Shares of American Eagle Outfitters, Inc. (AEO) were down 10.2% on Thursday to close at $27 after the lifestyle, clothing, and accessories retailer reported mixed Q2 results, topping earnings expectations but falling short of the revenue estimates.
Investors were disappointed by the 5% decline in the e-commerce business as consumers shift back to physical stores following the easing of COVID-19-induced restrictions.
Revenues jumped 35% year-over-year to $1.19 billion but lagged consensus estimates of $1.21 billion. The increase in revenues reflected a surge in Aerie revenue, which increased 34% to $336 million, as well as 35% growth in American Eagle revenue to $846 million.
Disappointingly, digital revenue decreased 5% year-over-year. However, the company highlighted that store revenue increased 4% while digital revenue increased 66% versus the pre-pandemic second quarter of 2019.
On the positive side, adjusted earnings of $0.60 per share beat analysts’ expectations of $0.53 per share. The company reported break-even earnings in the prior-year period. (See American Eagle stock charts on TipRanks)
Further, gross margins grew 1,210 bps year-over-year to 42.1% during the quarter driven by revenue and merchandise margin expansion across brands, aided by robust demand, increased full-priced sales, decreased promotions, and inventory optimization initiatives.
Markedly, the quarter witnessed the highest operating margin since 2008 of 14.1%, which improved by 890 bps year-over-year.
American Eagle CEO Jay Schottenstein commented, “Our Real Power. Real Growth. plan has been a guiding light for all facets of the business, positioning us to successfully navigate a dynamic macro environment.”
He further added, “Despite external challenges, I believe we are on path to achieve $600 million in operating income this year, well ahead of our previous target.”
Wedbush analyst Jennifer Redding recently downgraded American Eagle from Buy to Hold with a price target of $38 (40.7% upside potential)
Consensus among analysts is a Strong Buy based on 3 Buys and 1 Hold. The average American Eagle price target of $40.33 implies 49.4% upside potential to current levels.
AEO scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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