On Friday, Telsey Advisory Group adjusted its price target for American Eagle Outfitters (NYSE:AEO) shares to $23, down from the previous $23 mark, while maintaining a Market Perform rating. The adjustment follows the retailer's recent earnings report, which revealed a mix of achievements and setbacks.
American Eagle posted record sales for the second quarter, although the figures reached only the lower end of their guidance and did not meet market expectations. This was partly due to a $55 million calendar shift benefit and a 200 basis point sequential slowdown in comparable sales at both American Eagle and Aerie brands. Despite this, the company's gross margin was slightly better than anticipated, and expenses met projections, leading to operating income that exceeded guidance but fell short of consensus.
The earnings per share beat was primarily driven by tax benefits, with the operating margin meeting expectations. Looking forward, the company's management has expressed optimism about the initial response to their Fall collections. However, they have also set third-quarter revenue guidance that aligns with expectations but provided an operating income outlook significantly below what the market had anticipated.
For the full year, American Eagle has slightly lowered the top end of its revenue forecast, now just below the consensus, while raising the lower end of its operating income guidance, though the upper range still does not meet market predictions. This cautious stance for the third quarter and the adjusted midpoint for the fiscal year 2024 suggest there may be additional risks in the fourth quarter as the company aims to reach its annual profitability targets in an uncertain economic climate.
The revised price target of $23 is based on an 11.1x multiple applied to a two-year forward earnings per share estimate of $2.07, a slight decrease from the current near-term multiple of 11.5x. Despite the positive comparable sales trends across brands, the moderated revenue outlook indicates the ongoing challenges in a fluctuating retail environment where consumer spending remains selective.
In other recent news, American Eagle Outfitters has reported a record revenue of $1.3 billion in the second quarter of 2024, marking a 4% increase in comparable sales. This financial uptick was accompanied by a 55% rise in operating income and a 56% surge in earnings per share to $0.39. Both the American Eagle and Aerie brands contributed to this growth, with respective increases of 5% and 4%.
Citi maintains a neutral outlook on American Eagle, setting a price target of $22.00, following mixed second-quarter results. The company's fiscal 2024 earnings per share guidance has been updated to a range of $1.80 to $1.85. The company also plans to open 25 to 30 new Aerie and OFFLINE stores while closing 20 to 25 American Eagle stores.
In terms of recent developments, American Eagle Outfitters ended the quarter with $192 million in cash and no debt, returning $120 million to its shareholders. The company revised its full-year operating income outlook to range between $455 million and $465 million. Lastly, the firm's gross margin rose by 10%, indicating a positive performance across both physical stores and digital channels.
InvestingPro Insights
In light of Telsey Advisory Group's price target adjustment for American Eagle Outfitters, a glance at the real-time data and InvestingPro Tips can provide investors with additional context. American Eagle is trading at a low P/E ratio of 17.29, suggesting it may be undervalued relative to its near-term earnings growth. This aligns with the company's strategy to navigate through an uncertain economic climate while aiming for profitability. The P/E ratio has seen an adjustment over the last twelve months, dropping to 11.78, which could indicate a more favorable earnings outlook.
Moreover, American Eagle has shown a commitment to returning value to shareholders, maintaining dividend payments for 21 consecutive years, with a current dividend yield of 2.41%. This stability is underpinned by the company's liquidity, with liquid assets exceeding short-term obligations, providing a cushion for operational flexibility. The company has also been profitable over the last twelve months, with a gross profit margin of 39.38% and an operating income margin of 8.28%, reflecting efficient management even in a challenging retail environment.
For investors seeking a deeper dive, there are further InvestingPro Tips available, including analyst predictions on profitability and additional metrics on the company's financial health. In total, there are five additional InvestingPro Tips that can be accessed for American Eagle at https://www.investing.com/pro/AEO, offering a comprehensive view of the company's investment potential.
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