American Eagle Outfitters Inc.
American Eagle is a well-known retailer of specialty apparel and accessories under its American Eagle and Aerie brands. The company operates over 1,000 stores in the U.S., Canada, Mexico, and Hong Kong in addition to licensing stores in over 200 locations in 25 countries. This segment of retail occasionally presents challenges for retail operators and currently the company’s earnings are softening due to heightened promotional activity. The stock looks incredibly inexpensive on its recent earnings and even its average earnings through its cycles. COVID-19 will certainly be disruptive due to store closures but recently the company’s online sales have been around 30% of total sales (if people are currently ordering online) and they have a war-chest of cash representing almost 30% of its market cap. I see significant potential for the stock once the environment normalizes and the company’s operations improve. Comp sales (comparable sales) are often considered in retail operations which helps investors understand core sales trends excluding stores recently opened (under 1 year) compared to a year ago.
In April 2020 issued $400m convertible note due 2025, pays 3.75%, convertible at $8.75 (CFO resigned a few days prior to announcement of convertible note). Fully redeemed.
Ests 4Q25 1Q26 FY25 FY26
Revs 1.6b 1.16b 5.3b 5.5b
EPS .51 .31 1.71 1.76
-16% -9% +12% +3%
P=11.48, div=0.50, yield=2.4%, Cash/share=1.86, Excess non-cash NWC 3.41/sh,
TTM EPS=1.74, TTM P/E=6.6X
4Q25 .54 vs .61, est .51 down from .60, FY25 EPS 1.74 vs 1.52
Mar 12, 2025, P=11.48, TTM EPS=1.74, P/E=6.6X
Revs -4% to 1.6bn (est 1.6bn), GM 37.3% vs 37.3% with lower markdowns, OM 8.9 vs 8.4%%, OpInc 142.5m vs 140.6m
Aerie +0.4% to 539.7m, AE -6.1% to 1bn,Comps: Total +3%, Aerie +6%, AE +1%
Repurchased 3.5m shares for 60m (avg 17.14), FY25 purchased 9.5m for 191m (avg 20.11), increased authorization by 50m shares to 68.5m
1Q Outlook: terrible start Revs MSD decline (est +1.8%), OpInc 20-25m (est 77m, vs 78m LY, 44m 2Y ago), calling out weather, f/x, stock outs, 5-10m from tariffs, higher markdowns
FY26 Outlook Revs LSD decline (est +3%), OpInc 360-375m (est 454m, down from 444.9m in FY25, +36% vsFY23 269m), implies EPS ~1.50, also implies the 3 quarters after abysmal 1Q is OpInc 340-350m vs 367m in FY25.
Worth noting FY25 OpInc came in right at the low end of their initial guidance a year ago.
Mid-Quarter Update – Jan 13, 2025
4Q comps to date +LSD, ahead of guidance +1%, raising guidance for OpInc to approx. 135m vs prev guide 125-130. Company repurchased 1.5m shares QTD for 27m, calendar shift still expected to impact Revs -5%, previous guidance -4%, discrepancy fx or other revs?
3Q25 .48 vs .49 ex .07 impairment/restr, est .46 down from .51
Dec 4, 2024, P=20.54, TTM EPS=1.84, P/E=11X
Revs -0.9% to 1.29bn, GM 40.9% vs 41.8%, OM 9.6% vs 9.6%, OpInc 123.7m
Aerie +4.4% to 410.4m, OM 21.7% vs 19.3%, AE -3% to 831.9m, OM 17.7% vs 21.5%
Comps Aerie +5%, AE +3%, GM down on increased markdowns, SG&A -3%, Corporate -20%
Record Black Friday, 4Q Outlook cautious with choppiness in non-peak selling periods
4Q Outlook Comps +1%, Revs -4% due to calendar shift and 1 less week, OpInc 125-130m vs 140.6m and 160m est, incl 20m drag from calendar shift, implies EPS .48 vs .61, est .61, don’t see increase in promotions, some drag from CAD but more from Mexican peso (Mexico locally up double digit)
Next year opening 45 Aerie stores vs 4 this year, very focused on getting SG&A leverage
Volatility is frustrating as the company doesn’t get credit when crushing expectations and gets hammered when missing and Aerie keeps delivering solid growth and record seasonal levels and getting no credit.
From a broader perspective, 4Q est comes down to .48, a year ago est was .46, FY25 est now 1.68, a year ago was 1.48 NY estimate now 1.89 vs a year ago was 1.58 so the company is doing better than expected a year ago but deceleration while peers are accelerating gives little reason for momentum in buying.
