American Eagle Loses Momentum - Analyst Blog

American Eagle Outfitters Inc. AEO reported disappointing fourth quarter and fiscal 2013 results, wherein its top and bottom lines declined from the prior-year numbers. Results were impacted by lower sales and weak merchandise margins, partially offset by effective cost management. Battered by the dismal results and harsh winter weather, the company came up with a bleak outlook for the first quarter of fiscal 2014.

Since the announcement of the dismal earnings results on Mar 11, 2014, shares of this apparel and shoe retailer have slumped 5.6% while it has lost 16.1% year-to-date. Alongside, the stock reached a 52-week low of $12.35 on Mar 26, 2014, closing a penny above at $12.36.

This Pittsburgh, PA-based company delivered fourth-quarter fiscal 2013 adjusted earnings of 27 cents per share, plunging 50.9% from 55 cents in the prior-year quarter. Fiscal 2013 adjusted earnings came in at 74 cents per share, reflecting a 46.8% decline from $1.39 earned in fiscal 2012. However, the company's earnings for both periods beat the Zacks Consensus Estimate by a penny.

American Eagle's net sales declined 6.7% year over year to $1,041.7 million in the fourth quarter and came below the Zacks Consensus Estimate of $1,065.0 million. Full-year sales totaled $3,305.8 million, down 4.9% year over year, while it came marginally ahead of the Zacks Consensus Estimate of $3,302.0 million.

Noticing challenging business conditions as the harsh winter weather disrupts product demand, American Eagle projects earnings per share for the first quarter of fiscal 2014 to break even against about 18 cents earned in the first quarter of fiscal 2013. The guidance is based on the company's anticipation of high single-digit decline in comparable sales. Moreover, the company expects inventory at cost per foot at the end of first quarter 2014 to decline in the mid single-digits.

Additionally, the dismal year-end results and tepid first-quarter guidance have caused the Zacks Consensus Estimate to fall substantially over the last 30 days. The estimate for first-quarter fiscal 2014 fell by 13 cents to break even, while for fiscal 2014 and 2015, it fell 26.4% and 19.3% to 64 cents and 88 cents per share, respectively.

Moreover, the last traded price of this Zacks Rank #4 (Sell) stock is 17.6% below the Zacks Consensus average analyst price target of $15.00. The company has long-term projected earnings per share EPS growth rate of 10.3%, relatively lower than the peer group average of 15.4%. It currently trades at a forward P/E of 19.3x, a 19.9% premium to the peer group average of 16.1x.

Not all apparel stocks are performing as poorly as American Eagle. Other better-ranked stocks in the apparel space include Hanesbrands Inc. HBI, Michael Kors Holdings Limited KORS and American Apparel Inc. APP. Of these, Hanesbrands and Michael Kors hold a Zacks Rank #1 (Strong Buy) while American Apparel carries a Zacks Rank #2 (Buy).