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American Eagle (AEO) Q4 Earnings & Sales Beat, Stock Up

American Eagle Outfitters, Inc. AEO posted fourth-quarter fiscal 2022 results, wherein the top and bottom lines came ahead of the Zacks Consensus Estimate, and the latter increased year over year. Results were backed by better demand and robust margins. The company’s shares jumped 6.9% in the after-market trading session on Mar 1 following better-than-expected results.

Management entered fiscal 2023 with solid brands and healthy inventory status. AEO stated that the global supply chain continues to normalize, which is enhancing its cost structure. The company is also focused on curtailing expenses. That being said, an uncertain macro landscape and the overall consumer spending pattern caused management to offer cautious guidance for fiscal 2023.

Shares of this Zacks Rank #2 (Buy) company have rallied 26.7% in the past six months compared with the industry’s growth of 13.2%.

Quarterly Details

American Eagle posted adjusted earnings of 37 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. Our estimate for the bottom line was 25 cents a share. The bottom line increased 5.7% from adjusted earnings of 35 cents reported in the fourth quarter of fiscal 2021.

American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise

American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote

Total net revenues of $1,496.1 million dipped nearly 1% year over year, while it beat the Zacks Consensus Estimate of $1,470 million. Our estimate for the top line was $1,438.3 million.

Brand revenues declined 2% in the quarter but were better than AEO’s expectation of a mid-single-digit decline. However, revenues were partly aided by a nearly one-percentage-point contribution from the supply-chain business and Quiet Platforms.

Brand-wise, revenues fell 8% to $962 million for AE but surpassed our estimate of $946.5 million. Comparable sales (comps) for the AE brand dropped 9% year over year. Revenues rose 8% to $464 million for Aerie and beat our estimate of $430.1 million. Comps for the Aerie brand declined 2% from the fourth-quarter fiscal 2021 level.

Consolidated store revenues were flat year over year, though the same rose 5% from the pre-pandemic levels (the fourth quarter of fiscal 2019). American Eagle’s total digital revenues were down 9% year over year, while the same advanced 19% from the pre-pandemic levels. Digital revenues accounted for 36% of the total revenues.

The gross profit ascended around 4% year over year to $507 million, and the gross margin expanded 150 basis points (bps) to 33.9%. The gross margin came ahead of management’s expectations due to lower-than-expected promotions.

Further, AEO’s merchandise margin was solid, backed by reduced product and transportation costs, somewhat negated by increased markdowns. The gross margin benefited from reduced compensations and delivery costs, partly countered by increased distribution and warehousing costs and elevated rent. The gross margin also bore an 80-bps adverse impact of the scaling of the Quiet Platforms business.

SG&A expenses remained flat year over year at $351 million. As a percentage of sales, S&A expenses increased 30 bps to 23.5%.

The company’s adjusted operating income came in at approximately $96 million, which increased from the year-ago period’s tally of roughly $92 million. The adjusted operating margin was 6.4%, up 30 bps year over year.

The GAAP operating income was nearly $74 million in the quarter, down from around $80 million in the year-ago period. The GAAP operating income included a $17-million loss from Quiet Platforms. The operating margin of 4.9% contracted 40 bps year over year.

For the Aerie brand, the adjusted operating income of $56.7 million increased significantly from the year-ago quarter’s $22.7 million. The AE brand’s operating income declined from $182.1 million to $153.6 million in the quarter under review. The adjusted operating income margin increased 690 bps to 12.2% for the Aerie brand, while it shrank 150 bps to 16% for the AE brand.

Other Financial Details

American Eagle ended the reported quarter with cash and cash equivalents of $170.2 million. Total shareholders’ equity as of Jan 28, 2023 was $1,599.2 million. AEO had total liquidity of $862 million at the fiscal-quarter end.

American Eagle’s capital expenditure was $61 million in the reported quarter and $260 million in fiscal 2022. It expects capital expenditure in the band of $150-$190 million for fiscal 2023.

American Eagle paid out two quarterly cash dividends in the first half of fiscal 2022, which totaled $65 million. Following a temporary pause (in September), management reinstated a quarterly cash dividend of 10 cents per share on Feb 28, 2023, which is payable on Apr 21, 2023 to shareholders of record as of Apr 6.

AEO’s closing inventory improved 6% from the year-ago quarter’s reading to $585 million. Inventory units were up 4%. The increase in inventory resulted from earlier-than-anticipated deliveries (thanks to the continued normalization of the supply chain) and increases associated with Mexico and the Todd Snyder brand.

Guidance

For the fiscal first quarter, American Eagle expects revenue growth in the range of flat to an increase of low single digits. The operating income is likely to remain flat year over year.

For fiscal 2023, revenue growth is likely to be in the range of flat to an increase of low single digits. The operating income is anticipated in the band of $270-$310 million in comparison with the adjusted operating income of $269 million in fiscal 2022.

Management plans to open about 25 new Aerie stores next year, alongside undertaking about 25 net closures at AE.

Have a Look at These Retail Picks

Here we have highlighted three other top-ranked stocks.

Burlington Stores BURL is a retailer of branded apparel products. BURL currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Burlington Stores’ current financial-year EPS suggests a decline of 52.2% from the year-ago reported figure. Burlington Stores has a trailing four-quarter negative earnings surprise of 0.6%, on average.

Costco Wholesale Corporation COST operates membership warehouses. The stock currently carries a Zacks Rank #2. COST has an expected EPS growth rate of 9.6% for three to five years.

The Zacks Consensus Estimate for Costco’s current financial-year EPS suggests a rise of 8.6% from the year-ago reported figure. Costco has a trailing four-quarter earnings surprise of 3.7%, on average.

Ross Stores ROST operates off-price retail apparel and home fashion stores. ROST currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Ross Stores’ current financial-year EPS suggests a drop of 11.7% from the year-ago reported figure. Ross Stores has a trailing four-quarter earnings surprise of 10.5%, on average.

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Ross Stores, Inc. (ROST) : Free Stock Analysis Report

Burlington Stores, Inc. (BURL) : Free Stock Analysis Report

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