American Eagle Outfitters, Inc. AEO reported third-quarter fiscal 2021 results, wherein both earnings per share and revenues not only beat the Zacks Consensus Estimate but also improved year over year. Results gained from robust consumer demand for its merchandise and brands, and execution of the “Real Power. Real Growth.” Plan. The plan is driving profitability through real estate and inventory optimization efforts; omni-channel and customer focus; and investments to improve supply chain.
American Eagle’s shares closed 4.8% higher on Nov 23, 2021, thanks to the robust fiscal third-quarter performance. However, shares of the Zacks Rank #3 (Hold) company have fallen 9.3% in the past three months compared with the industry’s decline of 4.9%.
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Adjusted earnings of 76 cents per share beat the Zacks Consensus Estimate of 60 cents. The bottom line increased substantially from earnings of 35 cents reported in third-quarter fiscal 2020.
Total net revenues of $1,274.1 million increased 24% year over year and beat the Zacks Consensus Estimate of $1,229 million. The top line improved 19% from third-quarter fiscal 2019. Revenue growth was driven by sustained momentum across its brands and channels.
Brand-wise, revenues increased 21% to $941 million for AE, while it surged 28% to $315 million for Aerie. This marked the 28th consecutive quarter of double-digit revenue growth for Aerie, driven by strong demand and higher full price sales. Aerie brand sales were partly marred by the factory closures in Vietnam, which created product delays. AE brand revenues benefited from strong back-to-school sales, along with inventory optimization and promotional discipline.
The company’s digital revenues were up 10% year over year, while the same surged 42% from third-quarter fiscal 2019. Store revenues improved 29% year over year owing to increased store traffic. Store sales were up 9% as compared to third-quarter fiscal 2019.
American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise
American Eagle Outfitters, Inc. price-consensus-eps-surprise-chart | American Eagle Outfitters, Inc. Quote
Gross profit climbed 36% year over year to $565 million, while gross margin expanded 410 basis points (bps) to 44.3%. The upside can be attributed to leverage on rent and delivery, strong product demand, higher full-priced sales, reduced promotions and progress on the inventory optimization initiatives. This was partly negated by higher freight costs. Incremental freight costs hurt Aerie’s operating margin performance by $5 million (or 170 bps) in the fiscal third quarter.
Selling, general and administrative (SG&A) expenses advanced 14.9% year over year to $313.9 million, owing to higher store payroll, new store openings and rising advertising costs. As a percentage of sales, S&A expense contracted 190 bps to 24.6% on the back of solid revenue growth.
Operating income in the fiscal third quarter was $210 million, up 118.8% from $96 million in the year-ago quarter. Operating income for the Aerie brand improved 46%, while the AE brand reported growth of 68%. Operating margin expanded 660 bps to 16.5% from third-quarter fiscal 2020 adjusted operating margin levels. The growth resulted from 200-bps and 780-bps operating margin expansion at the Aerie and AE brands, respectively.
Other Financial Details
American Eagle ended the quarter with cash and cash equivalents of $740.7 million. Total shareholders’ equity as of Oct 30, 2021 was $1,396.7 million.
The company’s capital expenditure was $58 million in the reported quarter. For fiscal 2021, management anticipates capital expenditures to be at the lower end of $250-$275 million, with investments in strategic customer-facing channels and supply chain.
Concurrent to the earnings release, the company declared a quarterly cash dividend of 18 cents per share. The dividend is payable on Dec 29 to shareholders of record as on Dec 10.
In third-quarter fiscal 2021, American Eagle inaugurated three AE and 25 Aerie stand-alone stores. The company remodeled and refurbished two stores during the fiscal third quarter.
At the end of the quarter, American Eagle operated 1,121 stores, comprising 897 AE, 216 Aerie stand-alone, 187 Aerie side-by-side and three Todd Synder stores. Additionally, it operated 256 international license outlets.
Better-Ranked Stocks in the Retail Space
We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tapestry TPR, The Children’s Place PLCE and Capri Holdings CPRI.
Tapestry currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 29%, on average. Shares of TPR have jumped 6.6% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tapestry’s current financial year sales and earnings per share suggests growth of 14.8% and 17.9%, respectively, from the year-ago period's reported figures. TPR has an expected EPS growth rate of 12.3% for three-five years.
The Children’s Place currently carries a Zacks Rank #1. The company’s earnings have significantly surpassed the estimates, on average, in the trailing four quarters. Shares of PLCE have rallied 5.4% in the past three months.
The Zacks Consensus Estimate for The Children’s Place’s current financial year sales and earnings per share suggests growth of 27.4% and 464.9%, respectively, from the year-ago period. PLCE has an expected EPS growth rate of 8% for three-five years.
Capri currently flaunts a Zacks Rank #1. The company’s earnings have significantly surpassed the estimates, on average, in the trailing four quarters. Shares of CPRI have risen 6.9% in the past three months.
The Zacks Consensus Estimate for Capri’s current financial year sales and earnings per share suggests growth of 33.2% and 180.5%, respectively, from the year-ago period. CPRI has an expected EPS growth rate of 56.3% for three-five years.
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