American Eagle Wants to Stop Balding
By Dave Marino-Nachison
February 8, 2000
Though casual apparel retailer American Eagle Outfitters' (Nasdaq:AEOS - news) website says "Kissing is Alive" -- didn't know it was dead -- the company's shares have mostly been given the kiss-off in 2000 .
Now the company hopes investors will pucker up: last night after the market's close, it issued a statement saying it can't account for the decline in its share price. "We are very pleased with our performance," COO George Kolber said, "and we fully expect to report earnings which will exceed Wall Street's consensus estimates for both the fourth quarter and fiscal year end."
Powered by full-fiscal-year (ended January 29) same-store sales growth of approximately 21%, reported earlier this month, the company is now essentially directing investors to look for Q4 EPS of more than First Call's $0.69 consensus projection. Analysts were already looking for earnings growth of nearly 60%, ahead of the compounded annual rate of 51% for the previous five years.
We visited American Eagle last in mid-November, when the company turned in an impressive year-over-year Q3 earnings comparison amid worries that it was tweaking its same-store sales figures -- which have traditionally been impressive to say the least -- and inklings that it might not have enough merchandise in stock to cash in on the holiday quarter. Though the inventory issue appears to have born fruit, earnings came in nonetheless and Kolber expects a strong Q1 as well.
And so American Eagle will continue its goal of high-percentage unit and earnings growth in hopes of sniping investor attention from the likes of Rule Maker and NOW 50 component Gap Inc. (NYSE:GPS - news) and Abercrombie & Fitch (NYSE:ANF - news) . The company is on track to complete its goal of opening at least 90 stores in fiscal 2000, boosting selling square footage by 25%.
Comparing that to the growth of its operating profit might be a useful study for investors. Over the last five completed fiscal years, selling square footage has increased 5% annually on a compounded basis, while operating profit has improved about 50% each year over the same period. Assuming American Eagle's historic net margins hold fast, based on the company's earnings outlook for fiscal 2000 this year's results should compare favorably to that trend.
So why are the shares battered to the point that if you'd held for a year you'd actually be down thanks to the shares' performance over the last few months? Hard to say. Wall Street hasn't reversed its public support for the company and the company's numbers look solid, unless you're the sort of investor that doesn't like 21% comp growth because the company turned in 32% last year. Investors should keep in mind that apparel stocks tend to move in tidelike fashion, and while it's hard to call a low it certainly appears that American Eagle's water has, for the most part, been flowing out of late.
Related Links:
American Eagle page
American Eagle message board
Fool News, 11/17/99: "American Eagle Soaring Into Busy Holiday Season"
Fool News, 8/5/99: "Coming Undone"
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