American Eagle (AEO) Shares Tank 13% On Bleak Guidance, Store Closings

Shares of American Eagle Outfitters (NYSE:AEO) plummeted on Wednesday after the clothing retailer reported its first quarter earnings. But the previous quarter proved not to be the issue. Instead, it’s American Eagle’s forecast that has investors jumping ship.

American Eagle, like many other American mall staples, faces an uphill battle in the fight to remain relevant and profitable as e-commerce websites continue to proliferate. "We are looking to get more aggressive with store closings," American Eagle CFO Bob Madore said on a conference call with analysts Wednesday. "We've been experimenting with closures of stores where we're really able to track sales migration."

Wednesday’s earnings report noted that the teen-based retailer’s management plans to close between 25 and 40 stores in 2017. “As we look ahead, we are taking the right steps to improve our results and adjust our business for today’s rapidly evolving retail environment,” CEO Jay Schottenstein said on the same call.

The company’s stock price dropped 12.96% in early afternoon trading to a three-year low. Shares of American Eagle are changing hands at a substantial rate. Wednesday’s trading volume of 17 million is way above its average of 4.7 million. It is normal for a company’s stock to be traded heavily in the days before and after it reports earnings. But with the stock tanking based on a grim outlook, things don’t look great for the struggling brand.

American Eagle beat the Zacks Consensus Estimate of $744 million by posting revenues of $762 million. The company just narrowly missed our earnings estimates. But that slightly positive news seems to be on the backburner with American Eagle’s dismal second quarter forecast.

Competition has forced the retailer to offer deep discounts and eat excess online shipping costs. Therefore, American Eagle projects its second quarter sales to be flat or even decline by “low single” digits.

The Pittsburgh, Pennsylvania-based retailer even reportedly closed a location in January just a few blocks away from its corporate headquarters.

Malls

American Eagle operates heavily in shopping malls where the industry’s once slow decline has transitioned into rapid decay. According to a Business Insiderarticle,334 malls across the country are at risk of closing—out of the roughly 1,300 enclosed shopping malls in the U.S.

Once-powerful mall retailer J.C. Penney (NYSE:JCP) in March announced it would soon close 138 stores. Sears Holdings (NASDAQ:SHLD) plans to close 42 Sears’ locations, and Macy's (NYSE:M) provided a list of 68 stores it is set to close by mid-year. On top of those, American Eagle competitors The Limited and Bebe (NASDAQ:BEBE) both have closed down all of their brick-and-mortar stores, while Abercrombie & Fitch (NYSE:ANF) is also closing a large number of locations.

Some of the biggest mall-based Real Estate Investment Trust (REIT) stocks are also down on Wednesday. Shares of The Macerich Company (NYSE:M) , Real Estate Investment Trust (NYSE:PEI) , and Ramco-Gershenson Properties Trust (NYSE:RPT) fell marginally, while Chattanooga, Tennessee-based CBL & Associates Properties, Inc. (NYSE:CBL) dropped by 3.36%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>