1 Beaten Clothing Stock to Avoid After Winning Miss


Clothing retailer American Eagle Outfitters, Inc. (AEO) offers apparel, accessories and personal care products under the American Eagle and Aerie brands. The Company’s portfolio includes specialty apparel for men and women, athletic and swimwear collections, accessories and personal care products for women.

The retailer recently experienced a decline in its share price after it missed its consensus estimate for its second-quarter earnings. The company reported earnings per share of $0.04, missing Street’s estimates by 70.4%. However, its earnings were almost in line with what analysts expected.

The stock is down 58.7% over the past year and 57.4% year-to-date to close its last trading session at $10.79. It’s down 16% in the past month.

Here are the factors that could affect AEO’s performance in the short term:

Sluggish earnings growth

For the fiscal second quarter that ended July 30, AEO’s total net revenue increased 0.3% year-on-year to $1.20 billion. However, its non-GAAP net income fell 94.7% from the year-ago quarter to $6.66 million. Non-GAAP earnings per common share decreased 93.3% from the same prior year period to $0.04.

Unfavorable analyst expectations

Consensus EPS estimates of $0.23 and $0.25 for the quarters ending October 2022 and January 2023 indicate year-over-year declines of 69.7% and 28.6%. Analysts expect EPS for the current year (ending in 2023) to fall 69.4% from a year earlier to $0.67.

Similarly, the consensus revenue estimate for the quarter ending January of $1.47 billion reflects a 2.8% year-over-year decline, while Street expects revenues for the current year amounted to $4.93 billion, down 1.7% from the previous year.

Narrow profit margins

AEO’s trailing 12-month EBIT margin, EBITDA margin and net profit margin of 7.19%, 10.84% ​​and 3.81% are 12.4%, 3.7% and 35% lower to their respective industry averages of 8.21%, 11.25% and 5.86%.

The last 12 months of the action Leveraged FCF a negative margin of 4.65% is significantly lower than the industry average of 1.69%. Its 12-month ROE of 14.49% is 5.2% below the industry average of 15.28%.

POWR ratings reflect bleak outlook

AEO POWR Rankings reflect these bleak outlooks. The stock has an overall D rating, which is equivalent to a sell in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

AEO has a sentiment rating of F in line with its analysts’ gloomy expectations. The stock has a D rating for growth, consistent with its weak earnings growth over the past quarter. It has a D rating for stability, which is justified by its five-year monthly beta of 1.29.

In stock 67 Fashion & Luxury industry, AEO is ranked #66. The sector is classified C.

Click here to see additional POWR ratings for AEO (Value, Dynamics, and Quality). To see the best stocks in the fashion and luxury industry, Click here.


Shares of AEO plunged due to its missed results in the last quarter. Additionally, the stock appears to be on a downtrend as it is trading below its 50- and 200-day moving averages of $11.92 and $17.02. And given its meager profit margins, I think it’s best to avoid the stock now.

How does American Eagle Outfitters, Inc. (AEO) compare to its peers?

Although AEO has an overall POWR rating of D, one might consider looking at industry peers Hugo Boss AG (AUTHORITARIAN) and J.Jill, Inc. (Jill), which have an overall rating of A (Strong Buy), and Chico’s FAS, Inc. (CHS) and H&M Hennes & Mauritz AB (HNNMY), which have an overall rating of B (buy).

AEO shares fell $0.01 (-0.09%) in after-hours trading on Thursday. Year-to-date, the AEO is down -56.36%, compared to a -17.25% rise in the benchmark S&P 500 over the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. After…

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