American Eagle (AEO) on Track to Cross $1B Revenues in Q1

Zacks Equity Research
·4 min read

American Eagle Outfitters, Inc. AEO looks well poised for growth on strength in brands and strategic endeavors. Recently, the company issued robust business updates for first-quarter fiscal 2021, which is scheduled for release on May 26. Management stated that American Eagle’s business is surpassing expectations and looks to achieve quarterly revenues of more than $1 billion. This calls for mid-teens growth versus the pre-pandemic first-quarter fiscal 2019. We note that the company generated total net revenues of $886.3 million during the first quarter of fiscal 2019. The latest outlook compares favorably with the Zacks Consensus Estimate of $912.2 million pinned for first-quarter fiscal 2021 revenues.

Driven by the business update, shares of the clothing, accessories and personal care products retailer rallied 4.1% during trading hours on Apr 15. Over the three-month time frame, this Zacks Rank #3 (Hold) stock has surged 50.6% and outperformed the industry’s 17.7% growth.

Let’s Delve Deeper

Detailing the business updates further, the company pointed out that demand across American Eagle’s flagship and Aerie brands has accelerated, resulting in stronger margins, increased full-priced selling and lower promotions. Accordingly, management projects operating income of about $120 million for the first quarter of fiscal 2021, to end on May 1. This compares with operating income of $48 million and adjusted operating income of $49 million reported during the first quarter of fiscal 2019.



Meanwhile, the company’s strategic priorities mainly focus on the “Real Power. Real Growth.” value creation plan, and hence fuel growth across brands and channels, and attract new customers. In addition, the economic stimulus, consumer optimism and pent-up demand are acting as tailwinds. American Eagle has also been witnessing strong digital demand in light of the COVID-19 pandemic. The company’s consolidated digital sales grew 35%, with a 75% increase for Aerie and 20% for AE in the fourth quarter of fiscal 2020. Overall, online sales contributed nearly 45% to the company’s revenues during the fourth quarter.

Additionally, management is encouraged about the Aerie label, which is outpacing expectations and will maintain this momentum. During the fourth quarter of fiscal 2020, sales rose 25% year over year for Aerie, driven by its unique brand platform and significant momentum in all business areas. This marked the 25th successive quarter of double-digit growth for the Aerie brand. The OFFLINE activewear collection is expected to further boost Aerie’s growth.

Encouragingly, the Aerie brand is a key growth engine for American Eagle and is on track to reach the next brand milestone of $2 billion in sales. Speaking of the company’s flagship brand, management has been witnessing smooth progress across the brand on solid merchandise, marketing and inventory management.

Furthermore, American Eagle is optimistic about its Real Power. Real Growth value creation plan, with focus on accomplishing its 2023 financial targets and boosting shareholder returns. Management remains focused on five key pillars, including doubling of Aerie’s revenues to $2 billion by 2023, American Eagle brand’s growth, making investments in customer-focused operations, strengthening ROI discipline, and embracing the power of its people, culture and purpose. The company targets revenues of $5.5 billion and operating margin of 10% by fiscal 2023.

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