Bank of America Analyst Says American Eagle Comps Have Peaked

American Eagle Outfitters AEO shares were trading down Thursday after Bank of America Merrill Lynch turned bearish on the apparel retailer.

The Analyst

Bank of America analyst David Buckley downgraded American Eagle from Neutral to Underperform rating and lowered the price target from $27 to $18.

The Thesis

American Eagle brand comps have peaked and are set to decelerate to a low single-digit growth rate in fiscal 2019, Buckley said in the downgrade note. (See his track record here.)

“With the American Eagle brand generating 86 percent of sales, this will lead to buying and occupancy deleverage and gross margin contraction,” the analyst said.

Even with easy comp comparisons in the first and second quarter, Buckley said the consensus estimates for the second half of 2018 are too high.

American Eagle is enefiting from a shift in demand back to denim from athleisure wear, but these gains are starting to taper off, leading to slow comp growth, he said. 

“We estimate Aerie comp growth of 15 percent in F2019, but with the American Eagle brand generating 85 percent of sales, slowing Eagle comps have an outsized impact." 

American Eagle is at peak comp growth, with declining margins and minimal pricing power. 

Price Action

American Eagle shares were down 5.12 percent at $21.88 at the time of publication Thursday. 

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UBS Initiates Coverage On Apparel Retailers, Calls Aerie A $2 Billion Brand

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