American Eagle Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen retailer American Eagle Outfitters (NYSE: AEO  ) were being sent away from the cool-kids table today. Investors pushed the stock down as much as 14% after a disappointing earnings report.

So what: If you've had your eyes on the teen retail space in general, it's a lot of the same old story here. Results were ugly, and management is cautious about the upcoming quarters. Total sales for the second quarter were up 4% from last year, but higher product costs and selling and administrative spending helped push earnings per share down 23% to $0.10. Wall Street analysts were looking for $0.11 in per-share profit on $651 million in sales.

As for guidance, management projected an earnings-per-share range of $0.22 to $0.27 for the third quarter and $0.85 to $0.95 for the full year. Average analyst estimates of $0.27 and $0.94, respectively, fall in those ranges, but at the upper ends.

Now what: What is there to say, really? American Eagle is getting it from all sides -- the sluggish economy is dousing cold water on consumers' shopping passion while rising commodity prices are pushing up costs. Meanwhile, the company still has to stay competitive in a crowded space that includes Aeropostale (NYSE: ARO  ) and Abercrombie & Fitch (NYSE: ANF  ) . This is going to be an uphill battle.

If we're looking for a bright spot, American Eagle still has a fantastic balance sheet with more than $500 million in cash and investments and no debt. Also, as the stock's price continues to fall, its dividend yield continues to rise. Right now the stock sports a near-4% yield.

Want to keep up to date on these stocks?

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