On Tuesday, Citi maintained its Neutral stance on American Eagle Outfitters (NYSE:AEO) with a steady price target of $26.00. The firm anticipates a first-quarter earnings per share (EPS) beat when American Eagle reports after market close on May 29, driven by stronger-than-expected comparable sales (comps) at its American Eagle (AE) brand and higher gross margins.
The AE brand is experiencing a positive response to its fashion offerings, particularly wide-leg pants, with a projected 6% increase in comps for the first quarter, surpassing the consensus estimate of 4%.
While a strong quarter is also expected from the company's Aerie brand, Citi notes a deceleration to a 7% increase in comps, compared to double-digit growth in the second half of 2023. Management is likely to guide second-quarter EPS to $0.40 or higher, which would exceed the FactSet consensus of $0.36.
However, the firm anticipates that management will maintain its full-year 2024 sales and implied EPS guidance, citing a conservative outlook for second-half sales.
The current trends at both American Eagle and Aerie indicate potential for EPS upside in the first half of the year, suggesting a favorable risk/reward scenario leading into the first-quarter earnings release. Nevertheless, Citi expresses caution regarding the Aerie brand's performance in the second half, as it will be compared against strong comps from the previous year, and expects fewer tailwinds for gross margins, leading to a more balanced risk/reward outlook over a 12-month period.
American Eagle is noted as one of the most debated stocks within the specialty apparel retail group as the first-quarter earnings report approaches.
InvestingPro Insights
As American Eagle Outfitters (NYSE:AEO) gears up for its first-quarter earnings report, recent data from InvestingPro paints a detailed financial picture of the company. AEO's market capitalization stands at a robust $4.66 billion, reflecting its significant presence in the retail sector. With a forward-looking P/E ratio of 16.39, the company trades at a discount relative to its near-term earnings growth, which is an InvestingPro Tip indicating potential value for investors. This is particularly relevant given Citi’s anticipation of an EPS beat and stronger-than-expected comps for the AE brand.
Another InvestingPro Tip highlights that AEO has maintained dividend payments for 21 consecutive years, a testament to its financial consistency and commitment to shareholder returns. This could be a reassuring factor for investors, especially as the company approaches its next earnings date on May 29, 2024. Additionally, with a six-month price total return of 44.17% and a one-year return nearing 100%, AEO has demonstrated significant stock price appreciation, which might interest growth-focused investors.
For those considering a deeper dive into American Eagle's financials, InvestingPro offers numerous additional tips, providing a comprehensive analysis of the company's performance and outlook. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to these valuable insights.
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