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Here’s Why American Eagle (AEO) Stock is Worth Buying Now


American Eagle Outfitters Inc. AEO has successfully regained its position in the market driven by focus on improving product assortments, brand strength, efficient inventory management, e-commerce growth and a spectacular comparable store sales (comps) performance. The company is currently doing better than most of its industry counterparts. The company’s business strength became further evident as it reported robust holiday period results earlier this week.

Not surprisingly, American Eagle has returned 54.6% in the last six months, significantly outperforming the industry’s 15.6% growth. Further, the company has recorded growth of 3.2% in the past month, which reflects continued stock momentum.

That said, let’s find out the various factors that are keeping the stock ticking.

Robust Comps Trend — A Key Determinant of Growth

While there are many factors aiding the company’s performance, its robust comps trend stands out. The company has been posting positive comps for 11 straight quarters now. Key factors driving this trend are solid online sales, strength in both American Eagle (“AE”) and Aerie brands, improved in-store traffic and favorable product mix. Among the company’s brands, Aerie has delivered comps growth for 14 consecutive quarters.

Further, the company’s success in the holiday season, reflected by 8% growth in fourth-quarter fiscal 2017 to date comps, boosts investors’ sentiment. Comps for the holiday period gained from record sales and strong momentum at its AE and Aerie brands. American Eagle also benefited from solid online and in-store traffic as customers responded positively to the company’s merchandising offerings.

Omni-channel Initiatives

American Eagle is on track to develop omni-channel platform to enhance customer experience. Backed by these efforts and efficient digital marketing endeavors, the company’s e-commerce sales contributed about 25% to total revenues in third-quarter fiscal 2017. Additionally, the aforementioned comps performance is mostly driven by the efficient use of omni-channel capabilities. We believe the company’s omni-channel initiatives provide significant opportunities to expand business and cater to the incredible global demand for its products.

Other Strategic Actions Driving Growth

Apart from enhancing e-commerce presence, American Eagle remains keen on strengthening its product assortments by adding more compelling brands and managing inventory levels diligently. Simultaneously, it maintains commitment toward enhancing store sales by rationalizing its brick-and-mortar store fleet. This calls for closing underperforming stores while expanding the profitable ones. Consequently, the company intends to close about 25-40 stores in fiscal 2017. Additionally, it targets opening 15-20 new AE outlets, one Todd Synder store and 15 Aerie stores across the United States, Canada and Mexico in fiscal 2017.

Further, the company continues to build customer base by adding 13% to loyalty members in third-quarter fiscal 2017. It remains on track to convert more than 15 million current metrics and attract new customers through revamped loyalty program which provides a seamless overall experience. In order to boost the bottom line, American Eagle is continuously undertaking initiatives to reduce costs through supply chain efficiencies and updated product allocation system. We believe that these strategic initiatives will drive the company’s top-line and profitability.


We believe American Eagle stock is likely to continue this momentum driven by the aforementioned strategic plans and persistence of a robust comps trend. Rightly, the stock currently carries a Zacks Rank #1 (Strong Buy). Furthermore, its expected long-term earnings growth rate of 7.5% and a VGM Score of A, highlight its inherent strength.

Want More Retail Exposure? Check These Stocks

Investors interested in the sector may also consider stocks such as Shoe Carnival Inc. SCVL, Foot Locker Inc. FL and Zumiez Inc. ZUMZ, all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shoe Carnival delivered an average positive earnings surprise of 20.8% in the trailing four quarters. It has a long-term earnings growth rate of 7.5%.

Foot Locker has returned 46.3% in the last three months. It has a long-term earnings growth rate of 5%.

Zumiez has an average positive earnings surprise of 22.2% in the trailing four quarters. Also, it has a long-term earnings growth rate of 18%.

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