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American Eagle’s (AEO) Strategic Initiatives Look Promising


American Eagle Outfitters, Inc. AEO is gaining momentum on the back of its multiple strategic initiatives, including robust omni-channel endeavors and efforts to strengthen brands. Impressively, the company has been putting up a stellar show, posting 14th straight quarter of positive comparable store sales (comps) in second-quarter fiscal 2018. Additionally, it delivered a sales beat in five of the trailing six quarters and a positive earnings surprise in three of the last five quarters.

Let’s Delve Deep

American Eagle’s comps have been benefiting from strategic initiatives and ability to boost market share through strong brands and compelling merchandise. Further, both digital and in-store business is aiding comps growth.

Additionally, the company is witnessing higher transactions backed by an increase in traffic and conversion besides improvement in transaction value and average unit retail price. Brand-wise, comps rose 27% and 7% at Aerie stores and AE brand outlets, respectively, in second-quarter fiscal 2018. The AE brand is gaining from its leadership position in bottoms, with jeans business recording 20th consecutive quarter of comps growth. Further, the quarter marked Aerie brand’s 15th straight quarter of double-digit comps growth, reflecting a significant momentum in all areas of the business.

American Eagle continues to witness spectacular growth for its Aerie brand, which contributed about 16% to sales in the fiscal second quarter. Notably, Aerie has evolved into a lifestyle brand and remains focused on expanding market share and rapidly growing customer base. Further, the company is extending category reach with expansions in the swimwear, active wear apparel and continued growth in the intimate space. The Aerie brand remains on track to reach the next milestone of $1 billion in sales.

Additionally, American Eagle’s focus on enhancing its digital presence as well as making investment in store fleet is commendable. The company marked 14th straight quarter of double-digit e-commerce growth and contributed 24% to net sales in the fiscal second quarter. Moreover, trends in brick-and-mortar stores continued to improve as both AE and Aerie stores reported positive in-store comps, increasing high-single digits.

Some other leading retailers that are significantly gaining from its omni-channel experience including e-commerce are Nordstrom, Inc. JWN, DICK'S Sporting Goods, Inc. DKS and Abercrombie & Fitch Co. ANF. DICK'S Sporting recorded e-commerce growth of 12% year over year, with expansion of e-commerce penetration to about 11% of net sales in second-quarter fiscal 2018. Nordstrom’s digital sales improved 23% in the same period, with digitally-enabled sales contribution of 34%. Further, Abercrombie’s Direct-to-Consumer (DTC) sales surged 16% in second-quarter fiscal 2018 and accounted for nearly 26% of net sales.

Coming back to American Eagle, we note that the company also enjoys a strong financial status. The company had a debt-free balance sheet, with cash and cash equivalents of $323.3 million as of Aug 4, where it also generated healthy cash flows. These helped the company to make capital investments alongside returning excess cash to its shareholders via dividends and share buybacks.

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