article here
Shares of American Eagle Outfitters (AEO) - Get Report plunged Wednesday after the teen fashion retailer significantly lowered its guidance for the all-important holiday season. American Eagle's stock price dropped 6.58% to $14.13 a share after the retailer forecast fourth-quarter sales and earnings well below market expectations.
American Eagle now expects earnings to ring in at 34 cents to 36 cents a share during the last three months of 2019, compared with the estimate of 46 cents a share of analysts surveyed by FactSet. The teen fashion retailer also lowered its sales forecast, now expecting flat same-store sales for the fourth quarter, compared to the more than 4% increase predicted by FactSet. That's compared to earnings of 43 cents a share during the fourth quarter of 2018.
Jay Schottenstein, the company's CEO, cited "softer demand" in certain "apparel categories" and "higher markdowns," noting the trends have extended into the fourth quarter and the holiday shopping season.
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 and their fiscal guidance provided our valuation model provides a target price (full value price) for American Eagle Outfitters at $21.80 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 $21.80. A good entry point into the stock of American Eagle Outfitters would therefore be at $19.60 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 $21.80. A good entry point into the stock of American Eagle Outfitters would therefore be at $19.60 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
Next earnings release of American Eagle Outfitters
It is expected that American Eagele Outfitters will release their 4th quarter and full fiscal 2019 earnings report in early March 2020