2Q25 .39 vs .25 +56%, est .38
Aug 29, 2024, P=21.70, TTM EPS=1.84, P/E=11.8X, FY26 P/E=11X
Revs +7.5% to 1.29bn (est 1.3bn), GM 38.6% vs 37.7%, OM 7.8% vs 5.4%,
Aerie +9.3% to 415.6m OM 16.75% vs 15.05%, AE +7.9% to 827.6m, OM 17.5% vs 16.8%
Stores +7%, Digital +12%, comps Aerie +4%, AE +5%, Inv +4.2% y/y, -2.6% q/q
Repurchased 4.5m shares for 96m (21.30/sh)
May and June were stronger, July softened but August picked back up, Aerie picking up as swim season fades, Aerie was very strong in 2H last year
3Q Outlook Revs flat to slightly up (est +0.8%), comps +3-4%, OpInc 120-125m vs 125.4m (est 135) with calendar shifting 20m into 2Q (OpInc was 101.1m vs 65.3m)
FY Outlook: Revs +2-3% (moderated from +2-4% due to other revenue), comps +4% (1 less week), OpInc 455-465m (raised low end by 10m), implies 4Q if 3Q at top end, Revs +0.3% to 1.68bn (est 1.65bn), OpInc 151-161m vs 140.6m, est 151.7m, FY26 SG&A target 25-26% vs 27.2% in FY24
1Q25 .34 vs .17, est .28 up from .24
May 29, 2024, P=24.05, TTM EPS=1.66, P/E=14X, FY25 P/E=14X
Revs +5.9% to 1.14bn (est 1.15bn), GM 40.6% vs 38.2%, OM 6.8% vs 4.1%
Aerie +3.8% to 372.7m, OM 16.5% vs 15.8%, AE +8% to 724.7m, OM 19.1% vs 15.97%
Stores +4%, Digital +12%, comps Aerie +6% (+11% ex swim), AE +7%, last year Aerie sold off some clearance inventory at a loss rather than selling in-house, normalizes in 2Q
Positioned for SG&A leverage for rest of year, not reverting back to previous promotions (BOGO jeans, etc).
Repurchased 1.5m shares for ~35m
Outlook: 2Q Revs +HSD (est +7.5%), OpInc 95-100m vs 65.3m, est 99m, implies EPS .42 vs .25, est .37, FY continues to expect OpInc 445-465m, FY guidance factors caution on 2H, mgmt. waiting to see July/August trends.
4Q24 .61 vs .37, est .50 up from .44, FY24 EPS 1.52 vs .97
Mar 7, 2024, P=23.45, TTM EPS=1.52, P/E=15X, FY25 P/E=15X
Revs +12.2% to 1.68bn (est 1.66bn), GM 37.3% vs 33.9%, OM 8.4% vs 6.4%
Revs approx +4% from extra week, Comps Aerie +13%, AE +6%
Aerie +15.9% to 537.5m, OM 16.2% vs 12.2%, AE +10.8% to 1.07bn, OM 17% vs 16%
Recorded 98m impairment and restructuring charge for Quiet Platforms as 3rd party has not met expectations, restructuring to serve their business, went from 3 large distribution centres (inefficient) to more regionalized fulfillment, lowered cost per order, improved inventory placement, delivery timing.
Inventories 640.7m vs 585.1m
Outlook: 1Q25 Revs +MSD, OpInc 65-70m vs 44.1m, implies EPS .27-.29 vs .17, est .24, FY25 Revs +2-4% (est +2.4%), OpInc 445-465m vs 375.4, implies EPS 1.77-1.85, est 1.59
3Y Outlook: Revs 5.7-6bn, OM ~10% (LSD growth at AE, M-HSD growth at Aerie with capability to meet higher demand seems conservative)
Plan approx 100 new Aerie and Offline stores over next 3 years. ~300 AE remodels over next 3-5 years, closed ~130 over past 3 years, probably close ~20 this year, also seeing opportunities for relocations, FY23 Digital sales hit 34%
Mid Quarter Update – Jan 8, 2024
4Q Revs to Dec 31st +8% with AE up HSD and Aerie +low teens
Raised 4Q Outlook amid “record holiday sales” to up low DD including 4 points from extra week. OpInc ~130m up from prior outlook 105-115m, record holiday sales, strong merch margins.
