American Eagle Outfitters' long-term growth trajectory remains intact despite providing weak sales outlooks, with the clothing retailer set to see an acceleration in revenue growth once macro headwinds diminish, according to UBS Securities in their recent client note. The company outlined guidance for mid- and low-single-digit declines in its fiscal first quarter and 2025, respectively.
The ongoing three-month period started off slower than expected due to 'less robust demand and colder weather,' Chief Executive Jay Schottenstein stated. He acknowledged that there exists an 'uncertain consumer and operating landscape.' UBS' surveys suggest that American Eagle's brand is strong and well-positioned to adapt in the evolving retail environment in the US.
The brokerage projects a 4.1% compound annual growth rate in sales over a five-year period. 'Despite the weak guide for the first quarter and fiscal 2025, we believe the long-term growth trajectory is intact,' UBS analysts, led by Jay Sole, noted. 'Once current macro headwinds abate, we expect to see American Eagle's sales growth rate accelerate, leading to upward revisions in earnings per share.' For fiscal 2025, UBS now estimates American Eagle's sales will fall by 1.7%, which is a revision from their prior forecast of 3.8% growth.
They expect sales to be down approximately 4% in the first half due to a slow start to the year and combined with the adverse impacts of a strengthening US dollar and tariffs affecting China. UBS anticipates some sequential recovery in the second half of the year. Further analysis from UBS models a 5.1% sales drop in the first quarter, down from their previous estimate of a decrease of just 0.6%.
This reflects existing uncertainties surrounding tariffs and foreign-exchange headwinds. On a more positive note, American Eagle Outfitters reported fourth-quarter earnings of $0.54 per share, up from just $0.03 per share a year prior. Net revenue fell to $1.60 billion from $1.68 billion, although comparable sales did show a 3% growth. The retailer's American Eagle and Aerie brands saw comparable sales growth of 1% and 6%, respectively, during the fourth quarter, indicating that product assortment continues to resonate well with customers, according to UBS.
The latest quarterly report also highlighted that American Eagle is effectively controlling costs, which is critical in this challenging environment. UBS has reiterated its buy rating on American Eagle's stock while lowering the 12-month price target to $28 from the previous $32. Their analysis suggests that the company is a mid-teens-plus annual EPS grower.
'With the stock already down about 31% year-to-date, we view the current stock price as an attractive buying opportunity.' Price: 11.11, Change: -0.34, Percent Change: -2.97.