American Eagle Outfitters (NYSE: AEO) reported comps for March yesterday that blew away analyst expectations. Sales increased 20% in stores open more than one year, though this was mainly due to an early holiday season this year. To adjust for the Easter effect, management counseled investors to consider comps for both March and April on a combined basis. The forecast is for low double-digit appreciation in the metric for the two-month period.
Nevertheless, American Eagle is doing superbly right now. Sure, the 20% gain won't happen every month, but it sure is nice to see that the retailer knows how to monetize a holiday season, isn't it? And it was one of the better Easter comp reports out there. Target (NYSE: TGT) achieved a 12% gain for March, Hot Topic (Nasdaq: HOTT) did 3.4%, and Zumiez (Nasdaq: ZUMZ) achieved a 17% improvement.
A lot of youthful consumers apparently find American Eagle quite fashionable. The chain reported a killer fourth quarter last month with revenues up 27%, and both net profit and earnings per share increasing an impressive 40%. We all know that retailers have to watch margins carefully, so it was a delight to see that American Eagle was able to increase its performance in this area.
And the momentum continues. American Eagle upped its guidance, calling for first-quarter earnings to be between $0.34 and $0.35 per share. If this revised target is met, shareholders can smile upon a cool 25% bottom-line gain. Another positive to this story can be found in the cash-flow statement attached to the latest 10-K. In 2005, 2006, and 2007, American Eagle generated operational cash flows of $378 million, $465 million, and $749 million, respectively. The 2007 figure may have been slightly skewed by a securities sale worth roughly $184 million, but no matter how you slice it, earnings and cash flow have been on the rise.
American Eagle's fundamentals are flying high at the moment, thriving in a competitive mall environment that includes Abercrombie & Fitch (NYSE: ANF), Gap (NYSE: GPS), and Aeropostale (NYSE: ARO). How long will it last? That's always a difficult prediction to make with a popularity-oriented business, but from the looks of the recent revenue growth, it seems to be on the ball in terms of trends. With its strong financial performance and optimistic outlook by management and analysts, American Eagle is a good stock idea to look at, especially on pullbacks.
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Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 12,525 out of 26,430 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
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