American Eagle Outfitters Shares Drop on Weak Comparable Sales Forecast

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August 17, 2016 9:29am NYSE:AEO

Clothing retailer American Eagle Outfitters (NYSE:AEO) posted better-than-expected second quarter earnings results this morning, but its comparable sales outlook spooked investors, who sold off shares to the tune of a 5% drop.

The Pittsburgh-based company reported second quarter EPS of $0.23, beating analysts’ view of $0.21. Sales rose 3.2% from last year to $822.6 million, also beating estimates.

Q2 comparable sales rose just 3%, compared with an 11% gain last year.

Looking ahead, AEO forecast Q3 earnings of $0.40 to 0.41 per share, in-line with Wall Street forecasts. However, the company projected its comparable sales growth for Q3 to be in the low single digits, while analysts are looking for 6%.

Comparable sales, also known as same-store sales, are a key metric brick-and-mortar retailers, since they measure the performance of stores open at least one year. This allows for a fairer performance comparison versus the prior year, since during that time frame, the company may have opened additional stores or closed underperforming ones.

Other interesting notes from the report included:

  • Q2 gross profit margin rose 160 basis points to 37.3%.
  • Q2 Selling, general and administrative expenses rose 2% from last year to $200 million.
  • Q2 total merchandise inventories at EOQ rose 3% to $422 million.
  • Company ended Q2 with $248 million in cash, down from $327 million last year.

From the press release:

Jay Schottenstein, Chief Executive Officer commented, “For the past few years, we have worked hard to lift our brands through merchandise leadership and innovation, strengthen our customer focus and invest in technology. Our efforts around these priorities are clearly paying off, as again evidenced by our strong earnings growth in the second quarter. As we enter the fall season, our execution, focus and market opportunities are greater than ever. In today’s evolving retail landscape, we are committed to offering the very best product and customer experience to position AEO’s brands as leaders in a new generation of successful retail brands.”

American Eagle Outfitters shares fell $0.80 (-4.22%) to $18.16 in premarket trading Wednesday. Prior to today’s report, AEO stock had gained 22% since the start of 2016, more than tripling the return of the S&P 500 in the same timespan.


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