Mid Quarter Update – Dec 13, 2023
Raised dividend by 25% to 0.50, yield to 2.4%
3Q24 .49 vs .42 +17%, est .48 up from .39
Nov 21, 2023, P=19.75, TTM EPS=1.27, P/E=15.5X, FY25 P/E=14X
Revs +4.9% to 1.3bn (est 1.28, Store +3%, Digital +10%), GM 41.8% vs 38.7%, OM 9.6% vs 9.5%, OpInc 125.4m, top end of guide, OCF 136.5m vs 41.7m,
AE +2.4% to 857.4m (-2% vs pre-pandemic with better profitability), OM 21.5% vs 20.8%,
Aerie +12.4% to 393m (+114% vs pre-pandemic), OM 19.3% vs 16.2%
Quiet Revs -8m y/y but OpLoss improved 4m on better GP and lower opex
4Q Outlook: Revs +HSD (est +4%), OpInc 105-115m (vs 95.8m, est 113.8)
FY24 Outlook: Revs +MSD (prior guid +LSD), OpInc 340-350m (prior guid 325-350m)
Continued to identify “significant streams” for cost savings for next year to leverage both COGS and SG&A even if modest top line growth (ie SG&A expected flattish)
Will be doing a Spring Investor Day to update long-term growth plans.
AE focus shifting from improving profit over past few years to growth with focus on profit.
2Q24 .25 vs .04, est .15 down from .18
Sept 6, 2023, P=17.20, TTM EPS=1.23, P/E=14X
Revs +0.2% to 1.2bn (store +4%, Digital -7%), GM 37.7% vs 30.9%, OM 5.4% vs 1.2%
OpInc 65.3m crushed guidance of 25-35m
AE -1% to 767m, OM 16.8% vs 14.0%, Aerie +2% to 380m, OM 15.1% vs 3.2%
Aerie most businesses comps were up double digits, dragged down by swim and intimates, intimates started to turn positive after arrival of fresh merch.
Inventories -7% y/y, business picked up in June, July was best month as both AEO and Aerie comped positively and continued into August, digital turned positive in August. Aerie 3Q comps to date up double digit.
Digital margins comparable to store, still room for improvement with declining shipment costs and improving delivery times.
3Q23 Outlook: Revs +LSD, OpInc 115-125m vs 117.5m, top end implies EPS .47 vs .44, est .39
FY23 Outlook: Revs +LSD, OpInc 325-350 vs 269m, top end implies EPS ~1.30 vs .97, est 1.01
Outlook is still on the cautious side.
Mid-Quarter Update – Positive preannounced 2Q
Aug 3, 2023
Also announced COO retirement
2Q Revs expected flat (previously down LSD), OpInc to exceed guidance of 25-35m
1Q23 .17 vs .14 ex (.08) restructuring, est .17
May 24, 2023, P=12.07, TTM EPS=1.03, P/E=12X
Revs +2.5% to 1.08bn (est 1.07bn), GM 38.2% vs 36.8, OM 4.1% vs 4% ex 21.3m restr
AE -2.1% to 671m, OM 16% vs 15.2%, Aerie +11.6% to 359.1m, OM 15.8% vs 13.4%, brand operating profit +40% vs pre-pandemic, drag from Logistics business which they are working to improve results.
Store revs +5%, Digital -4%, markdowns remain below pre-pandemic levels, not planning on higher markdowns, inventories are clean.
Inv -8.4% y/y to 624.9m, +6.8% q/q, expect 2Q inventories to trend below sales
Trends softened recently in May, characterize 2Q outlook as cautious.
2Q Outlook: Revs -LSD, OpInc 25-35m (vs 14m last year but down from 44m in 1Q),
FY Outlook Revs flat to -LSD, OpInc 250-270m vs 269m last year, moderated from prior outlook 270-310m on cautious top line and lower than expected expense leverage.
Stock selling down to last year’s lows under $10 when EPS estimates for this year were <$1
4Q23 .37 vs .32, est .30 up from .22, FY23 EPS .97 vs 2.14
Mar 1, 2023, P=14.13, TTM EPS=0.97, P/E=14.5X
Reinstated div at .40, 2.8% yield
Revs -1% to 1.5bn (brands -2%, digital -9%), GM 33.9% vs 32.4%, OM 6.4%
Vs pre-pandemic, store +9%, digital +19%
Aerie +8% to 464m, OM 12.2% vs 5.3%, AE -8% to 962m, OM 15.97% vs 17.5%
Quiet OpLoss 13m, demand lower than expected on slower new customer acquisition, resetting costs. Quiet grew almost 40% in FY23 but lower than expected, still internally valuable.
