The AerieReal Summit in New York City on International Women's Day (Mar. 8) was sold out, despite growing fears around the COVID-19 coronavirus outbreak. Only one day earlier, New York governor Andrew Cuomo announced a state of emergency for the region. The impressive attendance at Aerie's event shows how much brand power and customer loyalty the lifestyle retailer has developed. The success of this segment is one of the key growth drivers of its parent company, American Eagle (NYSE:AEO).

With the retail space and the overall market suffering from the numerous disruptions and recent public health warnings, what should investors focus on when evaluating American Eagle's stock and business outlook?

AerieReal event speakers

Image Source: American Eagle.

Recent results and outlook

During its fourth-quarter earnings report (for the quarter ended Feb. 1, 2020), the company's adjusted earnings came in at $0.37 per share, slightly higher than analysts' expectations of $0.36. These non-GAAP figures excluded impairment and restructuring charges. Revenue for the quarter increased 5.7% year over year to $1.31 billion.

In a challenging retail space, American Eagle continues to steadily grow its business. Comparable sales for the quarter rose 2%, which marks 20 consecutive quarters of expansion, and 2019 was the fifth straight year of comparable-sales growth. While the American Eagle brand's comparable sales actually declined 3% in the fourth quarter due to softer demand in tops, Aerie's comparable sales more than made up for it with 26% growth. For the fiscal first quarter, the company is guiding to comparable sales growth in the low single digits.

Aerie leadership and marketing driving results

Competitors such as Abercrombie and Fitch and Victoria's Secret have since introduced marketing and brand messaging stressing body positivity, empowerment, and inclusivity. But Aerie was a pioneer and the first to use non-models whose images were not airbrushed back in 2014. At the time, this was unheard of in the lingerie and lifestyle space. Victoria's Secret was getting a lot of publicity for its annual fashion show, which was cancelled in 2019, following steep drops in ratings and viewers.

Now, Aerie continues to be innovative with the launch of its AerieReal community event, which brought its role models out to meet with the local community. It was a big hit, and American Eagle plans to host similar events in the future, such as AerieReal Talks in its stores, and to expand the summit to other cities and college campuses.

American Eagle and Aerie's branding continues to resonate with the company's millennial and teen audience. American Eagle has come in second place for favorite apparel brands in every one of Piper Jaffray's Taking Stock with Teens surveys since spring 2018, the most recent one being the fall 2019 report.

American Eagle will ride out the COVID-19 turbulence

On its Mar. 4 earnings call, CFO Robert Madore noted that, "[W]e're working with our sourcing partners on migrations and currently do not anticipate any near-term supply chain disruptions. As you know, the situation remains fluid and could create ongoing uncertainty. What we know today is reflected in our first-quarter guidance."

While the impact of COVID-19 and its ripple effects will likely have a negative impact on consumer-discretionary spending in the near term, American Eagle's robust position within retail and its brand strength should allow it to resume its growth trajectory once the outbreak subsides.

Furthermore, the teen-focused retailer is in a strong financial position, ending 2019 with no debt and $417 million in cash and short-term investments. This will also allow the company to better navigate any additional challenges around consumer spending and demand in 2020.

American Eagle has emerged as a leader among specialty retailers. While some competitors may struggle in the current environment, the company's branding, execution, and balance sheet should see it safely through the current volatility.