Updated Research Report on American Eagle - Analyst Blog

We issued an updated research report on American Eagle Outfitters Inc. AEO following the company's dismal fourth-quarter and fiscal 2013 results. Results were impacted by lower sales and weak merchandise margins, partially offset by effective cost management.

This casual apparel and accessories retailer's fourth quarter and fiscal 2013 results reflected year-over-year decline in both the top and bottom lines. American Eagle posted fourth-quarter fiscal 2013 adjusted earnings of 27 cents a share, plunging 50.9% from 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 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.

Battered by the dismal results and harsh winter weather, the company came up with a bleak outlook for the first quarter of fiscal 2014. The company expects 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 60 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 24.8% to 64 cents and 82 cents per share, respectively.

Moreover, declining comparable store sales remain a concern for the company. This Pittsburgh, PA-based company posted negative comps for all four quarters of fiscal 2013, reporting a decline of 5%, 7%, 5% and 7%, respectively, for the first, second, third and fourth quarters. The top line too suffered and fell 2%, 4%, 5.8% and 6.5% for the four quarters, respectively. The primary reason was the poor performance of the women's collections and promotional retail backdrop.

Apart from this, American Eagle continues to face challenges on the macroeconomic front as well as on account of high dependence on outside suppliers.

Currently, American Eagle carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Other stocks worth considering in the sector are American Apparel Inc. APP, Foot Locker Inc. FL and Bebe Stores Inc. BEBE, all of which carry a Zacks Rank #2 (Buy).