Shares of American Eagle Outfitters (NYSE:AEO) were down about 21% in Thursday’s pre-market trading after the company slashed its full-year outlook, as consumers cut their spending on discretionary items like clothing due to macro pressures.
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The clothing company’s revenue grew 2.5% to $1.08 billion in the first quarter of Fiscal 2023, with a 5% rise in store revenue offsetting a 4% decline in digital revenue. Analysts were expecting revenue of $1.07 billion. While revenue from the company’s Aerie brand grew 12%, the namesake American Eagle brand witnessed a 2% drop in its top line.
AEO’s Q1 FY23 adjusted EPS increased slightly to $0.17 compared to $0.16 in the prior-year quarter and was in line with expectations. Promotions and discounts helped the company in clearing its excess inventory. The company’s inventory levels declined 8% in the fiscal first quarter.
Weak Outlook
Investors were spooked by the company’s poor outlook, with the retailer now anticipating operating income in the range of $250 million to $270 million, down from the prior guidance of $270 million to $310 million. It now expects full-year revenue to be flat to down low single-digits compared to the previous forecast of flat to up single-digits.
Further, management expects Q2 FY23 revenue to decline by low-single digits compared to last year. Analysts were projecting sales growth of around 1%. During the Q1 earnings call, CFO Mike Mathias cautioned that business has slowed down over the last several weeks compared to the first quarter. The company assured investors that it is focused on driving efficiencies and cost savings across the organization.
American Eagle’s performance was in stark contrast to its rival Abercrombie & Fitch (ANF), which raised its full-year sales forecast, driven by steady demand from affluent customers and efforts to stock shelves with in-demand offerings.
Is AEO a Good Stock to Buy?
Wall Street is sidelined on American Eagle stock, with a Hold consensus rating based on one Buy, seven Holds, and two Sells. The average price target of $15.20 implies nearly 26% upside.
