Welcome to the Stock of the Day for March 12, 2014. Unfortunately for American Eagle Outfitters (AEO), earnings season isn’t quite over.
Shares of AEO plunged Tuesday after the trendy clothing retailer disappointed for Q4 earnings and they continued falling this morning. Can AEO bounce back? Is this pullback a buying opportunity?
Find out now.
American Eagle Outfitters’s roots stretch back to 1977 when brothers Jerry and Mark Silverman launched the chain as a way to diversify their Pittsburgh-based menswear business. Nearly forty years later, the company now has several stand-alone brands, including aerie, which targets a younger female demographic, and 77kids, a clothing line aimed at newborns and toddlers.
The company has also expanded its global reach and has locations across North America, Europe, Africa, the Middle East and Asia. The company currently employs 7,000 across over 900 retail locations and brought in $3.31 billion in sales for FY 2013.
In the fourth quarter the company faced several macro challenges, including increased competitive pressures, unfavorable weather and teen unemployment. Compared with the same quarter last year, net profit plunged 89% to $10.51 million, or 5 cents per share. Adjusted earnings were 27 cents per share, which topped the consensus EPS estimate by a penny. Over the same period, total net revenues fell 7% to $1.04 billion, also beating the $1.03 billion consensus estimate.
Looking ahead to the first quarter, management expects earnings per share to be about breakeven, well below the Street view of 14 cents per share. Immediately after the announcement, the Q1 EPS consensus estimate was cut to 10 cents per share.
Further, the analyst community slashed their estimates for the second quarter, FY 2014 and FY 2015. American Eagle Outfitters is expected to underperform the industry average for the foreseeable future.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system.
This stock has declined considerably in the past 12 months. As of last April, AEO was a C-rated sell. The biggest downgrade was made in terms of buying pressure; the stock receives an F for its Quantitative Grade.
The company also has quite a ways to go on the fundamental side, failing on six of the eight metrics I graded it on, including sales and earnings growth as well as cash flow. The exceptions were earnings surprises (C) and return on equity (B), but that wasn’t enough to save the stock from a D-rated Fundamental Grade.
Bottom Line: As of this posting I consider American Eagle stock an F-rated Sell.
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