American Eagle (AEO) Q3 Earnings Beat, Q4 View Hurt Stock

American Eagle Outfitters, Inc. (AEO - Free Report) declined nearly 5% on Dec 11 as investors remain cautious of the company’s holiday quarter (fourth-quarter fiscal 2018) guidance, which lagged analysts’ expectations. Further, lower-than-expected sales numbers for third-quarter fiscal 2018 hurt sentiments. Nonetheless, top line grew year over year, backed by strength in both American Eagle (“AE”) and Aerie brands, as well as across stores and digital channels, with lesser promotions.

Additionally, the company delivered solid bottom line results, which beat estimates and improved year over year. This marked the third consecutive quarter of an earnings beat. Despite recording a miss in the fiscal third quarter, sales have topped estimates in three of the last four quarters.

Overall, this Zacks Rank #3 (Hold) stock descended 27.8% in the last three months, wider than the industry’s 17.2% decline. This was mostly due to soft projections for the fiscal third quarter, which were announced during fiscal second-quarter results.

Q3 Highlights

Quarterly earnings of 48 cents per share rose 29.7% from adjusted earnings of 37 cents recorded in the prior-year quarter and beat the Zacks Consensus Estimate of 47 cents. Earnings also surged 33.3% year over year from GAAP earnings of 36 cents per share in the year-ago quarter.

American Eagle Outfitters, Inc. Price, Consensus and EPS Surprise

Net revenues increased 4.5% year over year to $1,003.7 million, marking record sales and the company’s first $1-billion quarter. However, top line lagged the Zacks Consensus Estimate of $1,036 million. Year-over-year growth was driven by well-executed fall season for both American Eagle (“AE”) and Aerie brands. This led to robust sales across stores and digital channels, with less promotional activity.

Nonetheless, a shift of the 2018 retail calendar (moving of back-to-school week to the second quarter in fiscal 2018) resulted in $40 million lesser sales in the fiscal third quarter. This shift in revenues unfavorably impacted operating income in the fiscal third quarter.

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