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American Eagle Outfitters Stock Slides 6.5% on Q2 Results

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Better-than-expected Q2

On August 29, American Eagle Outfitters (AEO) stock fell 6.5% to close at $25.50 despite better-than-expected second-quarter results. Revenue of $964.9 million and adjusted EPS of $0.34 beat analysts’ projection of $938.2 million and $0.31, respectively. On a YTD basis, American Eagle Outfitters stock has risen 35.6%. In comparison, Abercrombie & Fitch (ANF) and Urban Outfitters (URBN) rose 56.2% and 29.4%, respectively. However, Gap (GPS) fell 10% on a YTD basis.

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Detailed revenue performance

On a YoY basis, revenue grew 14% due to strength in Aerie and AE (American Eagle) brands. The momentum in the digital business also added to the top-line performance. Its digital revenue contributed 24% of its total revenue in the second quarter. Revenue also benefitted due to a calendar shift, which added $40 million to the top line.

For the third quarter, the company expects revenue to be up in the mid-single digits due to the calendar shift. Aerie is expected to top $1 billion in revenue in the near term. Aerie is expected to benefit from the ongoing body positivity movement. Also, the company’s decisions to hire plus-sized models and stop retouching ad images have been attracting customers.

Management is confident that the AE brand could add another $1 billion in revenue. For both the brands, the company is investing in marketing and improving store layout to enhance customer experience.

Overall, comps rose 9% in the second quarter with AE and Aerie delivering comps growth of 7% and 27%, respectively. Store comps at both the brands were positive in the second quarter. Digital comps grew in double digits. For the current quarter, management expects comps to grow in the high-single digits.

A look at other apparel retailers’ recent performance

Urban Outfitters (URBN) reported fiscal second-quarter 2019 sales of $992.5 million, which topped analysts’ consensus estimate by 1.3%. On a YoY (year-over-year) basis, its sales rose 13.7% due to its strong digital business and strong-performing brands.

For the second quarter of 2018, Gap (GPS) reported sales of $4.1 billion, which was marginally better than the consensus estimate. Sales grew 7.5% on a YoY basis.

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