American Eagle Outfitters Slumps
More Than 14%!

“Earnings Predictions” Members Make 73% Potential Profit!

by Ian Harvey
August 05, 2019

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American Eagle Outfitters slumps more than 14% after reporting earnings. Revenue climbed 8% to hit a record and rise above the $1 billion mark. However, comparable sales were up a more modest 2% from year-ago levels, and despite comps growth of 16% rise in the Aerie store concept, saw comps fall 1% over the same period. However, “Earnings Predictions” Members make 73% potential profit with a Put Call.

A NICE POTENTIAL PROFIT FOR THE WEEK!

American Eagle Outfitters (NYSE:AEO), a specialty retailer, operating over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally, reported total revenue of $1.04 billion, up 8% year over year. Non- GAAP (adjusted) earnings per share for the specialty retailer were $0.39. Both of these metrics were higher than consensus analyst estimates for revenue and non-GAAP EPS of $1 billion and $0.32, respectively.

Comparable sales growth of 2%, however, was below analysts' expectations and marked a significant deceleration from comparable sales growth of 6% in the company's fiscal first quarter.

"We faced challenges largely stemming from underperformance in certain seasonal categories and a delayed start to back-to-school," said American Eagle CEO Jay Schottenstein in the company's second-quarter earnings release. But the CEO noted that it saw strong momentum in AE jeans, Aerie, and its digital channel during the quarter.

Why the Put Trade on American Eagle Outfitters?

Investors have not been pleased with American Eagle's stock in recent months following a disappointing fiscal first quarter. The apparel retailer surpassed first-quarter targets on both the top and bottom lines, with comparable-store sales rising 6% following a strong 9% spike in the prior-year period. But, shares dropped as Wall Street focused on a slight decline in gross profit margin, higher inventory levels, and a cautious outlook for the second quarter.

Shares are down 12.5% year-to-date.

And, despite impressive growth from its aerie concept, AEO stock touched a 21-month low this month.

Influencing factors…..

Mall traffic continues to decline, and AEO stock has been dragged down by a market selling anything related to malls.

American Eagle Outfitters issued unimpressive earnings outlook for the fiscal second quarter, which was short of analysts' expectations. Adjusted earnings for the fiscal second quarter are envisioned to be 30-32 cents. The guided range is lower than adjusted earnings of 34 cents earned in the year-ago quarter.

As well, the company continues to display soft margins trend, owing to higher markdowns and increased expenses due to…..

  • higher markdowns, delivery expenses and SG&A expenses hurt gross and operating margin in the fiscal first quarter,
  • rise in SG&A was attributed to higher compensation expenses on higher investments in store organization that started mid-way through fiscal 2018, and
  • higher advertising costs and professional services resulted in increased SG&A expenses.

Persistence of these costs might hurt the company's overall profitability in the fiscal second quarter.

Also, Short interest has increased by 14.7% and overall earnings estimates have been revised lower since the company's last earnings release.

As well, analysts’ were quite negative on the stock.

Therefore, advising members to consider buying this.....

.....Options trade: Buy the AEO JAN 17 2020 17.000 PUT at approximately $2.20.

YOU NEED TO BE IN TO PROFIT!

Moving Forward for American Eagle Outfitters

Schottenstein provided an upbeat take on the current quarter, saying, "The AE team has taken quick action to strengthen the business and we are pleased to see an improvement in third quarter-to-date sales." He added, "Our brands remain strong and we are well-positioned to continue to grow and gain market share."

For its fiscal third quarter, management expects comparable sales to rise in the low- to mid-single digits.

Where to Now?

While American Eagle Outfitters has underperformed the market so far this year, the question is: what's next for the stock?

Taking a look at the quarterly report we can see that it isn’t that bad; with an earnings surprise of 21.88%. A quarter ago, it was expected that this teen clothing retailer would post earnings of $0.21 per share when it actually produced earnings of $0.24, delivering a surprise of 14.29%. Overall, American Eagle’s results were largely positive.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

On paper, performance was lifted by license royalties from a third-party operator in Japan.

Aerie, the company’s booming lingerie and swimwear line, continued to post double-digit same-store sales growth. Comparable sales at the popular unit grew 16%, largely offsetting the 1% decline in the retailer’s namesake brand.

The retailer, which only gives guidance one quarter into the future, said it’s already getting better out there -- sales started to tick up at the start of the third quarter. It said it anticipates this quarter’s same-store sales will increase in the low-to-mid single digits.

Jay Schottenstein, the company’s executive chairman and CEO, pointed out a host of sales achievements by American Eagle for the quarter — six straight years of record jeans sales and 16 consecutive quarters of Aerie comp sales growth among them.

On paper, performance was lifted by license royalties from a third-party operator in Japan.

Aerie, the company’s booming lingerie and swimwear line, continued to post double-digit same-store sales growth. Comparable sales at the popular unit grew 16%, largely offsetting the 1% decline in the retailer’s namesake brand.

The retailer, which only gives guidance one quarter into the future, said it’s already getting better out there -- sales started to tick up at the start of the third quarter. It said it anticipates this quarter’s same-store sales will increase in the low-to-mid single digits.

The company expects largely positive results for the second half of its year as it shifts into a key fall sales season.

American Eagle Outfitters expects no significant impact from tariffs this year and expects them to be manageable after that.

“We don’t plan to use tariffs as an excuse for anything,” Schottenstein said.

GREED  CAN BE THE UNDOING OF A GOOD PROFIT!

What Can You Do?

Therefore, if you agree that American Eagle Outfitters can fulfill their statement for positive results for the second half of the year, consider the following options trade…..

.....Buy the AEO JAN 17 2020 14.000 CALL at approximately $1.50.

PATIENCE PAYS OFF!

If you are not a member and are interested in being part of this profitable action just CLICK HERE.

AS ALWAYS THE DECISION IS YOURS!

OR other memberships.....

.....Mentorship Membership …….CLICK HERE......

OR

....."Earnings Predictions" just click here……


An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!


Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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