AUR 2nd highest 4Q on record, -7% y/y, +20% vs 2019
Inventories +6% to 585m, AE and Aerie inventory -HSD, increase due to delivery timing
Outlook: 1Q Revs flat to +LSD, OpInc flat. FY24 “cautious view” Revs flat to +LSD, OpInc 270-310m (vs 269m), CapEx 150-190m down from 260m. Still focused on hitting 10+% OMs. Saw good trends in February, positive response to new merch, environment remains choppy.
Aerie was a bit softer than mgmt. expectations in intimates, launching more units and working to drive awareness and engagement, AE performed better, launched active wear sub-brand.
On one hand, FY24 OpInc outlook falls short from their targets set at 2021 Investor Day (Revs 5.5bn, OpInc 550m) but on the other hand the economic climate has changed and they’ve made good progress towards those targets (Aerie FY23 Revs 1.5bn vs 800m pre pandemic). Better margins and earnings are still a very real opportunity.
Mid-Quarter Update – Jan 9, 2023
4Q Revs and GMs tracking at high end of guidance
QTD Revs -3%, AE tracking slightly ahead of expectations, Aerie in line, Quiet Logistics adding +2% to Rev growth. GM expected at high end of 32-33% guidance, citing “controlled promotions” and strong inventory management. Inventory still expected to end down y/y.
3Q22 .42 vs .76 -45% vs .35 vs .48, est .22 down from .39
Nov 22, 2022, P=13.00, TTM EPS=0.97, P/E=13X, FY24 P/E=13X
Revs -2.6% to 1.24bn, +16% vs 36, GM 38.7% vs 44.3%, OM 9.5%
Aerie +11% to 350m, +90% vs 3y, OM 16.2% vs 16.5% vs 9.6% 3y
AE -11% to 838m, -4.3% vs 3y, OM 20.8% vs 27.8% vs 17.5% 3y
Store -4%, Digital -5%, vs 3Q19 Store +3%, Digital +35%
Product and freight costs easing but still elevated y/y, Quiet OpInc (10m) vs (9m) in 2Q, new stores not yet at average profitability
Inv +8% to 798m, continues to expect 4Q inv down y/y,
Quiet “providing significant operational efficiencies”, “third-party customer base is ramping up” “exploring different options to support future growth”.
Aerie eclipsed 10m customers for first time, all time high AUR(ASP), blended AUR only -5% vs last year, both brands up vs 2019.
4Q Outlook: Revs down MSD, comps similar to 3Q, GMs 32-33%, taking cautious view for likely a highly promotional Holiday Season”, expect Quiet profitability improvement q/q
Results still better than both GPS and ANF, ex last year, these were 2nd best 3Q results in >10y
Expect lower capex next year, lapping new store openings, cotton prices and freight tail wind, still see opportunities for better inventory productivity and flexibility in supply chain (faster turnaround times, shipping)
2Q22 .04 vs .64, Est .14 down from .39
Sept 7, 2022, P=11.59, TTM EPS=1.34, P/E=9X
Revs +0.3% to 1.198bn (+15% vs 3 years ago), GM 30.9% vs 42.1%, OM 1.2% vs 12.9%
Aerie +10.7% to 371.7m, +96% vs 3y, OM 3.2% vs 21% vs 9.6% 3y, OM pressured from new stores
AE -8% to 777.8m, -8% vs 3y, OM 14% vs 23.5% vs 17.9% 3y
Store -2%, digital -6%, vs 3 years ago Digital +60% and 33% of revs vs 24%
Inv +36% to 687m, units +22%, modest increase q/q, Markdowns hit GM 750bps, Quiet platforms contributed (9m) OpLoss, mgmt. says improved q/q.
Lead times reduced to be more flexible to changes in demand
Pausing dividend again
“Fully cleared through excess spring and summer goods”, clearance levels in line with last year, pulled back of fall receipts, undertaking further expense (100m vs 60m previous plan) and capex reductions
Ex 30m inv blowouts, higher supply chain costs (200bps), and Quiet (60bps), EPS would have been ~0.26, still lower than .34 in 2Q19 but above .19 in 2Q18
Outlook: QTD brand revs down HSD, expecting 3Q GM mid 30s and 4Q low 30s with high industry promotional activity, expect 2H SG&A flat vs prior plan up low-mid single digits. Expect 3Q inventories up MSD (and up q/q due to holiday seasonality), 4Q down double digits. See getting Aerie OMs back to double digit in 2H, likely EPS modest improvement from 2Q levels but not significant.
Disappointing results and 2H outlook but the opportunity remains compelling once conditions normalize, as long as the economy doesn’t significantly deteriorate although AEO is better positioned to whether a storm than some peers. The convert re-purchase and buyback turned out to be poorly timed, management was encouraged by improving trends in May and early June which deteriorated later in June.
