Today's stock selection:
AEO AMERICAN EAGLE OUTFITTERS
Inspired by:
S&P Outlook
Shares in American Eagle Outfitters fell 23.9% through June 12 vs. a 0.7 loss in the S&P MidCap 400.
We reiterated our strong buy recommendation on May 28 after this youth apparel retailer reported April-quarter
earnings of $0.21 a share, above our estimate, vs. $0.35 a year ago. Though the company reported a
3% same-store sales gain for menswear, it was offset by an 11% comparable decline in women’s, which
was hurt by weak denim and accessories sales. Overall, the company reported a 6% drop in comparable
store sales, and a 750-basis point contraction in the gross margin. E-commerce
sales rose 29%. With a new women’s designer, new denim fits and styles for Back-to- School, and a greater emphasis on fashion, we see gradual improvement over fiscal 2009 (ending January).
Risks to our recommendation and target price include fashion, inventory
and markdown risk, declines in consumer spending, and the failure of new business initiatives.
We believe companies with strong brands, differentiated products, superior customer service, and attractive price-value propositions are likely to outperform their peers.
$16.84 (06/18/08)
