Will American Eagle's Strategic Initiatives and Brand Expansions Aid?

American Eagle Outfitters, Inc.AEO is actively executing its strategic initiatives, aimed at driving long-term growth, enhancing operational efficiency and improving agility. The company has been investing in its digital platform to grow its e-commerce business and enrich customer experience. AEO has been witnessing a spectacular response to its Aerie brand for quite some time.

The company is focused on building brand awareness and expanding into new categories. The ongoing momentum and market share growth in OFFL/NE Activewear are Aerie’s most promising long-term growth drivers.  AEO is focused on reinvigorating the brand’s growth. During the second quarter of fiscal 2025, revenues at Aerie jumped 3.2% year over year while the brand’s comparable store sales (comps) rose 3%. We expect sales for Aerie to increase 4.1% for the third quarter and 1.3% year over year for fiscal 2025. 

The company is prioritizing investments across its digital channel, with foundational improvements to the shopping experience. It focuses on optimizing its store fleet to ensure the best locations, offering a seamless customer experience and tapping into additional growth opportunities. This year, the company is on track to open approximately 30 Aerie and offline locations and remodel 40-50 AE stores to feature a modern design. It anticipates shutting down 35-40 American Eagle locations by the end of the year.

The company has also been making inventory-management efforts. AEO has been navigating tariffs and implementing several mitigation strategies, involving partnering with its sourcing vendors to cut costs. Additionally, the company is diversifying its supply chain and focusing on reducing its sourcing exposure to China. It is focused on building upon its sales momentum, managing costs and making continued improvements to deliver profitability. For the third and fourth quarters of fiscal 2025, the company expects comps to rise in the low single digits.

AEO’s Price Performance, Valuation and Estimates

American Eagle’s shares have lost 6.8% year to date compared with the industry’s 11.6% decline.

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From a valuation standpoint, AEO trades at a forward price-to-earnings ratio of 12.22X compared with the industry’s average of 17.7X.

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The Zacks Consensus Estimate for AEO’s fiscal 2025 earnings per share (EPS) indicates a year-over-year decline of 37.4% while that of fiscal 2026 shows growth of 25.1%. The company’s EPS estimate for fiscal 2025 and fiscal 2026 has moved north in the past 30 days.

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American Eagle currently carries a Zacks Rank #3 (Hold).

Eye These Solid Picks in Retail

Levi Strauss & Co.LEVI, designer and marketer of jeans, casual wear and related accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The consensus estimate for Levi Strauss’ current financial-year EPS indicates growth of 4% from the year-ago figure. LEVI delivered an average earnings surprise of 25.9% in the trailing four quarters.

Genesco Inc. GCO operates as a retailer and wholesaler of footwear, apparel and accessories, carrying a Zacks Rank #2 (Buy) at present. GCO delivered a trailing four-quarter earnings surprise of 32.4%, on average.

The Zacks Consensus Estimate for Genesco’s current fiscal-year EPS and sales indicates growth of 71.3% and 3.7%, respectively, from the year-ago period’s reported figures.

Allbirds, Inc.BIRD, a lifestyle brand, currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 20.7%, on average.

The Zacks Consensus Estimate for BIRD’s current financial-year EPS indicates growth of 18% from the year-ago figure. 

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This article originally published on Zacks Investment Research (zacks.com).

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