Mid-Quarter Update – June 3, 2022
Locking in majority of the convert, Exchanging $136.1m (incl accrued int) and 34.7m shares for $342m of principal (effective conversion ~6.70 instead of 8.40)
Also accelerated repurchase of $200m to reduce dilution depending on price, already accounted for 13.4m shares or ~80% of expected repurchase. Net dilution maybe 15% if they close the rest below $13 factoring in more shares from the stub, possible 195m shares.
1Q23 .14 vs .47, -70%, est .25 down from .44
May 26, 2022, P=14.02, TTM EPS=1.71, P/E=8X, FY23 est 1.99 too high.
Revs +2% to 1.055bn (est 1.14bn), -1% ex acquisitions, +19% vs 3y Digital -6%. Vs pre-pandemic, store +1%, digital +48%
GM 36.8% vs 42.2% impacted by 340bps from freight costs, 120bps from logistics acquisitions, OM 4% vs 12.9% vs 5.6% 3y ago due to supply chain drag.
Aerie +8% to 322m, +105% vs 3y, OM 13.4% vs 23.5% vs 5.3% 3y ago
AE -6% to 686m, -5.4% vs 3y, OM 15.2% vs 20.8% vs 15.1% 3y ago
Inventories +46% to 682m, units +24%, mgmt. admits were too aggressive in inventory buying, supply chain improving but lead times still stretched, still expect lower cost in 2H, more than offsetting higher cotton costs in 4Q.
Supply chain business performed a bit better than their expectations.
Outlook: 2Q Rev trends similar to 1Q, GM ~33% with higher markdowns to clear spring inventory in 2Q. FY OpInc outlook >314m in FY20 (implies EPS>$1), Revs up LSD vs FY22, expect LSD opex growth, leaner inventories in 2H, square footage down MSD vs pre-pandemic.
Challenging environment, still reasonably profitable and will be more profitable once they lap air-freight, right-size inventories, balance sheet still very solid, lower share price can minimize dilution from the convert depending on action and timing.
4Q22 .32 vs .39 -18%, ex .03 other inc, est .35 down from .53, FY22 EPS 2.14 vs (0.13) vs 1.48
Mar 2, 2022, P=21.33, TTM EPS 2.14, P/E=9.9X, FY23 P/E=8.8X but est could be high
Revs +16.7% to 1.51bn, GM 32.4% vs 34%, 37.7% ex 80m extra freight, OM 6.1% vs 8.1%
Aerie +27.2% to 428m, OM 5.3% vs 14.3%, AE +10.6% to 1.04bn, OM 17.5% vs 15.4%
Vs 2y, Aerie +58.7%, AE +0.8%
Aerie margin hit hard due to concentration in closed Vietnam factories, expect margin headwinds through the year but “meaningfully” better margins than 4Q. AE margin improvement despite 300bps headwind.
AE SKUs down 30-40%, less unproductive inventory
Store Revs +32%, Digital -3% y/y but vs 2y, Store +4%, Digital +31%
Inv +37% to 553m partly reflecting higher freight costs and earlier Spring shipment
FY22 Digital sales 36% of total vs 29% in FY20.
FY23 Outlook: “cautious view”, Revs +mid-teens (est 7%) with 5-6% from new logistics business at breakeven profitability with dilutive 1H, accretive 2H, OpInc 550-600m vs 603m, decline “materially” in 1H (mid-High-SD OM), growth in 2H (low DD OM). Implies 1H EPS -41% to .62 and 2H EPS +30% to 1.41, FY23 EPS -5% to 2.03
Results and outlook better than ANF (Revs +3.5%, EPS -24%, outlook Revs +2-4%, EPS looks to substantially decline, possibly 2.75 vs 4.35), will see about GPS tomorrow.
Will be required to count all diluted shares from convert, not just equity-settled so diluted count will go to 227m but so far this appears just to be accounting, I’ll be using the equity-settled 206.5m.
Mid Quarter Update – Jan 11, 2021
Update 4Q Outlook and Raised 2023 Targets
4Q Revs up mid-to-high teen compared to last year, up mid-teens from 2 years ago to over $2bn. OpInc 90-100m (including ~80m in higher freight costs) which compares to 106m last year, sticking to 600m OpInc for the year, implies 4Q EPS ~0.35 which is well below est of .48 which is down from .53 but compares to .39 last year and would have been closer to .70 without freight costs.
