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Buy American Eagle's Pullback


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It is almost hard to believe that American Eagle Outfitters (NYSE:AEO) hit just $10 last year. Retail was seriously out of favor with investors last summer, but as we all know by now, sentiment on the retail names really couldn’t be much better today. Many stocks – like AEO – have doubled or better off of their 2017 lows, but unlike others in the apparel retail space, AEO doesn’t look ridiculously expensive today. The Q4 report produced good results and guidance was above consensus well, so if you’re looking to own a mall retailer, perhaps AEO will fit the bill.

Comps were hot and aerie led the way

Total revenue was up 14% in Q4, helped along by an extra week that wasn’t present in last year’s Q4. AEO’s store count was roughly flat as it continues to open and close units, but it is large enough that unit count isn’t a real source of growth. However, Q4 produced some prodigious comp sales numbers and that powered total revenue higher.

Total comps were up 8% in Q4 as the American Eagle brand posted a 5% gain, but aerie was up a staggering 34%. I don’t recall ever seeing a comp number that high, but even if it has been done before, it is tremendously remarkable. It also comes on the back of last year’s Q4 comp of 17% for the aerie brand, something which is just difficult to fathom. The AE brand is no slouch and posted a 2% gain for the year, but in comparison to aerie’s 27% 2017 gain, it is peanuts. I couldn’t be more impressed with AEO’s revenue performance in Q4 even if you exclude the gains from the extra week.

Promotions spoiled some of the fun

Unfortunately, it appears at least some of the

This article was written by

Josh Arnold profile picture

Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow.

Josh is the leader of the investing group Timely Trader where he focuses on limiting risk and maximizing potential reward. Features of Timely Trader include: real-time alerts, a model portfolio, technical charts, sentiment indicators, and sector analysis to find the best trading opportunities. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

CDon55 profile picture
Nice article. I got out a few weeks ago when it was a little over $18. I first started with AEO back in 2007! and never got back to my investing price. However, I felt their results were REALLY positive and I don't see it going down much as it has in the past. Usually its a roller coaster ride,,, close to $20, then it will get back in the low teens, then back again, and again , and again. I don't see that happening this time. If it does happen to have a nice pullback, I will be reinvesting though.
LOST99 profile picture
AEO seems to 'get no respect'. Last week ANF rose to $23+ on it's earnings call, with earnings loss guidance for the next 2 quarters.

Back in February, I sold the March 16th $21 covered calls @ $0.35/sh when AEO was in the low $19 range

This Wednesday evening, when AEO closed at $20.57, I was cautious that the $21 options could be exercised next Friday, if the earnings call was positive.

So, with the 9:00 am Thursday morning Conference call announcing a 10% dividend hike, $400 million in cash, no debt, higher comps, Aeerie Brand sales soaring..., I fully expected AEO's price to be above $21 at market open, and that my shares would be assigned next week. Obviously on the heavy trading and sharp price decline, the analysts and financial advisers advised institutional investors to sell, based on the reported declining margins, anticipating that promotional discounting for AEO's products will continue to be necessary to sustain sales.

The fundamentals reported in Thursday's earnings all are strong, management knows how to sell AEO's products and keep SG&A expenses down, the US & Global economy is strong, consumers have more cash, reduced income tax rates...

I can't see AEO's price not staying above $20 for the next 3 or 4 quarters.
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