Go Long With American Eagle Outfitters On First-Quarter Earnings Beat

May.23.12 | About: American Eagle (AEO)

Earlier this morning, American Eagle Outfitters (NYSE:AEO) reported its first-quarter earnings for fiscal 2013. Shares are now trading up on revised guidance for the company's second quarter and full fiscal year.

Net sales for the company's first quarter were $708.7 million (excluding 77kids). Last year, excluding 77kids, American Eagle reported net sales of $603.1 million in the first quarter. Adjusted earnings per share were $0.22 vs. $0.16 in last year's first quarter.

American Eagle's same-store sales were positive for the quarter:

  • All Brands: +17%
  • AE Brand: +17%
  • Aerie: +20%
  • AEO Direct (online): +22%

Online sales saw the biggest growth for the company. Last fiscal year, online sales were only up 3% for American Eagle.

At the end of the first quarter, American Eagle had a total of 1,090 stores. The company's plans call for ending with a range of 1,054-1,064 stores by the end of fiscal 2013. In addition to these stores, the company has 34 international franchised stores, which includes locations in Russia, China, Hong Kong, and the Middle East. In February, the company opened its first store in Israel. The store represented the first of 10 stores to open in that country. International sales remain strong in international markets. American Eagle has been shipping clothing to international customers since 2004, through its online marketplace. By the end of fiscal 2013, American Eagle is guiding to have 52 franchised stores overseas.

Back in May, American Eagle announced plans to exit its 77kids branded business. The children's branch of the teen retailer has been a poor performer for the company. There are 22 77kids stores and an online business that will be closed. In fiscal 2011, 77kids posted a net loss of $24 million from sales of $40 million. American Eagle has announced that they are exploring the possibility of selling the 77kids assets and brand to a third party. The closing shows American Eagle's focus on its core brands. Chief Executive Officer Robert Hanson had this to say during the earnings call:

I'm extremely pleased by our performance this quarter and appreciate the team's accomplishments. We remain focused on delivering continued improvements in the near term, while fortifying our core brands and capabilities to pursue incremental profitable growth and consistent returns to shareholders.

American Eagle also issued guidance for the second quarter and full fiscal year. The company sees earnings per share of $0.13 to $0.15 in the second quarter. Full-year earnings are expected to be $1.16 to $1.22 for fiscal 2013. The company raised its first-quarter guidance by $0.10 three weeks before its earnings report. Analysts on Yahoo Finance see American Eagle earnings $0.12 in the second quarter. Analysts on the site see American Eagle earning $1.19 in fiscal 2013.

In a recent article, I talked about Abercrombie & Fitch (NYSE:ANF). The teen retailing rival of American Eagle saw weak sales and negative same-store sales. The biggest problem for Abercrombie & Fitch was the stores in Europe. This is where American Eagle's strength is amid a weak overseas economy. American Eagle's international stores are all franchised, which lowers the company's costs in those markets and lowers its dependence on the sales in the stores. American Eagle has minimal exposure in the European markets.

Back in November, I recommended buying shares of American Eagle at a price of $12.89. Shares trade today for $20.20 (at the time of writing). Investors who took my advice in November would be sitting on a gain of 57%, not including dividends. Shares are up 32% since the beginning of 2012. I believe shares are headed higher, with another quarter beat likely in the company's second-quarter report. Watch for shares to head toward $20 by the end of 2012. The company pays a quarterly dividend of $0.11, representing an annual yield of 2.2%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.