Previous 2023 Targets: Revs 5.5bn, OpInc 550m (OM 10%)
New 2023 Targets: Revs 5.bn, OpInc 800m (OM 13.5%) compares to expected 600m this year so expect 33% growth over 2 years, solid but probably conservative – Aerie 2019-2023 CAGR high 20%, AEO slightly up at $3.6bn with better profitability.
From ICI Conference:
Starting with cleaner inventory than ever, seeing efficiencies throughout their P&L
Very excited about early results at OFFLINE, big opportunity.
Quiet enables better placement of inventory and faster replacement (a day or 2 vs a week or 2)
2023 outlook for AE could be conservative given expanded customer file, could be upside to margin target as well.
3Q22 .76 vs .35, est .61
Nov 23, 2021, P=27.46, TTM EPS=2.21, TTM P/E=12X, FY23 P/E=12X
Revs +24% to 1.27bn, +19.5% vs 2y (est 1.23), GM 44.3% vs 40.2%, OM 16.5% vs
AE 940.99m +21%, +7.6% vs 2y, OM 27.8% vs 20%, Aerie 315m +27.7%, +71% vs 2y, OM 16.5% vs 14.5%, Digital 35%, AE ~30%, Aerie ~50%
Store +29%, Digital +10%, vs pre-pandemic Store +9%, Digital +42%
Inventories +32% y/y to 740m, +47% q/q
Expect 70-80m impact in 4Q from higher freight costs (.26-.30 hit to EPS), still expect to “nicely exceed $600m operating income from the year”, 4Q est of .53 still looks low despite the costs, very solid implications for earnings power as shipping normalizes, will update longer-term targets in January.
Recent acquisitiosn of AirTerra and Quiet to not only enhance their logistics but to offer services to other retailers, turning a cost centre into a profit centre.
Fantastic results especially in light of the following peers for comparative purposes:
ANF Revs +10%, EPS +13% y/y, Revs +5% vs 2y
GPS Revs +5% to 3.9bn (est 4.4bn), Athleta +9.6%, EPS .27 vs .53, est .50, FY guid Revs +20%, EPS 1.40-1.45 implies 4Q Revs flat to 4.4bn (est 5.1bn), EPS (.20) to (.05), est .51
2Q22 .60 vs (.03) vs .39, est .55 up from .43
Sept 2, 2021, P=30.07, TTM EPS=1.73, TTM P/E=17X, FY23 P/E=13X
Revs +35% to 1.19bn (+19% vs 2y ex 40m Japanese license benefit in 2019), GM 42.1% vs 36.8% 2y, OM 14.1% vs 8.1% 2y, OpInc +98% vs 2y,
AE +35% to 846m (+5% vs 2y ex 40m Japanese license benefit), OM 23.5% vs 17.9% 2y
Aerie +34% to 336m (+77% vs 2y), OM 21.0% vs 12.1% vs 5.3%
Store revenue +73% y/y, online demand +9% but sales -5% due to shift last year from 1Q into 2Q. Pre-pandemic, stores +4%, Online +66%, Online sales 35% vs 25% pre-pandemic, still target >50% longer term. Mobile sales +>100% as they continue to improve the experience.
Aerie customer base +>20% YTD, existing customers spending more and buying more frequently.
CEO believes they could hit 600m OpInc this year, very optimistic on their supply chain efforts over the past 6 months, “out supply chain platform truly is a competitive advantage”. They secured capacity, moved production out of closed factories where possible. Supply chain sped up ~1.5 weeks vs previous and vs competitors. Regional hub-and-spoke inventory model driving efficiencies.
Acquired AirTerra to improve their logistics and can provide for other businesses as well, expect another announcement “in the next couple of months”.
Executing very well, driving solid growth, getting fantastic profitability on quality sales, not just chasing low-margin revenue.
For comparison:
GPS Revs +29% or +5% vs 2y to 4.2bn, OM 10.2%, EPS .70 vs .63 2y ago (est .43)
Athleta +35% vs 2y to 341m (8% of revs)
Mid Quarter Update – June 3, 2021
Raised dividend 31% to 0.72, yield=2.2%, record date July 9th.
1Q22 .48 vs (.84), est .46 up from .23
May 26, 2021, P=35.17, TTM EPS=1.14, P/E=30X, FY22 P/E=18X
Revs 1.03bn +16.5% vs 2 years ago, GM 42.2% vs 36.7% 2y, OM 12.9% vs 5.6% 2y, OpInc 133.4m vs 49m 2y, Inventories +2% vs 2y (Aerie up, AE down, lower clearance levels)
AE 727.7m +0.4% vs 2y, OM 20.8% vs 15.1% 2y, Aerie 297.5 +89% vs 2y, OM 23.5% vs 5.2% 2y
Digital sales 40% of total revs +57% vs 2y, Aerie +158%, AE +20% (all vs 2y)
Expect Aerie 2bn revs earlier than previously expected, expect to hit their FY23 goals THIS YEAR (EPS >$2?, est 1.95)
2Q trends still accelerating, doesn’t expect 42% GM but probably high 30s, still incremental improvements for lower rent dollars with more closures expected and lower negotiated rents.
