American Eagle shares drop after Record Revenue Falls Short

By guest author Connor Smith from Barron’s

Caption courtesy by Barron’s

American Eagle Outfitters stock fell sharply Thursday September 2, 2021. Record second-quarter sales weren’t enough to clear a higher bar set by analysts.

The apparel firm (ticker: AEO) reported adjusted net income of USD 125.3 million, or 60 cents a share, ahead of consensus estimates at 55 cents a share, according to FactSet. While revenue of USD 1.19 billion was up 35 % year-over-year and a quarterly record for American Eagle, the figure was below consensus estimates at USD 1.23 billion.

American Eagle stock fell 7.8% to USD 27.71 in Thursday morning trading. The S&P 500 index was up 0.4 %. Shares of American Eagle were still up 38 % year-to-date and 120 % from 12 months ago.

The firm’s gross margin hit 42.1%, clearing analyst estimates at 39.9 % and driving the better-than-expected profit. The company said higher full-priced sales, reduced promotions, and controlled costs drove the gross margin expansion.

“GM was strong and deserves commendation, but we also acknowledge that most of our investor conversations across the sector are now focusing on what trends will look like on a go-forward basis after the easy compares, pent-up demand and supply chain backlogs,” BMO Capital Markets analyst Simeon Siegel wrote in a note on Thursday.

Siegel has a Market Perform rating and USD 36 target. He notes that inventory increased 20 % year-over-year, as the company geared up for fall apparel categories.

“We are running our business with a laser focus on profitability through inventory and real-estate optimis ation initiatives and investments to enhance our supply chain,” CEO Jay Schottenstein said in the earnings release. “Led by an expanding customer file, Aerie is achieving consistent, robust multi-year growth and very strong profit flow through. American Eagle posted meaningful top-and bottom-line increases with significant unlock still ahead.”