American Eagle Outfitters Stock Expected to Rise After Q1 Report

American Eagle Outfitters(NYSE: AEO) sells men’s and women’s clothing and accessories under several brand names like American Eagle, Tailgate, Todd Snyder, and Aerie. The company will announce its Q1 fiscal 2023 earnings on May 24th. In FY’22, AEO’s gross margins declined to 35% from 39.8% in FY’21 due to inflationary pressures affecting the industry. These issues stem from inflation which has limited consumer spending, increased freight costs, and created supply chain challenges for the company. While the Aerie brand grew despite macroeconomic conditions, the namesake brand has struggled. However, the pressure appears to have eased slightly in the fourth quarter, with inventories rising at a slower pace. AEO’s gross margin also expanded year-over-year (y-o-y) by 150 basis points (bps) in Q4, which is encouraging because it still relies heavily on markdowns to boost sales and reduce inventories. While the company’s stock may face short-term pressure, its social media activities, e-commerce growth, lack of debt, and focus on Aerie offer flexibility.

AEO expects its revenues in 2023 to have flat to low single-digit percentage growth from 2022. The company recorded $5.01 billion in revenue in 2022, and even mild growth suggests an upside to the $5.1 billion expected by consensus. It anticipates that its 2023 operating income will be between $270 million to $310 million, better than the $269 million reported in 2022. Lower cotton prices and freight costs than at the beginning of 2022 should help AEO stabilize expenses in FY 2023. Ultimately, AEO’s success depends on revitalizing its flagship brand with fresh products and expanding the Aerie’s banner aggressively.

According to projections, American Eagle Outfitters’ valuation is roughly $15 per share, 20% higher than the current market price. For further details, check out our interactive dashboard for American Eagle Outfitters’ Q1 earnings preview.

In Q1, Trefis estimates AEO’s revenue to be $1.09 billion, slightly higher than the consensus estimate. In Q4, AEO’s revenue contracted by 1% y-o-y to $1.5 billion, with the Aerie brand rising 8% to $464 million while the American Eagle core brand declined by 8% y-o-y. Additionally, inventory levels fell to $585 million, down from $798 million at the end of Q3 and up only 6% from Q4 2021. We expect American Eagle Outfitters’ revenues to grow 2.3% y-o-y to $5.1 billion for the full year 2023.

Based on Trefis’s analysis, AEO’s Q1 2023 earnings per share (EPS) is expected to be 18 cents, comfortably beating the consensus estimate. AEO’s adjusted Q4 2022 EPS rose 6% y-o-y to 37 cents. With an EPS estimate of $1.14 and a P/E multiple of 13.4x in FY 2023, American Eagle Outfitters’ valuation is around $15 per share, almost 20% higher than the current market price.

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Mentioning that the views expressed here aren’t those of Nasdaq, Inc., AEO’s Q1 report indicates that the company’s stock may rise following the report.