Undertaking supply chain improvements they hopefully can discuss next quarter, employing new technologies to improve returns rate (improved customer experience) and process to speed cycle to resale.
Mid-Quarter Update – Apr 14, 2021
1Q pre-announcement
Business exceeding expectations, revs tracking >1bn (up mid-teens vs pre-covid, est 904m) as demand accelerated in BOTH brands,
Expect 1Q operating income ~120m vs 49m 2 years ago
4Q21 .39 vs .37 +5.4%, est=.36 up from .31
Mar 3, 2021, P=25.42, TTM EPS=(0.13), FY22 P/E=18X or 16X net of cash
Reinstated regular dividend @ .55, yield=2.2%
Revs -2% to 1.31bn, GM 34% vs 31%, OM 8.2% vs 5.8%, OpInc +38% to 106.2m
Aerie +25% to 337m, adj OM 14.3% vs 11.8%, OpInc +52% to 48m
AE -9% to 943m, adj OM 15.4% vs 10.9%, OpInc +29% to 145m
Digital revs +35%, store -20%, Aerie digital +25%, AE digital +20%
Inventories -9% to 405m, -21% at AE, Aerie +10%
CFO 213m, FY CFO 202m=1.21/sh, gross cash 850m, net cash 525.2m=3.16/sh
Lower rent expense partly offset by rising shipping costs/digital mix, incentive compensation
Mgmt expects 1Q to exceed 1Q last year and the year before, “conservatively” hopeful the year exceeds 2019 levels (2020 by my notation) when they delivered 1.48/sh, ests @ 1.41
Solid results, EPS growth would be higher except for the dilution of the converts which shouldn’t be as dilutive if they repay the principal with cash as they stated.
Mid-quarter Update and Investor Meeting – Jan 21, 2021
4Q Revs expected down LSD (est -0.1%), expect DD online growth across all brands
AE down LDD, AE up high 20% range
Adj Operating income>95m vs 77m last year (+23%), no EPS range given, EPS est -19%
Real Power Growth Plan: Target Revs 5.5bn, Aerie 2bn vs 800m in FY20, AE flat to FY20 (which is up about 30% from current levels), OpInc 550m vs 313.8m in FY20 (+75%), could drive EPS power of $2.60 or more, inventory discipline focused on merchandise margin (a change from in the past),
Aerie
While aerie targets 2bn revs by 2023, they see significant opportunity beyond that with 65b market, including expansion into activewear (Offline), lounging comfort apparel, swimwear (launched 5 years ago),
Aerie FY23 target 310m operating income up from 68m in 2019, OM 15.5% (in line with AE), opinc target sounds pretty conservative in terms of incremental profit margin flow-through
More than doubled customers since 2014, 60% growth in spend?
AE
Accelerate closures of locations, manage sales transition
Obtain rent reductions
Gain share
600-700 “optimal” store count vs 800 now, 52 closures in 2020, AE closures 200-220, opening aerie stores, expect lower absolute rent expense dollars.
Current pandemic, some markets at 25-50% capacity
95% of their stores are profitable, closure strategy isn’t just closing unprofitable stores, they’re looking at individual markets/saturation, stores with lower volume/productivity, where they can close some profitable stores and improve overall profitability/execution in that market being cognizant that stores are important.
Aerie store growth and digital growth, market penetration and expansion
Financial priorities
Invest in business, expect 250-275m annual capex
Maintain strong balance sheet
return capital to shareholders, buybacks/divs (no current div announcement)
3Q21 .35 vs .48 -27% est .34 up from .30, tax rate 35% vs 24%
Nov 24, 2020, P=17.79, TTM EPS=(0.15), FY21 P/E=15X
Revs -3% to 1.03bn (Aerie +34%, AE -11%), GM +200bps to 40.2%, (merch margins +500bps best GMs in years), OM 9.9% vs 9.7%, adj OpInc -0.6%, EPS down due to tax rate, limited promotional pricing
Online sales 37% of total, 45% YTD, Digital sales +29%, aerie +83%, AE +11%, with stores open digital sales continue to outpace pre-pandemic levels
Stronger full prices sales, “pleased with early holiday trends”, seeing some acceleration in Nov
Aerie customer acquisition +62% digital, +15% total, seeing some movement towards an older customer, AE customer engagement up, digital customer acquisition +23%
Inventories -13% y/y to 560m (down 30% or so at the store level) +33% q/q, going forward intend sales to outpace inventories, Cash 692m, still no divvy, intend to resume return of capital to investors as visibility improves.
