Summary
- AEO reports earnings November 24th. Revenue could fall in the low single-digit percentage range.
- The Aerie brand grew revenue over 30% last year. Aerie is a real catalyst for AEO.
- The digital channel performed well amid the pandemic. AEO could be a brand play and distribution play.
- AEO could amplify growth when the economy reopens. Buy AEO into earnings.
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Source: Barron's
American Eagle Outfitters (AEO) reports earnings November 24th. Analysts expect revenue of $1.03 billion and EPS of $0.33. The revenue estimate implies a 4% decline Y/Y. Investors should focus on the following key items.
Revenue Could Stabilize
Millions of Americans have been stuck at home amid the pandemic. Sales through physical stores have suffered due to shelter-in-place policies. American Eagle temporary closed stores when the pandemic materialized in March. In August, all of the company's stores had been reopened. Last quarter, total revenue of $884 million fell 15% Y/Y.
On a brand basis, it was a tale of two cities. Revenue for the American Eagle brand fell 26% Y/Y, while revenue for Aerie rose 32%. Aerie posted record sales, of which, about 70% occurred online. Aerie represented about 28% of American Eagle's total revenue versus just under 20% in the year earlier period. The larger Aerie becomes, the more its out-sized growth can potentially influence the entire company.
American Eagle could be both a brand play and a distribution play. The Aerie brand promotes body positivity and embraces women of all sizes. It is one of the more successful brands in retail. That said, American Eagle had to rely on its digital platform this quarter, and it passed with flying colors:
Our online channel performed extremely well across brands. Demand rose 48%, our fastest growth rate in over a decade. Online strength was fueled by new customer acquisitions, robust traffic and strong conversion. Investments over the past several years in our digital platform, omnichannel capabilities and supply chain are providing the engine to fuel our business and keep pace with our strong customer demand.
The company's strong digital performance could persist after the economy fully reopens. American Eagle proved it can effectively reach customers who want to buy online. This could help differentiate the company from retailers with unproven digital operations.
