On Thursday, Citi, a leading financial services firm, adjusted its price target for American Eagle Outfitters (NYSE:AEO) to $24.00, a decrease from the previous target of $26.00. The firm retained a Neutral rating on the stock. The adjustment comes after American Eagle reported a first quarter that presented mixed results, with sales increasing by 6%, which was slightly below consensus expectations. Despite this, comparable store sales rose by 7%, surpassing the anticipated 5.5%.
American Eagle's main brand was the driver behind the stronger-than-expected comparable sales, reporting a 7% increase against a forecasted 4%. Meanwhile, the company's Aerie brand experienced a slowdown, with a growth of 6% in the first quarter compared to 13% in the fourth quarter of the prior year. This was below the expected 8%, with underperformance in swimwear contributing to the deceleration.
Management at American Eagle reiterated their implied earnings per share (EPS) guidance for fiscal year 2024, projecting a range of $1.70 to $1.80. They also indicated a cautious approach leading up to the crucial back-to-school (BTS) season. While selling, general, and administrative expenses (SG&A) are projected to decrease in the second half of the year, they have grown at a mid-single-digit rate in the first half and exceeded consensus estimates in the first quarter. The company's commitment to SG&A discipline remains a focal point for analysts and investors alike.
In summary, while the first half of the year showed American Eagle's main brand as a strong performer, the conservative outlook for second-half sales and the need for more confidence in Aerie's trajectory and overall SG&A discipline have led to a more cautious view from Citi. The risk/reward balance for American Eagle's stock is seen as neutral at its current pre-market trading position.
InvestingPro Insights
As American Eagle Outfitters (NYSE:AEO) navigates through its fiscal year, recent data and analyst insights from InvestingPro offer a deeper dive into the company's performance and potential. With seven analysts revising their earnings upwards for the upcoming period, investor sentiment appears to be warming up to American Eagle's prospects. The stock is currently trading at an attractive P/E ratio of 16.62 when adjusted for the last twelve months as of Q4 2024, suggesting that it may be undervalued relative to its near-term earnings growth potential.
Furthermore, American Eagle stands out for its consistency in rewarding shareholders, having maintained dividend payments for 21 consecutive years. The dividend yield stands at 2.08%, reflecting a commitment to returning value to investors. Additionally, the company's liquidity is robust, with liquid assets surpassing short-term obligations, and it operates with a moderate level of debt, which could offer some resilience in volatile market conditions. For those looking for more insights, there are over 9 additional InvestingPro Tips available, which could further guide investment decisions.
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