Closing about 50 locations this year, will discuss strategy in January investor day
Solid results and execution in this environment, better results than GPS (opinc -20% and EPS down more despite lower tax rate), aerie considerably undervalued given its growth rate and scale (expect to exceed $1bn sales this year), should see significant leverage as they close certain loss-generating stores.
Mid Quarter Update
Piper Sandler’s annual teen survey found some interesting things during this pandemic. Apparel spending -11% y/y, American Eagle is 2nd popular brand following Nike (8% vs 10% last year), Victoria Secret fell from #13 to 22
2Q21 (.03) vs .39 ex .05 items vs .01 items, est (.16)
Sep 9, 2020, P=13.20, TTM EPS (.02), FY22 P/E=13X
Revs -15% tp 884m (Aerie +32%, ~30% of Revs, AE -26%), GM 30% vs 36.7%, adj OpInc 2 vs 85m, adj EBITDA 43m vs 131.9m, less promotional than 1Q
Store revs -43%, closures resulted in 32% fewer days
AEO digital orders +48%, Aerie +113%, AE +21%, Digital revs +74% due to 1Q shipping delays, Aerie +142%, AE +47%, Inventories -21% y/y to 421m, flat q/q, mgmt. says very clean/fresh, CFO 173m vs 109.9m
Digital penetration ~50%, Aerie almost 70%, Avg Store productivity ~85%, May/June up to 95%
Customer Acquisition: Aerie +22%, more than doubled online, AE significant new online customers
July/August historically highest volume months, mgmt. expects volumes to stretch further out, encouraged by current trends
Mgmt closely looking at lease expirations over the next couple of years
For comparison, GPS Revs -18%, GM 35.1% vs 38.9%, EPS (.17) vs .44, online +95%, stores -48%, online ~50% of total sales, at Aug 1 ~90% of stores re-opened, added 3.5m new online customers, Old Navy -5%, Gap -28%, Banana -52%, Athleta +6% and 8% of total Revs.
1Q21 (.84) vs .24 ex restr and impairments, est (.29)
June 3, 2020, P=10.29, TTM EPS 0.40, P/E=26X, FY21 P/E=69X
Revs -38% to 552m (AE -45%, Aerie -2%), GM 5.1% vs 36.7%, adj OpInc (203m) vs 49m
DigitDigital orders +33% (accelerated to almost +70% after stores closed), AE +15%, Aerie +75%, digital Revs +9% due to shipments delayed into 2Q due to cleaning shutdowns (rev rec on shipment), backlogs improved from April peak
So far in 2Q, Aerie digital sales >+100%, AE ~+50%
Inventory -8% to 422m, continuing to clear spring/summer merch for new back-to-school items in late July
Do not anticipate declaring dividend for remainder of year, 1Q dividend previously deferred into 2021.
Reopened stores recapturing 95% of last year’s sale, digital remained strong even at stores which have opened, saw solid new customer acquisition,
Expect 2Q significantly better top and bottom line than 1Q, less promotional so far, 2Q cash consumption expect to be much lower than 1Q
856m gross cash, 242.8m net or 1.46/sh, additional 84.7m in non-cash NWC incl 328m in current operating leases
FY21 est .15 down from 1.20, FY22 est .87
Mid Quarter Update – April 22, 2020
CFO leaving the company immediately, staying on as an advisor until September, new CFO internal hire.
Announced $400m convertible bond offering, market cap 1.2bn. Pays 3.75%, due 2025, convertible at $8.75. Also announced that online sales have accelerated but providing no further insight beyond coming quarter will be adversely impacted, company will have cash to last beyond “fiscal 2020” although they just closed FY20.
Have drawn 330m of 400m revolver, have 490m cash including revolver.. 10K indicated 410m cash at Feb 1st, appears they burned through significant cash (250m) since Feb 1st, combination of rents and other payables most likely.
4Q20 .37 vs .43 -14% ex .40 items, FY20 EPS 1.48 vs 1.48
Revs +6% to 1.31bn , GM 31% vs 34.6%, adj OM 5.8% vs 8.2%
Comp sales +2% on top of +6% last year, 20th consecutive quarter of positive comps.
AE -3%, Aerie +26%