Renowned specialty apparel designer American Eagle Outfitters, Inc. (AEO), which is headquartered in Pittsburgh, Pa., has been one of the best performing apparel retailers over the past few months, as evidenced by its record last quarter results. The company successfully navigated supply chain disruptions to boost its sales. 

AEO’s total consolidated ending inventory at cost improved 32.1% year-over-year to $739.81 million as of October 31, 2021.

Shares of AEO have gained 38% in price year-to-date, outperforming the benchmark S&P 500 index’s 24.8% returns over this period. Furthermore, the stock has gained 5.4% over the past month, at a time when the S&P 500 index declined marginally.

Click here to checkout our Retail Industry Report for 2021

Here is what could shape AEO’s performance in the near term:

Inorganic Growth Opportunities

On November 2, AEO agreed to acquire Quiet Logistics for $350 million in cash. This follows AEO’s recent acquisition of logistics start-up AirTerra in August 2021.

The Quiet Logistics acquisition is expected to facilitate AEO’s continued growth by providing advanced logistics capabilities to boost the latter’s customer base. Regarding this, AEO CEO and Executive Chairman Jay Schottenstein said, “Quiet Logistics has provided significant benefits to AEO over the past year, and we are leveraging our healthy cash position to ensure ongoing advantages. Also, as we continue to expand these services to other brands and retailers, we believe the business will scale, generating incremental value for our shareholders.”

Impressive Third Quarter Results

AEO’s revenues increased 24% year-over-year to a record $2.42 billion in its fiscal third quarter, ended October 30, 2021. This can be attributed to a 29% rise in consolidated store revenue and a 10% rise in digital revenue. Its gross profit came in at $565 million, up 36% from the same period last year. Its operating income improved 118.8% from the prior-year quarter to $210 million. Its  operating margin stood at 16.5%, the highest rate since 2007. And its net income and EPS increased 162% and 131.3%, respectively, from their year-ago values to $152.22 million and $0.74. And AEO surpassed the $0.61 consensus EPS estimate by 21.3%.

Consensus Rating and Price Target Indicate Potential Upside

Of the five Wall Street analysts that rated AEO, two rated it Buy, and three rated it Hold. The $34.60 12-month median price target indicates a potential 25.7% potential upside. The price target ranges from a low of $28.00 to a high of $45.00.

POWR Ratings Reflect Rosy Prospects

AEO has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

AEO has a Momentum grade of A and a Quality grade of B. The stock is currently trading above its 50-day and 200-day moving averages of $25.92 and $30.84, respectively, indicating an uptrend, in sync with its Momentum grade. Furthermore, AEO’s 40.52% trailing-12-month gross profit margin is 13.1% higher than the 35.82% industry average, justifying the Quality grade.

Of the 63 stocks in the A-rated Fashion & Luxury industry, AEO is ranked #36.

Beyond what we have stated above, we have rated AEO for Growth, Value, Stability, and Sentiment. Get all AEO ratings here.

Bottom Line

AEO’s substantial inventory levels and increasing customer base should boost its sales and profit margins this earnings season. Analysts expect the company’s revenues and EPS to rise 21.4% and 20.5%, respectively, year-over-year to $1.57 billion and $0.47in its fiscal fourth quarter (ending January 2022). Thus, we think AEO could deliver substantial returns on investment (ROI) in the coming months, making it an ideal investment bet.

How American Eagle Outfitters, Inc. (AEO) Stack Up Against its Peers?

While AEO has a B rating in our proprietary rating system, one might want to consider looking at its industry peers Hugo Boss AG (BOSSY), Shoe Carnival, Inc. (SCVL), and Caleres, Inc. (CAL), which have an A (Strong Buy) rating.

Click here to checkout our Retail Industry Report for 2021

AEO shares were trading at $27.14 per share on Thursday afternoon, down $0.56 (-2.02%). Year-to-date, AEO has gained 37.58%, versus a 26.34% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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