Young adult apparel retailer American Eagle Outfitters (NYSE:AEO) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 12.2% year on year to $1.68 billion. It made a non-GAAP profit of $0.61 per share, improving from its profit of $0.37 per share in the same quarter last year.
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American Eagle (AEO) Q4 FY2023 Highlights:
- Revenue: $1.68 billion vs analyst estimates of $1.67 billion (small beat)
- EPS (non-GAAP): $0.61 vs analyst estimates of $0.50 (20.9% beat)
- Gross Margin (GAAP): 36.6%, up from 33.9% in the same quarter last year
- Store Locations: 1,182 at quarter end, increasing by 7 over the last 12 months
- Market Capitalization: $4.63 billion
With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
Apparel RetailerApparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
Sales GrowthAmerican Eagle is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it's growing off a smaller base than its larger counterparts.
As you can see below, the company's annualized revenue growth rate of 5.1% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak , but to its credit, it opened new stores and expanded its reach.
This quarter, American Eagle's year-on-year revenue growth clocked in at 12.2%, and its $1.68 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, a deceleration from this quarter.
Same-Store SalesA company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
American Eagle's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 3.9% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
Key Takeaways from American Eagle's Q4 Results
We enjoyed seeing American Eagle exceed analysts' revenue and EPS expectations this quarter. Outperformance was driven by its Aerie brand, which saw same-store sales growth of 13% compared to 6% for the flagship American Eagle brand, which is still good.
Looking ahead, management expects revenue to rise by 3% in the full year 2024, falling short of analysts' estimates. However, its forecasted full-year operating income of $455 million easily cleared analysts' expectations of $362 million.
Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 12.1% after reporting and currently trades at $26.3 per share.